Financial Accounting
Financial Accounting
14th Edition
ISBN: 9781305088436
Author: Carl Warren, Jim Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Textbook Question
Chapter 3, Problem 4PB

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.

Expert Solution & Answer
Check Mark
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.
  • 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.  

Working note (4):

Calculate the value of depreciation expense-Trucks.

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

DateDescription

Post

Ref.

Debit ($)Credit ($)
2019Utilities expenses  (5) 1,830 
March31        Accounts payable  1,830
 (To record the utilities expenses incurred at the end of the year)   

Table (5)

  • 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.  

Working note (5):

Calculate the value of utilities expense.

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

DateDescription

Post

Ref.

Debit ($)Credit ($)
2019Salaries expenses  (6) 1,400 
March31       Salaries payable  1,400
 (To record the salaries expenses incurred at the end of the year)   

Table (6)

  • 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.  

Working note (6):

Calculate the value of salaries expense.

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

DateDescription

Post

Ref.

Debit ($)Credit ($)
2019Unearned service fees 6,650 
March31    Service fees earned (7)  6,650
 (To record the unearned service fees at the end of the year)   

Table (7)

  • 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

Working note (7):

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

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Chapter 3 Solutions

Financial Accounting

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