Question

Exercise 3-7 Analyzing and preparing adjusting entries LO P5 Following are two income statements for Alexis Co. for the year ended December 31. The left number column is prepared before adjusting entries are recorded, and the right column is prepared after adjusting entries. The company records cash receipts and payments related to uneared and prepaid items in balance sheet accounts. Income Statements For Year Ended December 31 Unadjusted Adjusted $18,000 36,500 $54,500 $ 25,000 36,500 61,500 @ Revenues Fees earned Commissions earned Total revenues Expenses Depreciation expense-Computers Depreciation expense-Office furniture Salaries expense Insurance expense Rent expense office supplies expense Advertising expense Utilities expense Total expenses Net income 13,500 @ 3,800 1,600 1,850 15,750 1,400 3,800 580 2,500 1,335 28,815 $ 32,685 2,500 1,245 21,845 $33,455 Analyze the statements and prepare the seven adjusting entries that likely were recorded. Hint: Entry for a refers to fees that have been earned but not yet billed. None of the entries involve cash.

Answer 1

Answer: To record earned but unbilled fees.

31 dec Accounts receivable A/C Dr.$2100

To Fees earned A/C $2100

To record earned fees collected in advance.

31 dec Unearned fees A/C Dr. $4900

To fees earned A/C $4900

To record depreciation on computer

31 Dec Depreciation expenses-Computers A/C Dr. $1600

To Accumulated Depreciation -computers A/C $1600

To record depreciation on office furniture:

31 Dec Depreciation expenses-Office Furniture A/C Dr. $1850

To Accumulated Depreciation -Office Furnitures A/C $1850

To record accrued salaries

31 Dec Salaries Expense A/C Dr. $2250

To Salaries Payable A/C $2250

To record expired prepaid insurance.

31 Dec Insurance Expense A/C Dr. $1400

To Prepaid insurance A/C $1400

To record use of office supplies.

31 Dec Office supplies Expense A/C Dr. $580

To Office supplies A/C $580

To record incurred and unpaid utility costs.

31 Dec Utilities Expense A/C Dr. $90

To Utilities Payable A/C $90

Explanation: Dec. 31

To record earned but unbilled fees:

Fees Earned = (30% x $7,000) = $2100

To record earned fees collected in advance:

Fees Earned = (70% x $7000) = $4900