Explanation Prepare the necessary adjusting entries for Company B: 1. To record the insurance expense: Date Accounts title and explanation Debit ($) Credit ($) December, 31 Insurance expense 3,000 Prepaid insurance 3,000 ( To record the amount of insurance expense incurred at the end of the accounting year ) Table (1) Insurance expense is an expense account and it decreases the stockholders’ equity . Therefore, debit insurance expense with $3,000. Prepaid insurance is an asset account and it is decreased. Therefore, credit prepaid insurance with $3,000. Working note: Calculate the amount of insurance expense: Insurance expense = Insurance policy amount × Number of months Insurance Policy period = $ 18 , 000 × 6 ( July to December ) 36 = $ 3 , 000 (1) 2. To record the salaries expense: Date Accounts title and explanation Debit ($) Credit ($) December, 31 Salaries expense 25,000 Salary payable 25,000 ( To record the amount of accrued salary expenses. ) Table (2) Salaries expense is an expense account and it decreases the stockholders’ equity. Therefore, debit salary expense with $25,000. Salary Payable is a liability account and it is increased. Therefore, credit salaries payable with $25,000. 3. To record the deferred revenue: Date Accounts title and explanation Debit ($) Credit ($) December, 31 Deferred revenue ( $ 6 , 000 × 4 6 ) 4,000 Service revenue 4,000 ( To record the deferred revenue) Table (3) Deferred revenue is a liability account and it is decreased. Therefore, debit deferred revenue with $4,000. Service revenue is a revenue account and it increases the stockholders’ equity account. Therefore, credit service revenue with $4,000. 4. To record the Supplies expense: Date Accounts title and explanation Debit ($) Credit ($) December, 31 Supplies expense (2) 16,000 Supplies 16,000 ( To record the amount of supplies used during the period. ) Table (4) Supplies expense is an expense account and it decreases the stockholders’ equity. Therefore, debit supplies expense with $16,000. Supplies are an asset account and it is decreased

5th Edition

ISBN: 9781260829228

Author: SPICELAND

Publisher: MCG

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