Question

770 3,840 Hair by Harriette Trial Balance December 31, 2015 Cash $ 4,200 Prepaid insurance 1,480 Shop supplies 990 Shop equipment 3,860 Accum depreciation, shop equipment Building 57,500 Accum depreciation, building Land 55,000 Unearned rent Long-term notes payable Harriette, capital Harriette, withdrawals 2,700 Rent earned Fees earned Wages expense 3,200 Utilities expense 690 Property taxes expense 600 Interest expense 4,350 Totals $ 134,570 1,600 100,000 2,560 2,400 23,400 $ 134,570

Use the following information to prepare any necessary adjusting entries.

(a)	Examination of the insurance policy showed $1,240 of expired insurance.
(b)	An inventory showed $210 of unused shop supplies on hand.
(c)	The Shop Equipment was purchased in 2014 for 3,860 with an estimated salvage value of 860 and an estimated useful life of three years.
(d)	$800 of the Unearned Rent account balance was earned by year-end.
(e)	The one employee, a receptionist, works a five-day workweek at $50 per day.  The employee was paid last week but has worked four days this week for which she has not been paid.

Date	Account	Debit	Credit

Answer 1

Solution: Adjustment Entries:

Particulars Debit Credit

a) Insurance A/c Dr. 1240

To Prepaid Insurance A/c    1240

(Being expired Insurance adjusted against prepaid insurance)

b) Option: 1 (If Shop Supplies given in Trial Balance is Purchases not closing Stock)  

Closing Stock A/c Dr. 210  

To Profit & Loss Account A/c 210

(Being Closing Stock Of $210 created)

Option: 2 Opening stock, Purchases and Cost of goods sold are not given in the Trial Balance then it means shop supplies is "closing stock" in itself.

AND if the closing stock is given in Trial Balance, then it means Adjustment for Closing Stock has already been done. Thus, There is no need of Adjustment Entry.

c) Depriciation on Shop Equipment A/c Dr. 1230

To Accumulated Depriciation on Shop Equipment A/c 1230

(Being Accumulated depriciation was increased by $1230)

Calculation: Deprication as on 31.12.2015

Depriciation= (Purcahse Value- Salvage Value)/Useful Life

Therefore; (3860-860)/3Years= $1000 for one Year and we have created accumulated depricitaion of $ 770 as on 31.12.2015.

But for 2 years, i.e. for 2014 & 2015, total accumulated depriction would be $2000. Now Accumulated depriciation to be increased by $2000- $770= $1330.

d) Unearned Rent A/c Dr. 800

To Rent Eaned A/c 800

(Being Rent earned by year end)

e) Wages expense A/c Dr. 200

To wages expense payable A/c 200

(Being wages payable for 4 Days i.e. $50*4 Days= $200)