Question

Preparing adjusting entries LO P1, P3, P4
a. Wages of $10,000 are earned by workers but not paid as of December 31.
b. Depreciation on the company’s equipment for the year is $10,600.
c. The Office Supplies account had a $390 debit balance at the beginning of the year. During the year, $5,251 of office supplies are purchased. A physical count of supplies at December 31 shows $575 of supplies available.
d. The Prepaid Insurance account had a $5,000 balance at the beginning of the year. An analysis of insurance policies shows that $1,600 of unexpired insurance benefits remain at December 31.
e. The company has earned (but not recorded) $900 of interest revenue for the year ended December 31. The interest payment will be received 10 days after the year-end on January 10.
f. The company has a bank loan and has incurred (but not recorded) interest expense of $5,000 for the year ended December 31. The company will pay the interest five days after the year-end on January 5.
For each of the above separate cases, prepare adjusting entries required of financial statements for the year ended (date of) December 31.

Answer 1

Answer:

Adjusting Journal Entries:

a. Debit Wages Expense $10,000

Credit Wages Payable $10,000

To record unpaid wages as of December 31.

b. Debit Depreciation Expense - Equipment $10,600

Credit Accumulated Depreciation - Equipment $10,600

To record depreciation expense for the year.

c. Debit Supplies Expense $5,066

Credit Supplies $5,066

To record the supplies expense for the year.

d. Debit Insurance Expense $3,400

Credit Prepaid Insurance $3,400

To record the insurance expense for the year.

e. Debit Interest Revenue Receivable $900

Credit Interest Revenue $900

To record earned interest receivable.

f. Debit Interest Expense $5,000

Credit Interest Expense Payable $5,000

To record interest on bank loan incurred.

Explanation:

The above adjusting entries are made in order to ensure that transactions are recorded in accordance with the accrual concept and matching principle of generally accepted accounting principles.  These require that expenses and revenues are accrued to the period that they are incurred or earned and not when they are paid or received in cash.