Question

Exercise 3-6 Preparing adjusting entries LO P1 a. Depreciation on the company's equipment for 2017 is computed to be $17,000. b. The Prepaid Insurance account had a $7,000 debit balance at December 31, 2017, before adjusting for the costs of any expired coverage. An analysis of the company's insurance policies showed that $1,960 of unexpired insurance coverage remains. c. The Office Supplies account had a $280 debit balance on December 31, 2016; and $2,680 of office supplies were purchased during the year. The December 31, 2017, physical count showed $330 of supplies available. d. Two-thirds of the work related to $12,000 of cash received in advance was performed this period. e. The Prepaid Insurance account had a $5,000 debit balance at December 31, 2017, before adjusting for the costs of any expired coverage. An analysis of insurance policies showed that $3,040 of coverage had expired. f. Wage expenses of $2,000 have been incurred but are not paid as of December 31, 2017 Prepare adjusting journal entries for the year ended (date of) December 31, 2017, for each of these separate situations.

Answer 1

Explanation:

a. Since the depreciation is an expense, we need to debit depreciation account and it will be credited to Accumulated depreciation account.

b. Unexpired insurance coverage means the insurance premium which id paid for the post 31 December 2017 period. Out of total prepaid insurance, 1,960 will be still in prepaid insurance and balance of $5,040 will be expensed during the year by debiting insurance expenses account.

c. We need to calculate the total supplies used during the year.

Supplies used during the year = Opening balance + Purchase- Closing balance

Supplies used during the year = 280 + 2,680 -330 = $2,630

This is expense of the current year. So, the journal entry for this amount will be Supplies expenses account debit and  Supplies inventory account credit.

d. Two-third of the work is completed during the year so we need to recognise the revenue to that extend and balance will be unearned revenue.

e. $3,040 of coverage has expired means that is to be expensed out during the year. So entry will be insurance expenses debit and prepaid insurance credit for this amount.

f. Wages expenses are incurred but not paid so we need to account for expenses by debiting wage expenses account and show liability by crediting the Wages payable A/c.

Debit Credit 17000 17000 5040 5040 2630 2630 Date Particulars 31/12/2017 Depreciation A/C --------- Dr To, Accumulated depreciation A/c |(Being depreciation for the year provided) 31/12/2017 Insurance expenses A/C ------- Dr To, Prepaid insurance A/c |(Being expired portion of prepaid insurance is expensed out) 31/12/2017 Supplies expenses A/C ----- Dr To, Supplies inventory A/c |(Being supplies used during the year are charged as expense) 31/12/2017 Unearned revenue A/C -------- Dr To, Revenue A/C (Being two-third of the unearned revenue recognised on completion of work 31/12/2017 Insurance expenses A/C ------- Dr To, Prepaid insurance A/C (Being expired portion of prepaid insurance is expensed out) 31/12/2017 Wages expense A/C ------ Dr To, Wages payable A/c |(Being wages incurred but not paid are provided) 8000 8000 3040 3040 2000 2000