Question

Hart Corporation encounters the following situations: Identify what type of adjusting entry (prepaid expense, unearned revenue, accrued expense, or accrued revenue) is needed in each situation at December 31, 2020. 1. Hart collects $1,300 from a customer in 2020 for services to be performed in 2021. 2. Hart incurs utility expense which is not yet paid in cash or recorded. 3. Hart's employees worked 3 days in 2020 but will not be paid until 2021. 4. Hart performs services for customers but has not yet received cash or recorded the transaction. 5. Hart paid $2,400 rent on December 1 for the 4 months starting December 1. 6. Hart received cash for future services and recorded a liability until the service was performed. 7. Hart performed consulting services for a dient in December 2020. On December 31, it had not billed the client for services performed of $1,200 8. Hart paid cash for an expense and recorded an asset until the item was used up. 9. Hart purchased $900 of supplies in 2020; at year-end, $400 of supplies remain unused. 10. Hart purchased equipment on January 1, 2020; the equipment will be used for 5 years.

Answer 1

Solution:

Transaction	Answers	Explanation
1	Unearned Revenue	Because services will be provided next year
2	Accrued Expense	Because utility expense is till unpaid
3	Accrued Expense	Because employee expense is till unpaid
4	Accrued Revenue	Because revenue has been earned but no transaction has been recorded yet.
5	Prepaid Expenses	Because 3 months rent advance available with landlord
6	Unearned Revenue	Because services will be provided in future
7	Accrued Revenue	Because revenue has been earned but no billing has been recorded yet.
8	Prepaid Expenses	Because expense is already incurred and now adjusting to asset account
9	Prepaid Expenses	Because expense is already incurred and now adjusting to asset account
10	Prepaid Expenses	Because expense is already incurred and now adjusting to asset account
11	Accrued Expense	Because interest expense is till unpaid