Question

(Click the icon to view the transactions.) $ 19,331,600 2,990,000 1,087,000 43,200 3,000,000 $ Cash Accounts Receivable Supplies Prepaid Insurance Equipment Accounts Payable Unearned Service Revenue Notes Payable Common Stock Dividends Service Revenue Wage Expense Utilities Expense Selling Expense Administrative Expense Repairs Expense Interest Expense 930,000 132,400 970,000 21,600,000 45,000 3,680,000 500,400 96 100 45,100 130,000 37,000 7,000

Answer 1

Adjusting entries are those journal entries that are required to be recorded at the end of respective reporting period in order to update firm's accounting records the actual revenue and expenditures for the period on accrual basis. For example, prepaid expense is an expense paid in advance by a firm for future period. It is recorded as an asset when it was paid initially. At the end of reporting period, expired portion of prepaid balance for the period shall be recorded as an expense by decreasing the prepaid expense balance to the same extent.

Ref. No. d) ACCOUNT TITLES Insurance Expense Prepaid Insurance DEBIT $39,600 CREDIT Workings & Remarks [$43,200 x (11/12)] $39,600 (11 months' prepaid insurance expired out of 12 months]

If it is given that prepaid insurance is for 24 months (2 years): Ref. No. d) ACCOUNT TITLES Insurance Expense Prepaid Insurance DEBIT $19,800 CREDIT Workings & Remarks [$43,200 x (11/24)] $19,800 [11 months' prepaid insurance expired out of 24 months)