College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
22nd Edition
ISBN: 9781305666160
Author: James A. Heintz, Robert W. Parry
Publisher: Cengage Learning
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Chapter 27, Problem 3SEB
To determine

Prepare the necessary adjusting entries of Company O for the year ended December 31.

Expert Solution & Answer
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Explanation of Solution

Adjusting entries: Adjusting entries are those entries which are recorded at the end of the year, to update the income statement accounts (revenue and expenses) and balance sheet accounts (assets, liabilities, and stockholders’ equity) to maintain the records according to accrual basis principle.

Factory Overhead Cost:

Factory overhead cost is the cost other than the direct material cost, and the direct labor cost which is not directly involved in the production of converting the raw materials to the finished products. If the direct material cost or direct labor cost does not constitute the major portion of the total cost of the finished product, then it may be classified as the factory overhead cost. For example: Cost of repairing, and maintaining factory equipment.

Prepare an adjusting entry to record the factory overhead applied to work in process ending inventory.

DateAccount Title and ExplanationPost ref.

Debit

($)

Credit

($)

December 31Work in process inventory 7,780 
     Factory overheads  7,780
 (To record the transfer of factory overheads to work in process)   

Table (1)

  • Work in process inventory is an asset account, and it increases the value of asset. Hence, debit the work in process inventory account with $7,780.
  • Factory overhead (expense) is a component of owner’s equity, and there is a decrease in the value of expense. Hence, credit the factory overhead account with $7,780.

Prepare an adjusting entry to record the interest revenue earned during the year.

DateAccount Title and ExplanationPost ref.

Debit

($)

Credit

($)

December 31Interest receivable 435 
     Interest revenue  435
 (To record the interest revenue earned at the end of the year)   

Table (2)

  • Interest receivable is an asset account, and it increases the value of asset. Hence, debit the interest receivable account with $435.
  • Interest revenue is a component of owner’s equity, and it increases the value of owner’s equity. Hence, credit the interest revenue account with $435.

Prepare an adjusting entry to record the bad debt expense incurred during the year.

DateAccount Title and ExplanationPost ref.

Debit

($)

Credit

($)

December 31Bad debt expense 3,876 
     Allowance for doubtful account  3,876
 (To record the bad debt expense estimated at the end of the year)   

Table (3)

  • Bad expense is component of owner’ equity and it decreases the value of owner’s equity. Hence, debit the bad expense with $3,876.
  • Allowance for doubtful accounts is a contra-asset account, and it decreases the value of assets. Hence, credit the allowance for doubtful account with $3,876.

Prepare an adjusting entry to record the office supplies expense incurred during the year.

DateAccount Title and ExplanationPost ref.

Debit

($)

Credit

($)

December 31Office supplies expense 750 
     Office supplies  750
 (To adjust the office supplies expense incurred at the end of the accounting year)   

Table (4)

  • Offices supplies expense is component of shareholders’ equity, and it decreases the value of owner’s equity. Hence, debit the office supplies expense with $750.
  • Office supplies are asset account, and it decreases the value of assets. Hence, credit the office supplies account with $750.

Prepare an adjusting entry to record the factory supplies used during the year.

DateAccount Title and ExplanationPost ref.

Debit

($)

Credit

($)

December 31Factory overhead (factory supplies expense) 4,160 
     Factory supplies  4,160
 (To record the supplies expense incurred at the end of the year)   

Table (5)

  • Factory overhead (expense) is a component of owner’s equity, and there is an increase in the value of expense. Hence, debit the factory overhead account with $4,160.
  • Factory supplies are asset account, and it decreases the value of asset. Hence, credit the factory overhead account with $4,160.

Prepare an adjusting entry to record the insurance expense on the factory building and equipment incurred during the year.

DateAccount Title and ExplanationPost ref.

Debit

($)

Credit

($)

December 31Factory overhead (insurance expense-factory and equipment) 3,200 
     Prepaid insurance  3,200
 (To record the insurance expense incurred at the end of the year)   

Table (6)

  • Factory overhead (insurance expense) is a component of owner’s equity, and there is an increase in the value of expense. Hence, debit the factory overhead account with $3,200.
  • Prepaid insurance is an asset account, and it decreases the value of asset. Hence, credit the prepaid insurance account with $3,200.

Prepare an adjusting entry to record the depreciation expense on building incurred at the end of the accounting year.

DateAccount Title and ExplanationPost ref.

Debit

($)

Credit

($)

December 31Factory overhead (depreciation expense) 6,800 
     Accumulated depreciation-Factory building  6,800
 (To record the depreciation expense incurred at the end of the year)   

Table (7)

  • Factory overhead (depreciation expense) is a component of owner’s equity, and there is an increase in the value of expenses. Hence, debit the factory overhead account with $6,800.
  • Accumulated depreciation-factory building is a contra-asset account, and it decreases the value of asset. Hence, credit the accumulated depreciation-Factory building account with $6,800.

Prepare an adjusting entry to record the depreciation expense on equipment incurred at the end of the accounting year.

DateAccount Title and ExplanationPost ref.

Debit

($)

Credit

($)

December 31Factory overhead (depreciation expense) 4,200 
     Accumulated depreciation-Factory equipment  4,200
 (To record the depreciation expense incurred at the end of the year)   

Table (8)

  • Factory overhead (depreciation expense) is a component of owner’s equity, and there is an increase in the value of expenses. Hence, debit the factory overhead account with $4,200.
  • Accumulated depreciation-factory equipment is a contra-asset account, and it decreases the value of asset. Hence, credit the accumulated depreciation-factory equipment account with $4,200.

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Chapter 27 Solutions

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)

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