Principles of Financial Accounting.
Principles of Financial Accounting.
24th Edition
ISBN: 9781260158625
Author: Wild
Publisher: MCG
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Chapter 3, Problem 2BP

1.

To determine

Prepare the adjusting entries as of 31st October 2019.

1.

Expert Solution
Check Mark

Explanation of Solution

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 balance sheet accounts (assets, liabilities, and stockholders’ equity) to maintain the records according to accrual basis principle.

Prepare the adjusting entries as of 31st October 2019.

a. Prepare the adjusting entries to record the cost of supplies used.

DateAccounts title and explanationPost Ref.

Debit

($)

Credit

($)

October 31Office supplies expense4,370
Office supplies (1)4,370
(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 $4,370.
  • Office supplies are an asset account and it is decreased. Therefore, credit office supplies with $4,370.

Working note:

Calculate the amount of supplies used.

Supplies used=Opening balance+PurchasesSupplies in hand=$600+$4,570$800=$4,370 (1)

b. Prepare the adjusting entry to record the annual insurance coverage cost.

DateAccounts title and explanationPost Ref.

Debit

($)

Credit

($)

October 31Insurance expense4,730
Prepaid insurance (2)4,730
(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 $4,730.
  • Prepaid insurance is an asset account and it is decreased. Therefore, credit prepaid insurance with $4,730.

Working note:

Calculate the amount of prepaid insurance.

PolicyCostCalculate the cost per monthCost per monthMonths Active in 2019Cost for 2019
A$6,000($6,00024Months)$25012$3,000
B$7,200($7,20036Months)$2007$1,400
C$1,320($1,32012Months)$1103$330
Total$4,730

Table (3) (2)

Note: Cost for 2019 is calculated by multiplying Cost per month and number of months active in 2019.

c. Prepare the adjusting entry to record the unpaid wages.

DateAccounts title and explanationPost Ref.

Debit

($)

Credit

($)

October 31Salaries expense1,000
Salaries payable (3)1,000
(To record the adjusting entry unpaid wages)

Table (4)

  • Salaries expense is an expense account and it is increased. Therefore, debit Salaries expense with $1,000.
  • Salaries payable is a liability account and it is increased. Therefore, credit salaries payable with $1,000.

Working note:

Calculate the amount of salaries payable.

Salaries payable=Number of days×Total amount=1Day×$1,000=$1,000 (3)

d. Prepare the adjusting entry to record the annual depreciation expense.

DateAccounts title and explanationPost Ref.

Debit

($)

Credit

($)

October 31Depreciation expense, Building5,400
Accumulated depreciation, Building (4)5,400
(To record the adjusting entry annual depreciation expense)

Table (5)

  • Depreciation is an expense account and it is increased. Therefore, debit depreciation expense with $5,400.
  • Accumulated depreciation is a contra-asset and it decreases the value of asset. Therefore, credit accumulated depreciation account with $5,400.

Working note:

Calculate the amount of annual depreciation expense:

Annual depreciation expense=(Cost of the assetSalvage valueEstimated life of the asset)=$175,000$40,00025Years=$5,400 (4)

e. Prepare the adjusting entry to record the unpaid October rent.

DateAccounts title and explanationPost Ref.

Debit

($)

Credit

($)

October 31Rent receivable1,000
Rent revenue1,000
(To record the adjusting entry for rent earned but unpaid for October rent)

Table (6)

  • Rent receivable is an asset and it is increased. Therefore, debit rent receivable with $1,000.
  • Rent revenue is a revenue account and it is increased. Therefore, credit rent earned with $1,000.

f. Prepare the adjusting entry to record the unearned rent for November and October.

DateAccounts title and explanationPost Ref.

Debit

($)

Credit

($)

October 31Unearned rent revenue (5)1,450
Rent revenue 1,450
(To record the adjusting entry for unearned rent for November and October)

Table (7)

  • Unearned rent revenue is a liability and it is decreased. Therefore, debit unearned rent revenue with $1,450
  • Rent revenue is a revenue account and it is increased. Therefore, credit rent earned with $1,450.

Working note:

Calculate the amount of revenue earned for November and October.

Rent earned=Number of months×Rent per month=2Months×$725=$1,450 (5)

2.

To determine

Prepare the journal entries to record the first subsequent cash transaction for c and e.

2.

Expert Solution
Check Mark

Explanation of Solution

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Prepare the journal entry to record the cash payment made for (c):

DateAccounts title and explanationPost Ref.

Debit

($)

Credit

($)

November 7Salaries payable1,000
Salaries expense (6)4,000
Cash5,000
(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 $1,000.
  • Salaries expense is an expense account and it is increased. Therefore, debit Salaries expense with $4,000.
  • Cash is an asset account and it is decreased. Therefore, credit cash with $5,000.

Working note:

Salaries expense=Number of days×Total salaries=4Days×$1,000=4,000 (6)

Prepare the journal entry to record the amount of rent due for past two months.

DateAccounts title and explanationPost Ref.

Debit

($)

Credit

($)

November15Cash2,000
Rent receivable1,000
Rent revenue1,000
(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 $2,000.
  • Rent revenue is a revenue account and it is increased. Therefore, credit rent earned with $1,000.
  • Rent receivable is an asset and it is decreased. Therefore, credit rent receivable with $1,000.

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Chapter 3 Solutions

Principles of Financial Accounting.

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