Concept explainers
Prepare necessary
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
1. Prepare an adjusting entry to record the interest revenue earned at the end of the year.
Date | Account Title and Explanation |
Debit ($) |
Credit ($) |
December 31, 2016 | Interest receivable | 500 | |
Interest revenue (1) | 500 | ||
(To record the interest revenue earned at the end of the accounting year) |
Table (1)
- Interest receivable is an asset account, and it increases the value of asset. Hence, debit the interest receivable account with $500.
- Interest revenue is component of shareholders’ equity, and it increases the value of shareholders equity. Hence, credit the interest revenue with $500.
Working note (1):
Calculate the value of interest revenue.
2. Prepare the adjusting entry for the overstated insurance expense.
Date | Account Title and Explanation |
Debit ($) |
Credit ($) |
December 31, 2016 | Prepaid insurance (2) | 2,375 | |
Insurance expense | 2,375 | ||
(To adjust the overstated insurance expense at the end of the accounting year) |
Table (2)
- Prepaid insurance is an asset account, and it increases the value of assets. Hence, debit the prepaid insurance account with $2,375.
- Insurance expense is component of shareholders’ equity, and it increases the value of shareholders equity. Hence, credit the insurance expense with $2,375.
Working note (2):
Calculate the value of overstated insurance expense.
Note: Number of months left in insurance policy is 19 months
3. Prepare an adjusting entry to record the
Date | Account Title and Explanation |
Debit ($) |
Credit ($) |
December 31, 2016 | Depreciation expense | 2,080 | |
2,080 | |||
(To record the depreciation expense incurred at the end of the accounting year) |
Table (3)
- Depreciation expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the depreciation expense with $2,080.
- Accumulated depreciation is a contra-asset account, and it decreases the value of assets. Hence, credit the accumulated depreciation expense with $2,080.
Working note (3):
Calculate the depreciation expense on building.
4. Prepare an adjusting entry to record the depreciation expense incurred at the end of the year.
Date | Account Title and Explanation |
Debit ($) |
Credit ($) |
December 31, 2016 | Depreciation expense | 900 | |
Accumulated depreciation-Delivery equipment (4) | 900 | ||
(To record the depreciation expense incurred at the end of the accounting year) |
Table (4)
- Depreciation expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the depreciation expense with $900.
- Accumulated depreciation is a contra-asset account, and it decreases the value of assets. Hence, credit the accumulated depreciation expense with $900.
Working note (4):
Calculate the depreciation expense on equipment at the end of the year.
5. Prepare an adjusting entry to record the rent revenue recognized at the end of the year.
Date | Account Title and Explanation |
Debit ($) |
Credit ($) |
December 31, 2016 | Unearned rent | 720 | |
Rent revenue (5) | 720 | ||
(To record the rent revenue recognized at the end of the accounting year) |
Table (5)
- Unearned rent is a liability account, and it decreases the value of liability. Hence, debit the unearned rent account with $720.
- Rent revenue is component of shareholders’ equity, and it increases the value of shareholders equity. Hence, credit the rent revenue with $720.
Working note (5):
Calculate the value of rent revenue.
6. Prepare an adjusting entry to record the insurance expense occurred at the end of the year.
Date | Account Title and Explanation |
Debit ($) |
Credit ($) |
December 31, 2016 | Interest expense (6) | 72 | |
Interest payable | 72 | ||
(To record the interest expense accrued at the end of the accounting year) |
Table (6)
- Interest expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the interest expense with $72.
- Interest payable is a liability account and it increases in the value of liabilities. Hence, credit the interest payable with $72.
Working note (6):
Calculate the amount of interest expense.
7. Prepare an adjusting entry to record the office supplies unused (supplies on hand) at the end of the year.
Date | Account Title and Explanation |
Debit ($) |
Credit ($) |
December 31, 2016 | Office supplies | 400 | |
Office supplies expense | 400 | ||
(To adjust the unused supplies at the end of the accounting year) |
Table (7)
- Office supplies are asset account, and it increases the value of assets. Hence, debit the office supplies account with $400.
- Offices supplies expense is component of shareholders’ equity, and it increases the value of shareholders equity. Hence, credit the office supplies expense with $400.
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Chapter 3 Solutions
Intermediate Accounting: Reporting and Analysis (Looseleaf)
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