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 $14,000. 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 $1,440 of unexpired insurance coverage remains. c. The Office Supplies account had a $390 debit balance at the beginning of the year; and $2,680 of office supplies were purchased during the year. The December 31 physical count showed $460 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 Rent account had a $5,000 debit balance at December 31 before adjusting for the costs of expired prepaid rent. An analysis of the rental agreement showed that $3,560 of prepaid rent had expired. f. Wage expenses of $4,000 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

Journal

Transaction	Account title	Debit	Credit
a	Depreciation expense	14,000
	Accumulated depreciation - Equipment		14,000
	(To record depreciation expense)
b	Insurance expense	4,560
	Prepaid insurance		4,560
	(To record prepaid insurance expired)
c	Supplies expense	2,610
	Supplies		2,610
	(To record supplies expense)
d	Unearned revenue	8,000
	Service revenue		8,000
	(To record unearned service revenue earned)
e	Rent expense	3,560
	Prepaid rent		3,560
	9To record prepaid rent expired)
f	Wages expense	4,000
	Wages payable		4,000
	(To record wages payable)

1.

Prepaid insurance, unadjusted = $6,000

Prepaid insurance, ending = $1,440

Prepaid insurance, expired = Prepaid insurance, unadjusted - Prepaid insurance, ending

= 6,000 - 1,440

= $4,560

2.

Supplies expense = Beginning supplies + Supplies purchased - Ending supplies

= 390 + 2,680 - 460

= $2,610

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