Concept explainers
a.
Prepare the journal entries by recording the prepayment of expenses in an asset account and prepayment of revenue in a liability account.
a.
Explanation of Solution
Prepare the journal entry to record the advance cash payment of insurance.
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
January 1 | Prepaid insurance | 6,000 | ||
Cash | 6,000 | |||
(To record the journal entry for advance cash payment of insurance) |
Table (1)
- Prepaid insurance is an asset and it is increased. Therefore, debit prepaid insurance with $6,000.
- Cash is an asset and it is decreased. Therefore, credit cash with $6,000.
Prepare the journal entry to record the cash received in advance for services.
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
August 1 | Cash | 2,400 | ||
Unearned revenue | 2,400 | |||
(To record the journal entry for cash received in advance for services) |
Table (2)
- Cash is an asset and it is increased. Therefore, debit cash account with $2,400.
- Unearned revenue is a liability and it is increased. Therefore, credit unearned revenue with $2,400.
Prepare the adjusting entry to record the expiration of insurance expense.
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
December 31 | Insurance expense | 6,000 | ||
Prepaid insurance | 6,000 | |||
(To record the adjusting entry for prepaid insurance) |
Table (3)
- Insurance expense is an expense account and it is increased. Therefore, debit insurance expense with $6,000.
- Prepaid insurance is an asset and it is decreased. Therefore, credit prepaid insurance expense with $6,000.
Prepare the adjusting entry to record the service provided.
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
December 31 | Unearned revenue | 2,000 | ||
Revenue | 2,000 | |||
(To record the adjusting entry for service provided) |
Table (4)
- Unearned revenue is a liability and it is decreased. Therefore, debit unearned revenue with $2,000.
- Revenue is a revenue account and it is increased. Therefore, credit revenue account with $2,000.
b.
Prepare the journal entries by recording the prepayment of expenses in an expense account and prepayment of revenue in a revenue account.
b.
Explanation of Solution
Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Adjusting entries: Adjusting entries are those entries which are recorded at the end of the year, to update the income statement accounts (revenue and expenses) and balance sheet accounts (assets, liabilities, and stockholders’ equity) to maintain the records according to accrual basis principle.
Prepare the journal entry to record the advance cash payment of insurance.
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
January 1 | Insurance expense | 6,000 | ||
Cash | 6,000 | |||
(To record the journal entry for advance cash payment of insurance) |
Table (5)
- Insurance expense is an expense account and it is increased. Therefore, debit insurance expense with $6,000.
- Cash is an asset and it is decreased. Therefore, credit cash with $6,000.
Prepare the journal entry to record the cash received in advance for services.
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
August 1 | Cash | 2,400 | ||
Revenue | 2,400 | |||
(To record the journal entry for cash received in advance for services) |
Table (6)
- Cash is an asset and it is increased. Therefore, debit cash account with $2,400.
- Revenue is a revenue account and it is increased. Therefore, credit revenue account with $2,400.
Prepare the adjusting entry to record the expiration of insurance expense.
- No adjusting entry is required for insurance
Prepare the adjusting entry to record the service provided.
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
December 31 | Revenue | 400 | ||
Unearned Revenue | 400 | |||
(To record the adjusting entry for service provided) |
Table (7)
- Revenue is a revenue account and it is decreased. Therefore, debit revenue account with $400.
- Unearned revenue is a liability and it is increased. Therefore, credit unearned revenue with $400.
Want to see more full solutions like this?
Chapter 3 Solutions
Principles of Financial Accounting.
- Prepare journal entries to record the business transaction and related adjusting entry for the following: A. March 1, paid cash for one year premium on insurance contract, $18,000 B. December 31, remaining unexpired balance of insurance, $3,000arrow_forwardAdjusting Entries Kretz Corporation prepares monthly financial statements and therefore adjusts its accounts at the end of every month. The following information is available for March 2016: Kretz Corporation takes out a 90-day, 8%, $15,000 note on March 1, 2016, with interest and principal to be paid at maturity. The asset account Office Supplies on Hand has a balance of $1,280 on March 1, 2016. During March, Kretz adds $750 to the account for purchases during the period. A count of the supplies on hand at the end of March indicates a balance of $1,370. The company purchased office equipment last year for $62,600. The equipment has an estimated useful life of six years and an estimated salvage value of $5,000. The companys plant operates seven days per week with a daily payroll of $950. Wage earners are paid every Sunday. The last day of the month is Thursday, March 31. The company rented an idle warehouse to a neighboring business on February 1, 2016, at a rate of $2,500 per month. On this date, Kretz Corporation credited Rent Collected in Advance for six months rent received in advance. On March 1, 2016, Kretz Corporation credited a liability account, Customer Deposits, for $4,800. This sum represents an amount that a customer paid in advance and that Kretz will earn evenly over a four-month period. Based on its income for the month, Kretz Corporation estimates that federal income taxes for March amount to $3,900. Required For each of the preceding situations, prepare in general journal form the appropriate adjusting entry to be recorded on March 31, 2016.arrow_forwardRecurring and Adjusting Entries Following are Butler Realty Corporations accounts, identified by number. The company has been in the real estate business for ten years and prepares financial statements monthly. Following the list of accounts is a series of transactions entered into by Butler. For each transaction, enter the number(s) of the account(s) to be debited and credited.arrow_forward
- EXPENSE METHOD OF ACCOUNTING FOR PREPAID EXPENSES Davidsons Food Mart paid 1,200 in advance to the local newspaper for advertisements that will appear monthly. The following entry was made: At the end of the year, December 31, 20--, Davidson received notification that advertisements costing 800 had been run. Prepare the adjusting entry.arrow_forwardLedger accounts, adjusting entries, financial statements, and closing entries; optional spreadsheet The unadjusted trial balance of Lakota Freight Co. at March 31, 20Y4, the end of the year, follows: The data needed to determine year-end adjustments are as follows: (a) Supplies on hand at March 31 are 7,500. (b) Insurance premiums expired during year are 1,800. (c) Depreciation of equipment during year is 8,350. (d) Depreciation of trucks during year is 6,200. (e) Wages accrued but not paid at March 31 are 600. Instructions 1. For each account listed in the trial balance, enter the balance in the appropriate Balance column of a four-column account and place a check mark () in the Posting Reference column. 2. (Optional) Enter the unadjusted trial balance on an end-of-period spreadsheet and complete the spreadsheet. Add the accounts listed in part (3) as needed. 3. Journalize and post the adjusting entries, inserting balances in the accounts affected. Record the adjusting entries on Page 26 of the journal. The following additional accounts from Lakota Freight Co.s chart of accounts should be used: Wages Payable, 22; Supplies Expense, 52; Depreciation ExpenseEquipment, 55; Depreciation ExpenseTrucks, 56; Insurance Expense, 57. 4. Prepare an adjusted trial balance. 5. Prepare an income statement, a statement of stockholders equity, and a balance sheet. During the year ended March 31, 20Y4, additional common stock of 6,000 was issued. 6. Journalize and post the closing entries. Record the closing entries on Page 27 of the journal. Indicate closed accounts by inserting a line in both Balance columns opposite the closing entry. 7. Prepare a post-closing trial balance.arrow_forwardPrepare adjusting journal entries, as needed, considering the account balances excerpted from the unadjusted trial balance and the adjustment data. A. supplies actual count at year end, $6,500 B. remaining unexpired insurance, $6,000 C. remaining unearned service revenue, $1,200 D. salaries owed to employees, $2,400 E. depreciation on property plant and equipment, $18,000arrow_forward
- The account balances of Bryan Company as of June 30, the end of the current fiscal year, are as follows: Required 1. Data for the adjustments are as follows: a. Expired or used up insurance, 495 b. Depreciation expense on equipment, 670. c. Depreciation expense on the van, 1,190. d. Salary accrued (earned) since the last payday, 540 (owed and to be paid on the next payday). e. Supplies used during the period, 97. Your instructor may want you to use a work sheet for these adjustments. 2. Journalize the adjusting entries. 3. Prepare an income statement. 4. Prepare a statement of owners equity. Assume that there was an additional investment of 2,000 on June 10. 5. Prepare a balance sheet. 6. Journalize the closing entries using the four steps in the correct sequence. Check Figure Net Income, 13,627arrow_forwardPrepare journal entries to record the following business transaction and related adjusting entry. A. January 12, purchased supplies for cash, to be used all year, $3,850 B. December 31, physical count of remaining supplies, $800arrow_forward
- College Accounting (Book Only): A Career ApproachAccountingISBN:9781337280570Author:Scott, Cathy J.Publisher:South-Western College PubCentury 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:Cengage
- Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College