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Concept explainers
a.
Prepare the adjusting entry as at December 31, Year 1.
a.
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Explanation of Solution
Prepare the adjusting entries:
Date | Account titles and Explanation | Debit ($) | Credit ($) |
December 31 | 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 $3,000.
b.
Determine the amount for the given accounts that will be reported in the income statement for the Year 1.
b.
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Explanation of Solution
Determine the amount for the given accounts that will be reported in the income statement:
S.No | Particulars | Amount ($) |
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.
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Explanation of Solution
In the adjusted
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Financial & Managerial Accounting
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