Concept explainers
1.
Classify the given transactions as deferred revenue, deferred expense, accrued expense, and accrued revenue.
1.
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Explanation of Solution
Classification:
Transactions | Type of Adjustment |
a. | Deferred expense |
b. | Accrued revenue |
c. | Deferred expense |
d. | Accrued expense |
e. | Deferred expense |
f. | Deferred expense |
g. | Accrued revenue |
h. | Accrued expense |
Table (1)
Description:
Accrued revenue: This is the revenue earned but cash is not received. It is treated as asset until the cash is received. Hence, accrued revenues require adjustment at the end of the year.
Accrued expense: This is the expense incurred but not yet paid. It is treated as liability until the expense is paid. Hence, accrued expenses require adjustment at the end of the year.
Deferred expense: This is the expense paid by a company in advance and would be treated as asset until the cost expires or the benefit is consumed. Hence, prepaid expenses require adjustment at the end of the year.
2.
Journal the adjusting entries for Company C.
2.
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Explanation of Solution
Transaction (a):
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
December | 31 | Supplies Expense (+E, –SE) | 1,250 | |||
Supplies (–A) | 1,250 | |||||
(Record part of supplies consumed) |
Table (2)
Working note:
Calculate supplies expense.
Transaction (b):
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
December | 31 | 7,440 | ||||
Catering Revenue (+R, +SE) | 7,440 | |||||
(Record accrued revenue) |
Table (3)
Transaction (c):
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
December | 31 | Insurance Expense (+E, –SE) | 200 | |||
Prepaid Insurance (–A) | 200 | |||||
(Record part of prepaid insurance expired) |
Table (4)
Working Notes:
Calculate insurance expense.
Transaction (d):
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
December | 31 | Repairs Expense (+E, –SE) | 600 | |||
Accounts Payable (+L) | 600 | |||||
(Record accrued expense) |
Table (5)
Transaction (e):
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
December | 31 | Rent Expense (+E, –SE) | 700 | |||
Prepaid Rent (–A) | 700 | |||||
(Record part of prepaid rent expired) |
Table (6)
Working Notes:
Calculate rent expense.
Transaction (f):
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
December | 31 | 2,570 | ||||
2,570 | ||||||
(Record depreciation expense) |
Table (7)
Transaction (g):
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
December | 31 | Interest Receivable (+A) | 4,000 | |||
Interest Income (+R, +SE) | 4,000 | |||||
(Record accrued revenue) |
Table (8)
Working Notes:
Ascertain the amount of interest income adjustment.
Transaction (h):
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
December | 31 | Income Tax Expense (+E, –SE) | 6,150 | |||
Income Tax Payable (+L) | 6,150 | |||||
(Record accrued expense) |
Table (9)
Working notes:
Calculate income before taxes.
Calculate income tax expense.
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