Question

4-8. Adjusting entries. For each of the following entries, identify whether the entry is correct. If it is income provide the correct adjusting entry in the journal provided on the next page. No entry made. The office equipment is brand new, having been purchased only one year ago $5,000. Since it is expected to last five years and have a salvage of $1,000, the bookkeeper has decided that it really shows so little wear that depreciation need not be taken this year. Advertising Expense Prepaid Advertising 700 700 The company advertised in the local paper during this month. When the bill was paid in advance of the advertising at the first of last month, the Prepaid Advertising account was debited. c. Utilities Payable Utilities Expense 900 900 A bill was received from the local utility company for $900. The bill is due next month. d 550 Supplies Expense Supplies 550 The Supplies account started the month with a balance of S1,200. At the end of the month, a count of supplies on hand indicated $550 in supplies left. 100 Interest Expense Interest Payable 100 Monev borrowed from the bank carries an interest rate of 6%. Interest was last paid a month ago and is due again in another five months. The amount borrowed is $20,000. The company accrues the interest expense monthly.

Answer 1

Adjusting Entries:

Date	Account Titles and Explanation	Debit	Credit
a)	Depreciation Expense - Equipment ($5,000 - $1,000 = $4,000/5 years)	$800
	Accumulated Depreciation		$800
	(To record the depreciation expense on the equipment)
	Depreciation has to be charged even it is used for one day.
b)	Adjusting entry is correct so no corrections are required.
c)	Utilities Expense	$900
	Utilities Payable		$900
	(To record the accrual of utilities expense)
Expenses are always has debit balance so Utilities expense should be debited and Liabilities always has credit balance so it should be credited. At the same time, utilities bill is not yet paid so it is a liability.
d)	Supplies Expense	$650
	Supplies ($1,200 - $550)		$650
	(To record the usage of supplies)
The amount of $550 is not the supplies used as it is the balance of supplies account at the end of the period. The amount of $650 which is the supplies used is the supplies expense.
e)	Adjusting entry is correct so no corrections are required.