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Adjusting entries and adjusted trial balances Reece Financial Services Co., which specializes in appliance repair services, is owned and operated by Joni Reece. Reece Financial Services’ accounting clerk prepared the following unadjusted trial balance at July 31, 20Y9: The data needed to determine year-end adjustments are as follows: • Depreciation of building for the year, $6,400. • Depreciation of equipment for the year, $2,800. • Accrued salaries and wages at July 31, $900. • Unexpired insurance at July 31, $1,500. • Fees earned but unbilled on July 31, $10,200. • Supplies on hand at July 31, $615. • Rent unearned at July 31, $300. 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

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 3, Problem 5PB
Textbook Problem
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Adjusting entries and adjusted trial balances

Reece Financial Services Co., which specializes in appliance repair services, is owned and operated by Joni Reece. Reece Financial Services’ accounting clerk prepared the following unadjusted trial balance at July 31, 20Y9:

Chapter 3, Problem 5PB, Adjusting entries and adjusted trial balances Reece Financial Services Co., which specializes in

The data needed to determine year-end adjustments are as follows:

• Depreciation of building for the year, $6,400.

• Depreciation of equipment for the year, $2,800.

• Accrued salaries and wages at July 31, $900.

• Unexpired insurance at July 31, $1,500.

• Fees earned but unbilled on July 31, $10,200.

• Supplies on hand at July 31, $615.

• Rent unearned at July 31, $300.

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.

1.

To determine

Prepare the adjusting entries on July 31, 20Y9 of Company RFS.

Explanation of Solution

Adjusting Entries:

Adjusting entries indicates those entries, which are passed in the books of accounts at the end of one accounting period. These entries are passed in the books of accounts as per the revenue recognition principle and the expenses recognition principle to adjust the revenue, and the expenses of a business in the period of their occurrence.

Rule of Debit and Credit:

Debit - Increase in all assets, expenses & dividends, and decrease in all liabilities and stockholders’ equity.

Credit - Increase in all liabilities and stockholders’ equity, and decrease in all assets & expenses.

The adjusting entry for recording depreciation for building is as follows:

DateAccount Titles and ExplanationDebit ($)Credit ($)
July 31Depreciation expense6,400
        Accumulated Depreciation- building6,400
(To record the depreciation on building for the current year.)

Table (1)

  • Depreciation expense is component of stockholders’ equity and decreased it, so debit depreciation expense by $6,400.
  • Accumulated depreciation is a contra asset account, and it decreases the asset value by $6,400. So credit accumulated depreciation by $6,400.

The adjusting entry for recording depreciation for equipment is as follows:

DateAccount Titles and ExplanationDebit ($)Credit ($)
July 31Depreciation expense2,800
        Accumulated Depreciation- equipment2,800
(To record the depreciation on equipment for the current year.)

Table (2)

  • Depreciation expense is component of stockholders’ equity and decreased it, so debit depreciation expense by $2,800.
  • Accumulated depreciation is a contra asset account, and it decreases the asset value by $2,800. So credit accumulated depreciation by $2,800.

The following entry shows the adjusting entry for Salary and wages expense on July 31.

DateAccount Titles and ExplanationDebit ($)Credit ($)
July 31Salary and wages expense900
        Wages Payable900
(To record the salary and wages accrued but not paid at the end of the accounting period.)

                                                     Table (3)

  • Salary and wages expense is a component of Stockholders ‘equity, and it decreased it by $900. So debit wage expense by $900.
  • Salary and wages payable is a liability, and it is increased by $900. So credit Salary and wages payable by $900.

The following entry shows the adjusting entry for unexpired insurance on July 31.

DateDescription

Post.

Ref

Debit

($)

Credit

($)

July 31Insurance expense (1) 4,500 
 Prepaid insurance 4,500
 (To record the insurance  expense incurred at the end of the year)  

Table (4)

Working note (1):

Calculate the value of insurance expense at the end of the year:

InsuranceExpenses=(Valueofprepaidinsurancebeforeadjustment)-(Unexpiredinsurance)=($6,500)-($1,500)=$4,500

  • Insurance expense is a component of owners’ equity, and decreased it by $4,500 hence debit the insurance expense for $4,500.
  • Prepaid insurance is an asset, and it decreases the value of asset by $4,500, hence credit the prepaid insurance for $4,500.

The following entry shows the adjusting entry for accrued fees unearned on July 31.

DateAccount Titles and ExplanationDebit ($)Credit ($)
July 31Accounts Receivable10,200
        Fees earned10,200
(To record the accounts receivable at the end of the year

2.

To determine

Prepare the adjusted trial balance of the Company RFS on July 31, 20Y9.

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Chapter 3 Solutions

Financial And Managerial Accounting
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