Concept explainers
1.
Prepare the
1.
Explanation of Solution
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
Prepare the adjusting entries as of 31st October 2019.
a. Prepare the adjusting entries to record the cost of supplies used.
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
October 31 | Office supplies expense | 4,370 | ||
Office supplies (1) | 4,370 | |||
(To record the adjusting entry for cost of supplies used) |
Table (1)
- Office supplies expense is an expense account and it is increased. Therefore, debit office supplies expense with $4,370.
- Office supplies are an asset account and it is decreased. Therefore, credit office supplies with $4,370.
Working note:
Calculate the amount of supplies used.
b. Prepare the adjusting entry to record the annual insurance coverage cost.
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
October 31 | Insurance expense | 4,730 | ||
Prepaid insurance (2) | 4,730 | |||
(To record the adjusting entry for annual insurance coverage cost) |
Table (2)
- Insurance expense is an expense account and it is increased. Therefore, debit Insurance expense with $4,730.
- Prepaid insurance is an asset account and it is decreased. Therefore, credit prepaid insurance with $4,730.
Working note:
Calculate the amount of prepaid insurance.
Policy | Cost | Calculate the cost per month | Cost per month | Months Active in 2019 | Cost for 2019 |
A | $6,000 | $250 | 12 | $3,000 | |
B | $7,200 | $200 | 7 | $1,400 | |
C | $1,320 | $110 | 3 | $330 | |
Total | $4,730 |
Table (3) (2)
Note: Cost for 2019 is calculated by multiplying Cost per month and number of months active in 2019.
c. Prepare the adjusting entry to record the unpaid wages.
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
October 31 | Salaries expense | 1,000 | ||
Salaries payable (3) | 1,000 | |||
(To record the adjusting entry unpaid wages) |
Table (4)
- Salaries expense is an expense account and it is increased. Therefore, debit Salaries expense with $1,000.
- Salaries payable is a liability account and it is increased. Therefore, credit salaries payable with $1,000.
Working note:
Calculate the amount of salaries payable.
d. Prepare the adjusting entry to record the annual
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
October 31 | Depreciation expense, Building | 5,400 | ||
5,400 | ||||
(To record the adjusting entry annual depreciation expense) |
Table (5)
- Depreciation is an expense account and it is increased. Therefore, debit depreciation expense with $5,400.
- Accumulated depreciation is a contra-asset and it decreases the value of asset. Therefore, credit accumulated depreciation account with $5,400.
Working note:
Calculate the amount of annual depreciation expense:
e. Prepare the adjusting entry to record the unpaid October rent.
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
October 31 | Rent receivable | 1,000 | ||
Rent revenue | 1,000 | |||
(To record the adjusting entry for rent earned but unpaid for October rent) |
Table (6)
- Rent receivable is an asset and it is increased. Therefore, debit rent receivable with $1,000.
- Rent revenue is a revenue account and it is increased. Therefore, credit rent earned with $1,000.
f. Prepare the adjusting entry to record the unearned rent for November and October.
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
October 31 | Unearned rent revenue (5) | 1,450 | ||
Rent revenue | 1,450 | |||
(To record the adjusting entry for unearned rent for November and October) |
Table (7)
- Unearned rent revenue is a liability and it is decreased. Therefore, debit unearned rent revenue with $1,450
- Rent revenue is a revenue account and it is increased. Therefore, credit rent earned with $1,450.
Working note:
Calculate the amount of revenue earned for November and October.
2.
Prepare the journal entries to record the first subsequent cash transaction for c and e.
2.
Explanation of Solution
Prepare the journal entry to record the cash payment made for (c):
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
November 7 | Salaries payable | 1,000 | ||
Salaries expense (6) | 4,000 | |||
Cash | 5,000 | |||
(To record the payment of accrued and current salaries) |
Table (8)
- Salaries payable is a liability and it is decreased. Therefore, debit salaries payable with $1,000.
- Salaries expense is an expense account and it is increased. Therefore, debit Salaries expense with $4,000.
- Cash is an asset account and it is decreased. Therefore, credit cash with $5,000.
Working note:
Prepare the journal entry to record the amount of rent due for past two months.
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
November15 | Cash | 2,000 | ||
Rent receivable | 1,000 | |||
Rent revenue | 1,000 | |||
(To record the payment of amount of rent due for two months) |
Table (9)
- Cash is an asset account and it is increased. Therefore, debit cash with $2,000.
- Rent revenue is a revenue account and it is increased. Therefore, credit rent earned with $1,000.
- Rent receivable is an asset and it is decreased. Therefore, credit rent receivable with $1,000.
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Chapter 3 Solutions
Principles of Financial Accounting.
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