Adjusting entries and adjusted trial balances Sears Editing Company is a small editorial services company owned and operated by Deloris Sears. On January 31, 20Y1, the end of the current year, Sears Editing Company’s accounting clerk prepared the following unadjusted trial balance: The data needed to determine year-end adjustments are as follows: • Unexpired insurance at January 31, $2,400. • Supplies on hand at January 31, $250. • Depreciation of building for the year, $6,600. • Depreciation of equipment for the year, $3,500. • Rent unearned at January 31, $2,750. • Accrued salaries and wages at January 31, $1,800. • Fees earned but unbilled on January 31, $15,000. Instructions 1. Journalize the adjusting entries using the following additional accounts: Salaries and Wages Payable; Rent Revenue; Insurance Expense; Depreciation Expense—Building; Depreciation Expense—Equipment; and Supplies Expense. 2. Determine the balances of the accounts affected by the adjusting entries, and prepare an adjusted trial balance.

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Financial And Managerial Accounting

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Financial And Managerial Accounting

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Publisher: Cengage Learning,

ISBN: 9781337902663

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Answer 6

1.

To determine

Prepare the adjusting entries in the books of Company SE 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 stockholders’ equities.
Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

An adjusting entry for insurance expenses:

Date		Description	Post Ref.	Debit ($)	Credit ($)
20Y1		Insurance expenses ($7,200−$2,400)		4,800
January	31	Prepaid insurance			4,800
		(To record the insurance expenses incurred at the end of the year)

Table (1)

Insurance expense decreased the value of stockholders’ equity by $4,800; hence debit the insurance expenses for $4,800.
Prepaid insurance is an asset, and it decreased the value of asset by $4,800, hence credit the prepaid insurance for $4,800.

An adjusting entry for Supplies expenses:

Date		Account title and explanation	Post Ref.	Debit ($)	Credit ($)
20Y1		Supplies expenses ($1,980−$250)		1,730
January	31	Supplies			1,730
		(To record the supplies expenses incurred at the end of the year)

Table (2)

Supplies expense decreased the value of stockholders’ equity by $1,730; hence debit the supplies expenses for $1,730.
Supplies are an asset, and it decreased the value of asset by $1,730, hence credit the supplies for $1,730.

An adjusting entry for depreciation expenses-Equipment:

Date		Description	Post Ref.	Debit ($)	Credit ($)
20Y1		Depreciation expenses –Building		6,600
January	31	Accumulated depreciation-Building			6,600
		(To record the depreciation expenses incurred at the end of the year)

Table (3)

Depreciation expense decreased the value of stockholders’ equity by $6,600; hence debit the depreciation expenses for $6,600.
Accumulated depreciation is a contra-asset account, and it decreased the value of asset by $6,600, hence credit the accumulated depreciation for $6,600.

An adjusting entry for depreciation expenses-Automobiles:

Date

Description

Post

Ref

Answer 7

2.

To determine

Prepare the adjusted trial balance of the Company SE on January 31, 20Y1.

Financial And Managerial Accounting

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Financial And Managerial Accounting

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