Explanation The adjusting entries of Company C are as follows: a. Depreciation expense: Date Accounts title and explanation Post Ref. Debit ($) Credit ($) 2018 Depreciation Expense- Equipment 10,000 December, 31 Accumulated Depreciation - Equipment 10,000 ( To record the amount of depreciation expense incurred at the end of the accounting year ) Table (1) Depreciation expense is an expense. There is an increase in the expenses, and therefore it is debited. Accumulated Depreciation is a contra-asset account. There is a decrease in assets, and therefore it is credited. b. Accrued salaries expense: Date Accounts title and explanation Post Ref. Debit ($) Credit ($) 2018 Salary expense 4,000 December, 31 Salary payable 4,000 ( To record the amount of accrued salary expenses. ) Table (2) Salary Expense is an expense. There is an increase in the expenses, and therefore, it is debited. Salary Payable is a liability account. There is an increase in liabilities, and therefore, it is credited. c. Accrued interest expense: Date Accounts title and explanation Post Ref. Debit ($) Credit ($) 2018 Interest Expense (1) 1,050 December, 31 Interest Payable 1,050 ( To record the amount of accrued interest expenses ) Table (3) Interest Expense is an expense. There is an increase in the expenses, and therefore, it is debited. Interest Payable is a liability account. There is an increase in liabilities, and therefore, it is credited. Working note: Calculate the amount of interest expense incurred at the end of the accounting year. Here, Principal=$35,000 Annual rate=12% from September to December Number of months=4 Use the following formula to determine the interest expense for 4 months. Interest expense = Principal × Annual rate × Number of months = $35,000 × 9 % × 4 12 = $ 1 , 050 (1) d. Insurance expense: Date Accounts title and explanation Post Ref. Debit ($) Credit ($) 2018 Insurance Expense (2) 20,000 December, 31 Prepaid Insurance 20,000 ( To record the amount of prepaid insurance expired during the period ) Table (4) Insurance expense is an expense

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Chapter 3 Solutions

FINANCIAL ACCOUNTINGLL W/CONNECT >IC<

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