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The Signage Company specializes in the maintenance and repair of signs, such as billboards. On March 31, 2016, the accountant for The Signage Company prepared the following trial balances: Instructions Journalize the seven entries that adjusted the accounts at March 31. None of the accounts were affected by more than one adjusting entry.

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Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305088436

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BuyFindarrow_forward

Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305088436
Chapter 3, Problem 4PB
Textbook Problem
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The Signage Company specializes in the maintenance and repair of signs, such as billboards. On March 31, 2016, the accountant for The Signage Company prepared the following trial balances:

Chapter 3, Problem 4PB, The Signage Company specializes in the maintenance and repair of signs, such as billboards. On March

Instructions

Journalize the seven entries that adjusted the accounts at March 31. None of the accounts were affected by more than one adjusting entry.

To determine

Prepare the adjusting entries in the books of Company S at the end of the year.

Explanation of Solution

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.

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:

DateDescription

Post

Ref.

Debit ($)Credit ($)
2019Supplies expenses  (1) 4,025 
March31        Supplies  4,025
 (To record the supplies expenses incurred at the end of the year)   

Table (1)

  • 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.  

Working note (1):

Calculate the value of supplies expense.

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

DateDescription

Post

Ref.

Debit ($)Credit ($)
2019Insurance expenses (2) 7,850 
March31        Prepaid insurance  7,850
 (To record the insurance expenses incurred at the end of the year)   

Table (2)

  • 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.  

Working note (2):

Calculate the value of insurance expense.

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

DateDescription

Post

Ref.

Debit ($)Credit ($)
2019Depreciation expenses –Buildings (3) 9,500 
March31        Accumulated depreciation-Buildings  9,500
 (To record the depreciation expenses incurred at the end of the year)   

Table (3)

  • 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.  

Working note (3):

Calculate the value of depreciation expense-Equipment.

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

DateDescription

Post

Ref.

Debit ($)Credit ($)
2019Depreciation expenses –Trucks(4) 5,000 
March31        Accumulated depreciation-Trucks  5,000
 (To record the depreciation expenses incurred at the end of the year)   

Table (4)

  • Depreciation expense decreased the value of owner’s equity by $5,000; hence debit the depreciation expenses for $5,000

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Chapter 3 Solutions

Financial Accounting
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