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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Cornerstone Exercise 3-20 Deferred Expense Adjusting Entries

Best Company had the following items that require adjustment at year end.

  1. Cash for equipment rental in the amount of $3,800 was paid in advance. The $3,800 was debited to prepaid rent When paid. At year end, $2,950 Of the prepaid rent had expired.
  2. Cash for insurance in the amount of $8,200 was paid in advance. The $8,200 was debited to prepaid insurance when paid. At year end, $1,8SO of the prepaid insurance was still unused.

Required:

  1. Prepare the adjusting journal entries needed at December 31.
  2. What is the effect on the financial statements if these adjusting entries are not made?
  3. What is the balance in prepaid equipment rent and insurance expense at December 31?

To determine

Concept Introduction:

Adjusting entries are required to adjust the accounts according to the accrual basis of accounting at the end of the every accounting period. For example: Recording the depreciation expense on depreciable assets at the end of each accounting year.

The business activity for each type of adjusting entry is explained as follows:

  • Accrued revenue: The adjusting entry for Accrued revenue is prepared to record the revenue earned during the period.
  • Accrued Expense: The adjusting entry for Accrued expense is prepared to record the expenses incurred during the period.
  • Deferred Revenue: The adjusting entry for Deferred revenue is prepared to defer the revenue that belong to next period.
  • Deferred expenses: The adjusting entry for Deferred expense is prepared to defer the expense that belong to next period.
  • Depreciation: The adjusting entry for depreciation expense is prepared to record the depreciation expense that belong to current period.
  • Requirement-1:

To Prepare:

The Adjusting entries as on Dec. 31.

Explanation

The Adjusting entries as on Dec. 31 are explained as follows:

    Best Company
    Adjusting entries
    #Date Account titlesDebit Credit
    a.Dec...
To determine

Concept Introduction:

Adjusting entries are required to adjust the accounts according to the accrual basis of accounting at the end of the every accounting period. For example: Recording the depreciation expense on depreciable assets at the end of each accounting year.

The business activity for each type of adjusting entry is explained as follows:

  • Accrued revenue: The adjusting entry for Accrued revenue is prepared to record the revenue earned during the period.
  • Accrued Expense: The adjusting entry for Accrued expense is prepared to record the expenses incurred during the period.
  • Deferred Revenue: The adjusting entry for Deferred revenue is prepared to defer the revenue that belong to next period.
  • Deferred expenses: The adjusting entry for Deferred expense is prepared to defer the expense that belong to next period.
  • Depreciation: The adjusting entry for depreciation expense is prepared to record the depreciation expense that belong to current period.
  • Requirement-2:

To Indicate:

The effect on the financial statements if these Adjusting entries were not made.

To determine

Concept Introduction:

Adjusting entries are required to adjust the accounts according to the accrual basis of accounting at the end of the every accounting period. For example: Recording the depreciation expense on depreciable assets at the end of each accounting year.

The business activity for each type of adjusting entry is explained as follows:

  • Accrued revenue: The adjusting entry for Accrued revenue is prepared to record the revenue earned during the period.
  • Accrued Expense: The adjusting entry for Accrued expense is prepared to record the expenses incurred during the period.
  • Deferred Revenue: The adjusting entry for Deferred revenue is prepared to defer the revenue that belong to next period.
  • Deferred expenses: The adjusting entry for Deferred expense is prepared to defer the expense that belong to next period.
  • Depreciation: The adjusting entry for depreciation expense is prepared to record the depreciation expense that belong to current period.
  • Requirement-3:

    To Calculate:

    The balance of prepaid Rent and Insurance expense as on Dec. 31.

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