Financial & Managerial Accounting
Financial & Managerial Accounting
13th Edition
ISBN: 9781285866307
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Chapter 3, Problem 3.4BPR
To determine

Adjusting entries:

Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle.  All adjusting entries affect at least one income statement account (revenue or expense), and one balance sheet account (asset or liability).

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

  • Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and owner’s equities.
  • Credit, all increase in liabilities, revenues, and owners’ equities, all decrease in assets, expenses.

To prepare: The adjusting entries in the books of Company S at the end of the year.

Expert Solution & Answer
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Explanation of Solution

An adjusting entry for Supplies expenses:

In this case, Company S recognized the supplies expenses at the end of the year. So, the necessary adjusting entry that the Company S should record to recognize the supplies expense is as follows:

Date Description

Post

Ref.

Debit ($) Credit ($)
2016 Supplies expenses (1)   4,025  
March 31         Supplies     4,025
  (To record the supplies expenses incurred at the end of the year)      

Table (1)

Working note:

Calculate the value of supplies expense

Suppliesexpense=[(Theunadjusted balanceofsupplies)(Theadjusted balance of supplies)]=($6,200$2,175)=$4,025 (1)

Explanation:

  • Supplies expense decreased the value of owner’s equity by $4,025; hence debit the supplies expenses for $4,025.
  • Supplies are an asset, and it decreased the value of asset by $4,025, hence credit the supplies for $4,025.

An adjusting entry for insurance expenses:

In this case, Company S recognized the insurance expenses at the end of the year. So, the necessary adjusting entry that the Company S should record to recognize the prepaid expense is as follows:

Date Description

Post

Ref.

Debit ($) Credit ($)
2016 Insurance expenses (2)   7,850  
March 31         Prepaid insurance     7,850
  (To record the insurance expenses incurred at the end of the year)      

Table (2)

Working note:

Calculate the value of insurance expense

Insuranceexpense=[(Theunadjusted balanceofprepaid insurance)(Theadjusted balance of prepaid insurance)]=($9,000$1,150)=$7,850 (2)

Explanation:

  • Insurance expense decreased the value of owner’s equity by $7,850; hence debit the insurance expenses for $7,850.
  • Prepaid insurance is an asset, and it decreased the value of asset by $7,850, hence credit the prepaid insurance for $7,850.

An adjusting entry for depreciation expenses-Buildings:

In this case, Company S recognized the depreciation expenses on buildings at the end of the year. So, the necessary adjusting entry that the Company S should record to recognize the accrued expense is as follows:

Date Description

Post

Ref.

Debit ($) Credit ($)
2016 Depreciation expenses –Buildings (3)   9,500  
March 31         Accumulated depreciation-Buildings     9,500
  (To record the depreciation expenses incurred at the end of the year)      

Table (3)

Working note:

Calculate the value of depreciation expense-Equipment

Depreciationexpense=[(Theunadjusted balanceof accumulated depreciation)(Theadjusted balance of accumulated depreciation)]=($51,500$61,000)=$9,500 (3)

Explanation:

  • Depreciation expense decreased the value of owner’s equity by $9,500; hence debit the depreciation expenses for $9,500.
  • Accumulated depreciation is a contra-asset account, and it decreased the value of asset by $9,500, hence credit the accumulated depreciation for $9,500.

An adjusting entry for depreciation expenses-Trucks:

In this case, Company S recognized the depreciation expenses on trucks at the end of the year. So, the necessary adjusting entry that the Company S should record to recognize the accrued expense is as follows:

Date Description

Post

Ref.

Debit ($) Credit ($)
2016 Depreciation expenses –Trucks (4)   5,000  
March 31         Accumulated depreciation-Trucks     5,000
  (To record the depreciation expenses incurred at the end of the year)      

Table (4)

Working note:

Calculate the value of depreciation expense-Trucks

Depreciationexpense=[(Theunadjusted balanceof accumulated depreciation)(Theadjusted balance of accumulated depreciation)]=($12,000$17,000)=$5,000 (4)

Explanation:

  • Depreciation expense decreased the value of owner’s equity by $5,000; hence debit the depreciation expenses for $5,000.
  • Accumulated depreciation is a contra-asset account, and it decreased the value of asset by $5,000, hence credit the accumulated depreciation for $5,000.

An adjusting entry for utilities expenses:

In this case, Company S recognized the utilities expenses at the end of the year. So, the necessary adjusting entry that the Company S should record to recognize the accrued expense is as follows:

Date Description

Post

Ref.

Debit ($) Credit ($)
2016 Utilities expenses  (5)   1,830  
March 31         Accounts payable     1,830
  (To record the utilities expenses incurred at the end of the year)      

Table (5)

Working note:

Calculate the value of utilities expense

Utilitiesexpense=[(Theunadjusted balanceof utilities expense)(Theadjusted balance of utilities expense)]=($6,200$8,030)=$1,830 (5)

Explanation:

  • Utilities expense decreased the value of owner’s equity by $1,830; hence debit the utilities expenses for $1,830.
  • Accounts payable is a liability, and it increased the value of liability by $1,830, hence credit the accounts payable for $1,830.

An adjusting entry for salaries expenses:

In this case, Company S recognized the salaries expenses at the end of the year. So, the necessary adjusting entry that the Company S should record to recognize the accrued expense is as follows:

Date Description

Post

Ref.

Debit ($) Credit ($)
2016 Salaries expenses  (6)   1,400  
March 31        Salaries payable     1,400
  (To record the salaries expenses incurred at the end of the year)      

Table (6)

Working note:

Calculate the value of salaries expense

Salariesexpense=[(Theunadjusted balanceof salaries expense)(Theadjusted balance of salaries expense)]=($80,000$81,400)=$1,400 (6)

Explanation:

  • Salaries expense decreased the value of owner’s equity by $1,400; hence debit the salaries expenses for $1,400.
  • Salaries payable is a liability, and it increased the value of liability by $1,400, hence credit the salaries payable for $1,400.

An adjusting entry for unearned service fees:

In this case, Company S received cash in advance before the service provided to customer. So, the necessary adjusting entry that the Company S should record for the unearned fees revenue at the end of the year is as follows:

Date Description

Post

Ref.

Debit ($) Credit ($)
2016 Unearned service fees   6,650  
March 31     Service fees earned (7)     6,650
  (To record the unearned service fees at the end of the year)      

Table (7)

Working note:

Calculate the value of service fees earned

Service fees earned=[(Theunadjusted balanceof service fees earned)(Theadjusted balance of service fees earned)]=($162,680$169,330)=$6,650 (7)

Explanation:

  • Unearned service fees are a liability, and it decreased the value of liability by $6,650, hence debit the unearned service fees for $6,650.
  • Service fees earned increased owner’s equity by $6,650; hence credit the service fees earned for $6,650.
Conclusion

Hence, the adjusting entries of Company S are recorded.

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Chapter 3 Solutions

Financial & Managerial Accounting

Ch. 3 - Prob. 3.1APECh. 3 - Accounts requiring adjustment Indicate with a Yes...Ch. 3 - Type of adjustment Classify the following items as...Ch. 3 - Prob. 3.2BPECh. 3 - Adjustment for prepaid expense The supplies...Ch. 3 - Adjustment for prepaid expense The prepaid...Ch. 3 - Adjustment for unearned revenue The balance in the...Ch. 3 - Prob. 3.4BPECh. 3 - Prob. 3.5APECh. 3 - Adjustment for accrued revenues At the end of the...Ch. 3 - Adjustment for accrued expense We-Sell Realty Co....Ch. 3 - Adjustment for accrued expense Prospect Realty Co....Ch. 3 - Prob. 3.7APECh. 3 - Adjustment for depreciation The estimated amount...Ch. 3 - Effect of omitting adjustments For the year ending...Ch. 3 - Prob. 3.8BPECh. 3 - Prob. 3.9APECh. 3 - Effect of errors on adjusted trial balance For...Ch. 3 - Prob. 3.10APECh. 3 - Prob. 3.10BPECh. 3 - Classifying types of adjustments Classify the...Ch. 3 - Classifying adjusting entries The following...Ch. 3 - Prob. 3.3EXCh. 3 - Determining supplies purchased The supplies and...Ch. 3 - Effect of omitting adjusting entry At March 31,...Ch. 3 - Prob. 3.6EXCh. 3 - Adjusting entries for prepaid insurance The...Ch. 3 - Adjusting entries for unearned fees The balance in...Ch. 3 - Effect of omitting adjusting entry At the end of...Ch. 3 - Adjusting entry for accrued fees At the end of the...Ch. 3 - Prob. 3.11EXCh. 3 - Effect on omitting adjusting entry The adjusting...Ch. 3 - Prob. 3.13EXCh. 3 - Determining wages paid The wages payable and wages...Ch. 3 - Effect of omitting adjusting entry Accrued...Ch. 3 - Prob. 3.16EXCh. 3 - Prob. 3.17EXCh. 3 - Prob. 3.18EXCh. 3 - Prob. 3.19EXCh. 3 - Prob. 3.20EXCh. 3 - Prob. 3.21EXCh. 3 - Prob. 3.22EXCh. 3 - Effects of errors on financial statements The...Ch. 3 - Effects of errors on financial statements If the...Ch. 3 - Prob. 3.25EXCh. 3 - Prob. 3.26EXCh. 3 - Prob. 3.27EXCh. 3 - Prob. 3.28EXCh. 3 - Prob. 3.29EXCh. 3 - Prob. 3.1APRCh. 3 - Prob. 3.2APRCh. 3 - Prob. 3.3APRCh. 3 - Prob. 3.4APRCh. 3 - Adjusting entries and adjusted trial balances...Ch. 3 - Adjusting entries and errors At the end of April,...Ch. 3 - Prob. 3.1BPRCh. 3 - Adjusting entries Selected account balances before...Ch. 3 - Adjusting entries Crazy Mountain Outfitters Co.,...Ch. 3 - Prob. 3.4BPRCh. 3 - Adjusting entries and adjusted trial balances...Ch. 3 - Prob. 3.6BPRCh. 3 - The unadjusted trial balance that you prepared for...Ch. 3 - Prob. 3.1CPCh. 3 - Prob. 3.2CPCh. 3 - Prob. 3.3CP
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