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Concept explainers
1.
Prepare the
Adjusting entries: Adjusting entries are those entries which are recorded at the end of the year, to update the income statement accounts (revenue and expenses) and
1.
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Explanation of Solution
Prepare the adjusting entries as of 31st December 2017.
a. Prepare the adjusting entries to record the cost of supplies used.
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
December 31 | Office supplies expense | 14,846 | ||
Office supplies(1) | 14,486 | |||
(To record the adjusting entry for cost of supplies used) |
Table (1)
- Office supplies expense is an expense account and it is increased. Therefore, debit office supplies expense with $14,846.
- Office supplies are an asset account and it is decreased. Therefore, credit office supplies with $14,846.
Working note:
Calculate the amount of supplies used.
b. Prepare the adjusting entry to record the annual insurance coverage cost.
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
December 31 | Insurance expense | 7,120 | ||
Prepaid insurance (2) | 7,120 | |||
(To record the adjusting entry for annual insurance coverage cost) |
Table (2)
- Insurance expense is an expense account and it is increased. Therefore, debit Insurance expense with $7,120.
- Prepaid insurance is an asset account and it is decreased. Therefore, credit prepaid insurance with $7,120.
Working note:
Calculate the amount of prepaid insurance.
Policy | Cost | Calculate the cost per month | Cost per month | Months Active in 2017 | Cost for 2017 |
A | $14,400 | $600 | 3 | $1,800 | |
B | $12,960 | $360 | 12 | $4,320 | |
C | $2,400 | $200 | 5 | $1,000 | |
Total | $7,120 |
Table (3) (2)
Note: Cost for 2017 is calculated by multiplying Cost per month and number of months active in 2017.
c. Prepare the adjusting entry to record the unpaid wages.
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
December 31 | Salaries expense | 3,920 | ||
Salaries payable (3) | 3,920 | |||
(To record the adjusting entry unpaid wages) |
Table (4)
- Salaries expense is an expense account and it is increased. Therefore, debit Salaries expense with $3,920.
- Salaries payable is a liability account and it is increased. Therefore, credit salaries payable with $3,920.
Working note:
Calculate the amount of salaries payable.
4. Prepare the adjusting entry to record the annual
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
December 31 | Depreciation expense, Building | 30,500 | ||
30,500 | ||||
(To record the adjusting entry annual depreciation expense) |
Table (5)
- Depreciation is an expense account and it is increased. Therefore, debit depreciation expense with $30,500.
- Accumulated depreciation is a contra-asset and it decreases the value of asset. Therefore, credit accumulated depreciation account with $30,500.
Working note:
Calculate the amount of annual depreciation expense:
e. Prepare the adjusting entry to record the unpaid December rent.
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
December 31 | Rent receivable | 3,000 | ||
Rent revenue | 3,000 | |||
(To record the adjusting entry for rent earned but unpaid for December rent) |
Table (6)
- Rent receivable is an asset and it is increased. Therefore, debit rent receivable with $3,000.
- Rent revenue is a revenue account and it is increased. Therefore, credit rent earned with $3,000.
f. Prepare the adjusting entry to record the unearned rent for November and December.
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
December 31 | Unearned rent revenue (5) | 5,600 | ||
Rent revenue | 5,600 | |||
(To record the adjusting entry for unearned rent for November and December) |
Table (7)
- Unearned rent revenue is a liability and it is decreased. Therefore, debit unearned rent revenue with $5,600.
- Rent revenue is a revenue account and it is increased. Therefore, credit rent earned with $5,600.
Working note:
Calculate the amount of revenue earned for November and December.
2.
Prepare the journal entries to record the first subsequent cash transaction for c and e.
2.
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Explanation of Solution
Prepare the journal entry to record the cash payment made for (c):
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
January 6 | Salaries payable | 3,920 | ||
Salaries expense(6) | 5,880 | |||
Cash | 9,800 | |||
(To record the payment of accrued and current salaries) |
Table (8)
- Salaries payable is a liability and it is decreased. Therefore, debit salaries payable with $3,920.
- Salaries expense is an expense account and it is increased. Therefore, debit Salaries expense with $5,880.
- Cash is an asset account and it is decreased. Therefore, credit cash with $9,800.
Working note:
Prepare the journal entry to record the amount of rent due for past two months.
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
January 15 | Cash | 6,000 | ||
Rent receivable | 3,000 | |||
Rent revenue | 3,000 | |||
(To record the payment of amount of rent due for two months) |
Table (9)
- Cash is an asset account and it is increased. Therefore, debit cash with $6,000.
- Rent revenue is a revenue account and it is increased. Therefore, credit rent earned with $3,000.
- Rent receivable is an asset and it is decreased. Therefore, credit rent receivable with $3,000.
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