Question

Adiusting Entry Practice Problem HINT: Before you make the adjusting entry, be sure to determine if they initially recorded that transactions under the regular approach or the alternative approach. Looking at the trial balance should help you make this determination. Welte and Moore Company are in the process of preparing their financial statements for the MONTH ended December 31, 2009. The Company has provided you with the following selected account balances form its UNADJUSTED trial balance: DEBIT CREDIT Cash s 20,000 18,000 125,000 $10,000 Insurance Expense Supplies Expense Service Revenue Accounts Payable Unearned Service Revenue 36,000 15,000 110,000 20,000 60,000 Additional Data: At the end of the year it was determined that $5,000 of supplies were still on hand. The employees have earned money for work done during December, but for which they will not be paid until January 2010. The amount was $3,000. The Company paid their fire insurance on December 1, 2009 for 9 months in advance. (a) (b) (c) (d) The machinery is expected to have a useful life of 10 years with an estimated scrap value (e) Customers paid the Company $60,000 in advance for services to be performed equally REQUIRED: ON THE NEXT PAGE PREPARE THE PROPER ADJUSTING ENTRIES of $5,000. over 3 months- December 2009, January (2010) and February (2010). REQUIRED AT 12-31-09. SHOW ALL COMPUTATIONS CLEARLY!!! USE THE FORMAT PROVIDED. The company adjusts its books monthly!!!

Answer 1

	ADJUSTING ENTRY	Debit	Credit	COMPUTATION
a)	Supplies	5000		No calculation is needed. The entire purchases of $15000 has
	Supplies expense		5000	been expensed initially, without having a 'Supplies account'.
				Hence, the balance of stock of supplies in hand of $5000 needs
				to be brought into books and in the process, the supplies expense
				has also got to be reduced to the extent of $5000.
b)	Wages and salaries expense	3000		No computation is needed as the amount of unpaid salaries and
	Wages and salaries payable		3000	wages is given.
c)	Insurance prepaid	32000		The 9 months premium has been expensed on payment, instead of
	Insurance expense		32000	debiting to Prepaid insurance. Hence, 8 months premium is
				unexpired. This has to be shown as 'Prepaid insurance' and the
				same amount has to reduced from insurance expenses.
				Amount = 36000*8/9 = $32000
d)	Depreciation expense	1000		Annual depreciation = (125000-5000)/10 = 12000
	Accumulated depreciation		1000	Monthly depreciation = 12000/12 = $1000
e)	Unearned service revenue	20000		Revenue for 1 month = 60000/3 = $20,000
	Service revenue		20000