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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Adjusting Entries The following partial list of accounts and account balances has been taken from the trial balance and the adjusted trial balance of Baye Company:

Chapter 3, Problem 6E, Adjusting Entries The following partial list of accounts and account balances has been taken from

Required:

Next Level Prepare the adjusting entry that caused the change in each account balance.

To determine

Prepare the adjusting entries that would be caused the change in given account balance.

Explanation

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 stockholders’ equity) to maintain the records according to accrual basis principle.

Prepare the adjusting entries that would be caused the change in given account balance as follows:

Accumulated depreciation:

DateAccount Title and Explanation

Debit

($)

Credit

($)

December 31Depreciation expense1,400 
 Accumulated depreciation-Equipment ($6,600$5,200) 1,400
 (To record the depreciation expense incurred at the end of the accounting year)  

Table (1)

  • Depreciation expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the depreciation expense with $1,400.
  • Accumulated depreciation is a contra-asset account, and it decreases the value of assets. Hence, credit the accumulated depreciation expense with $1,400.

Allowance for doubtful accounts:

DateAccount Title and Explanation

Debit

($)

Credit

($)

December 31Bad debt expense270 
 Allowance for doubtful accounts ($650$380) 270
 (To record the bad debts expense estimated at the end of the accounting year)  

Table (2)

  • Bad expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the bad expense with $270.
  • Allowance for doubtful accounts is a contra-asset account, and it decreases the value of assets. Hence, credit the allowance for doubtful account with $270.

Income tax payable:

DateAccount Title and Explanation

Debit

($)

Credit

($)

December 31Income tax expense2,250 
 Income tax payable ($2,250$0) 2,250
 (To record the income tax expense accrued at the end of the accounting year)  

Table (3)

  • Income tax expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the interest expense with $2,250.
  • Income tax payable is a liability account and it increases in the value of liabilities. Hence, credit the income tax payable with $2,250.

Interest payable:

DateAccount Title and Explanation

Debit

($)

Credit

($)

December 31Interest expense320 
     Interest payable ($320$0) 320
 (To record the interest expense accrued at the end of the accounting year)  

Table (4)

  • Interest expense is component of shareholders’ equity, and it decreases the value of shareholders equity

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