Question

Exercise 3-1 Preparing adjusting entries LO P1, P2, P3

a. Depreciation on the company's equipment for the year is computed to be $ 18,000.

b. The Prepaid Insurance account had a $ 6,000 debit balance at December 31 before adjusting for the costs of any expired coverage. An analysis of the company's insurance policies showed that $ 1,100 of unexpired insurance coverage remains.

c. The Office Supplies account had a $ 700 debit balance at the beginning of the year, and $ 3,480 of office supplies were purchased during the year. The December 31 physical count showed $ 300 of supplies available.

d. Two-thirds of the work related to $ 15,000 of cash received in advance was performed this period.

e. The Prepaid Rent account had a $ 6,800 debit balance at December 31 before adjusting for the costs of expired prepaid rent. An analysis of the rental agreement showed that $ 5,800 of prepaid rent had expired.

f. Wage expenses of $ 3,200 have been incurred but are not paid as of December 31 .

Prepare adjusting journal entries for the year ended (date of) December 31 for each of these separate situations.

Answer 1

Date	General Journal	Debit	Credit
a	Depreciation expense	$18,000
	Accumulated depreciation - Equipment		$18,000
	( To record depreciation expense)
b	Insurance expense	$4,900
	Prepaid insurance		$4,900
	( To record insurance expense)
c	Supplies expense	$3,880
	Supplies		$3,880
	( To record supplies expense)
d	Unearned revenue	$10,000
	Service revenue		$10,000
	( To record unearned service revenue)
e	Rent expense	$5,800
	Prepaid rent		$5,800
	( To record rent expense)
f	Wages expense	$3,200
	Wages payable		$3,200
	( To record wages expense)

b. Insurance expense = Prepaid insurance, beginning - Prepaid insurance, ending

= 6,000-1,100

= $4,900

c. Supplies expense = Supplies , beginning + Supplies purchased - Supplies, ending

= 700+3,480-300

= $3,880

d. Service revenue earned = 15,000 x 2/3

= $10,000