
Concept explainers
a.
Prepare the adjusting entry as at December 31, Year 1.
a.

Explanation of Solution
Prepare the adjusting entries:
Date | Account titles and Explanation | Debit ($) | Credit ($) |
December 31 | Accounts receivable | 1,500 | |
Fees earned | 1,500 | ||
(To record the accrued but uncollected fees earned) | |||
December 31 | Unearned revenue | 2,500 | |
Fees earned | 2,500 | ||
(To record the unearned to earned revenue) | |||
December 31 | Insurance expense (1) | 300 | |
Unexpired insurance | 300 | ||
(To record the insurance expense) | |||
December 31 | Rent expense (2) | 1,000 | |
Prepaid rent | 1,000 | ||
(To record the rent expense) | |||
December 31 | Office supplies expense (3) | 200 | |
Office supplies | 200 | ||
(To record the office supplies expense) | |||
December 31 | 500 | ||
500 | |||
(To record the depreciation expense) | |||
December 31 | Interest expense (5) | 80 | |
Interest payable | 80 | ||
(To record the interest expense) | |||
December 31 | Salaries expense | 2,700 | |
Salaries payable | 2,700 | ||
(To record the salaries expense) | |||
December 31 | Income taxes expense | 3,000 | |
Income taxes payable | 3,000 | ||
(To record the income tax expense) |
Table (1)
1. To record the accrued but uncollected fees earned:
- Accounts receivable is an asset account and it is increased. Therefore, debit accounts receivable with $1,500.
- Fees earned are a revenue account and it increases the stockholders’ equity account. Therefore, credit fees earned with $1,500.
2. To record the previously unearned revenue to earned revenue:
- Unearned revenue is a liability account and it is decreased. Therefore, debit unearned revenue with $2,500.
- Fees earned are a revenue account and it increases the stockholders’ equity account. Therefore, credit fees earned with $2,500.
3. To record the insurance expense:
- Insurance expense is an expense account and it decreases the stockholders’ equity account. Therefore, debit insurance expense with $300.
- Unexpired insurance is an asset account and it is decreased. Therefore, credit unexpired insurance with $300.
Working note:
Calculate the amount of insurance expense:
4. To record the rent expense:
- Rent expense is an expense account and it decreases the stockholders’ equity. Therefore, debit rent expense with $1,000.
- Prepaid rent is an asset account and it is decreased. Therefore, credit prepaid rent with $1,000.
Working note:
Calculate the amount of rent expense:
5. To record the office supplies expense:
- Office supplies expense is an expense account and it decreases the stockholders’ equity account. Therefore, debit office supplies expense with $200.
- Office supplies are an asset account and it is decreased. Therefore, credit office supplies with $200.
Working note:
Calculate the office supplies expense:
6. To record the depreciation expense, Equipment:
- Depreciation expense is an expense account and it decreases the stockholders’ equity account. Therefore, debit depreciation expense with $500.
- Accumulated depreciation is a contra-account and it decreases the value of asset. Therefore, credit accumulated depreciation with $500.
Working note:
Calculate the amount of depreciation expense:
7. To record the interest expense:
- Interest expense is an expense account and it decreases the stockholders’ equity. Therefore, debit interest expenses with $80.
- Interest payable is a liability account and it is increased. Therefore, credit interest payable with $80.
Working note:
Calculate the amount of interest expense:
8. To record the salaries expense:
- Salaries expense is an expense account and it decreases the stockholders’ equity. Therefore, debit salaries expenses with $2,700.
- Salaries payable is a liability account and it is increased. Therefore, credit salaries payable with $2,700.
9. To record the income tax expense:
- Income tax expense is an expense account and it decreases the stockholders’ equity. Therefore, debit income tax expenses with $3,000.
- Income tax payable is a liability account and it is increased. Therefore, credit salaries payable with $3,000.
b.
Determine the amount for the given accounts that will be reported in the income statement for the Year 1.
b.

Explanation of Solution
Determine the amount for the given accounts that will be reported in the income statement:
S.No | Particulars | Amount ($) |
1 | Fees earned (unadjusted) | $75,000 |
Add: Adjusting entry (1) | $1,500 | |
Adjusting entry (2) | $2,500 | |
Fees Earned in Year 1 | $79,000 | |
2 | Travel expense | $5,000 |
3 | Insurance expense (unadjusted) | $2,980 |
Add: Adjusting entry (3) | $300 | |
Insurance expense incurred in Year 1 | $3,280 | |
4 | Rent expense (unadjusted) | $9,900 |
Add: Adjusting entry (4) | $1,000 | |
Rent expense incurred in Year 1 | $10,900 | |
5 | Office supplies expense (unadjusted) | $780 |
Add: Adjusting entry (5) | $200 | |
Office supplies expense incurred in Year 1 | $980 | |
6 | Utilities expense | $4,800 |
7 | Depreciation expense: equipment (unadjusted) | $5,500 |
Add: Adjusting entry (6) | $500 | |
Equipment depreciation expense in Year 1 | $6,000 | |
8 | Interest expense (unadjusted) | $320 |
Add: Adjusting entry (7) | $80 | |
Interest expense incurred in Year 1 | $400 | |
9 | Salaries expense (unadjusted) | $30,000 |
Add: Adjusting entry (8) | $2,700 | |
Salaries expense incurred in Year 1 | $32,700 | |
10 | Income taxes expense (unadjusted) | $12,000 |
Add: Adjusting entry (9) | $3,000 | |
Income taxes expense incurred in Year 1 | $15,000 |
Table (2)
1. Amount of fee earned that is to be reported in the income statement is $79,000.
2. Amount of travel expense that is to be reported in the income statement is $5,000.
3. Amount of insurance expense that is to be reported in the income statement is $3,280.
4. Amount of rent expense that is to be reported in the income statement is $10,900.
5. Amount of office supplies expense that is to be reported in the income statement is $980.
6. Amount of utilities expense that is to be reported in the income statement is $4,800.
7. Amount of depreciation expense that is to be reported in the income statement is $6,000.
8. Amount of interest expense that is to be reported in the income statement is $400.
9. Amount of salaries expense that is to be reported in the income statement is $32,700.
10. Amount of income tax expense that is to be reported in the income statement is $15,000.
c.
Explain whether the dividends amounts to $3,000 have paid or not.
c.

Explanation of Solution
In the adjusted
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