Explanation Adjusting entries : Adjusting entries are the journal entries which are recorded at the end of the accounting period to correct or adjust the revenue and expense accounts, to concede with the accrual principle of accounting. a. Collected rent for the period of October to December which was credited to unearned revenue on October 1. Unearned revenue is a liability. There is a decrease in liability. Hence, debit unearned revenue with $800. Rent revenue is a revenue account which is a component of stockholders’ equity. There is an increase in the revenue account which increases the stockholders’ equity. Hence, credit service revenue account with $800. Working note: Calculate the amount of rent revenue: Rent revenue=Amount collected× 1 3 = ( $2,400× 1 3 ) =$800 b. Insurance premium paid for a two years on October 1 and debited premium insurance for that amount. Insurance expense is an expense account which is a component of stockholders’ equity. There is an increase in expense which decreases the stockholders’ equity. Hence, debit insurance expense with $50. Prepaid insurance is an asset. There is a decrease in asset. Hence, credit prepaid insurance account with $50

6th Edition

ISBN: 9781260725254

Author: PHILLIPS

Publisher: MCG

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Chapter 4, Problem 6ME

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To record: The adjusting journal entries required on October 31.

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To record: The adjusting journal entries required on October 31.

Solution Summary: The author explains how adjusting entries are recorded at the end of the accounting period to correct or adjust revenue and expense accounts, to concede with the accrual principle of accounting.

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To record: The adjusting journal entries required on October 31.

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