Concept explainers
Introduction: Each financial transaction or economic event will affect either assets, liabilities, or owners’ equity. Thus, the basis for recording the transaction in the accounting system depends on the
The necessary adjustments for each of the given transactions from (a) through (h) on April 30, 2017.
Answer to Problem 4.5.1P
Following are the adjustments required.
- Insurance expense$50
- Supply expenses $70
Depreciation expense office equipment $417- Depreciation expense Automobile $200
- Commission revenue $4,500
- Commission revenue $1,500
- Interest expense $20
- Salary $2,500
Explanation of Solution
- Adjustment for prepaid insurance
Activity: Operating
Accounts: Prepaid insurance − Decreases
Insurance expense − Increase
Statements:
Balance sheet | Income Statement | ||||
Assets = | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Prepaid insurance ($50) | ($50) | Insurance expense $50 | ($50) |
Computation of prepaid insurance:
Prepaid insurance balance $450
Given insurance expense $50, thus insurance expense can be taken.
b. Adjustment for supplies used during the year
Activity: Operating
Accounts: Supply inventory. Decrease
Supplies expense. Increase
Statements: Balance sheet and Income statement
Balance sheet | Income Statement | ||||
Assets = | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Supply inventory ($70) | ($70) | Supply expenses $70 | ($70) |
Supplies consumed during the year
Supplies in hand | $250 |
Less: Supplies in hand at the end of April 30, 2017 | ($180) |
Supplies consumed | $70 |
c. Adjustments for depreciation on office equipment
Activity: Operating
Accounts: Depreciation expense − office equipment Increases.
Accumulated depreciation − Office equipment. Increase
Statements: Balance sheet and Income statement.
Balance sheet | Income Statement | ||||
Assets= | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Office equipment ($417) | ($417) | Depreciation expense − office equipment $417 | ($417) |
d. Adjustments of depreciation on the automobile.
Activity: Operating
Accounts: Depreciation expense − office equipment Increases.
Accumulated depreciation − Office equipment. Increase
Statements: Balance sheet and Income statement.
Balance sheet | Income Statement | ||||
Assets= | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Automobile ($200) | ($200) | Depreciation expense − Automobile $200 | ($200) |
Depreciation expense for each month will be:
e. Adjustment for deferred commission
Activity: Operating
Accounts: Deferred commission. Decreases
Commission’s revenue. Increases
Statements: Balance sheet and income statement.
Balance sheet | Income Statement | ||||
Assets = | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Deferred commission($4,500) | $4,500 | Commission revenue $4,500 | $4,500 |
f. Adjustment for commission receivable
Activity: Operations
Accounts: Commission Receivable. Increases
Commission revenue. Increases
Statements: Balance sheet and Income Statement.
Balance sheet | Income Statement | ||||
Assets = | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Commission receivable $1,500 | $1,500 | Commission revenue $1,500 | $1,500 |
g. Adjustment for interest owed
Activity: Operating
Accounts: Interest payable. Increases
Interest expense. Increases
Statements: Balance sheet and Income statement.
Balance sheet | Income Statement | ||||
Assets = | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Interest payable $20 | ($20) | Interest expense $20 | ($20) |
h. Adjustment for Salaries owed
Activity: Operating
Account: Salarypayable. Increases
Salary expenses expense. Increases
Statements: Balance sheet and Income statement.
Balance sheet | Income Statement | ||||
Assets = | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Salary payable $2,500 | ($2,500) | Salary expense $2,500 | ($2,500) |
Want to see more full solutions like this?
Chapter 4 Solutions
Using Financial Accounting Information
- Elite Realty acts as an agent in buying, selling, renting, and managing real estate. The unadjusted trial balance on March 31, 2016, follows: The following business transactions were completed by Elite Realty during April 2016: Instructions 1. Record the April 1, 2016, balance of each account in the appropriate balance column of a four-column account, write Balance in the item section, and place a check mark () in the Posting Reference column. 2. Journalize the transactions for April in a two-column journal beginning on Page 18. Journal entry explanations may be omitted. 3. Post to the ledger, extending the account balance to the appropriate balance column after each posting. 4. Prepare an unadjusted trial balance of the ledger as of April 30, 2016. 5. Assume that the April 30 transaction for salaries and commissions should have been 19,100. (a) Why did the unadjusted trial balance in (4) balance? (b) Journalize the correcting entry. (c) Is this error a transposition or slide?arrow_forwardValley Realty acts as an agent in buying, selling, renting, and managing real estate. The unadjusted trial balance on July 31, 2019, follows: The following business transactions were completed by Valley Realty during August 2019: Aug. 1. Purchased office supplies on account, 3,150. 2.Paid rent on office for month, 7,200. 3.Received cash from clients on account, 83,900. 5.Paid insurance premiums, 12,000. 9.Returned a portion of the office supplies purchased on August 1, receiving full credit for their cost, 400. Analyzing Transactions Aug. 17. Paid advertising expense, 8,000. 23.Paid creditors on account, 13,750. Enter the following transactions on Page 19 of the two-column journal: 29.Paid miscellaneous expenses, 1,700. 30.Paid automobile expense (including rental charges for an automobile), 2,500. 31.Discovered an error in computing a commission during July; received cash from the salesperson for the overpayment, 2,000. 31.Paid salaries and commissions for the month, 53,000. 31.Recorded revenue earned and billed to clients during the month, 183,500. 31.Purchased land for a future building site for 75,000, paying 7,500 in cash and giving a note payable for the remainder. 31.Withdrew cash for personal use, 1,000. 31.Rented land purchased on August 31 to a local university for use as a parking lot during football season (September, October, and November); received advance payment of 5,000. Instructions 1. Record the August 1 balance of each account in the appropriate balance column of a four-column account, write Balance in the item section, and place a check mark () in the Posting Reference column. 2. Journalize the transactions for August in a two-column journal beginning on Page 18. Journal entry explanations may be omitted. 3. Post to the ledger, extending the account balance to the appropriate balance column after each posting. 4. Prepare an unadjusted trial balance of the ledger as of August 31, 2019. 5. Assume that the August 31 transaction for Cindy Getmans cash withdrawal should have been 10,000. (a) Why did the unadjusted trial balance in (4) balance? (b) Journalize the correcting entry. (c) Is this error a transposition or slide?arrow_forwardReece Financial Services Co., which specializes in appliance repair services, is owned and operated by Joni Reece. Reece Financial Services Co.s accounting clerk prepared the following unadjusted trial balance at July 31, 2016: The data needed to determine year-end adjustments are as follows: a. Depreciation of building for the year, 6,400. b. Depreciation of equipment for the year, 2,800. c. Accrued salaries and wages at July 31, 900. d. Unexpired insurance at July 31, 1,500. e. Fees earned but unbilled on July 31, 10,200. f. Supplies on hand at July 31, 615. g. 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 ExpenseBuilding; Depreciation ExpenseEquipment; and Supplies Expense. 2. Determine the balances of the accounts affected by the adjusting entries and preparean adjusted trial balance.arrow_forward
- 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, 2019: 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 ExpenseBuilding, Depreciation ExpenseEquipment, and Supplies Expense. 2. Determine the balances of the accounts affected by the adjusting entries and prepare an adjusted trial balance.arrow_forwardThe following accounts were used to make year-end adjustments. Identify the related account that is associated with this account (the other account in the adjusting entry). A. Salaries Payable B. Depreciation Expense C. Supplies D. Unearned Rentarrow_forwardElite Realty acts as an agent in buying, selling, renting, and managing real estate. The unadjusted trial balance on March 31, 2019, follows: The following business transactions were completed by Elite Realty during April 2019: Apr. 1. Paid rent on office for month, 6,500. 2.Purchased office supplies on account, 2,300. 5.Paid insurance premiums, 6,000. 10.Received cash from clients on account, 52,300. 15.Purchased land for a future building site for 200,000, paying 30,000 in cash and giving a note payable for the remainder. 17.Paid creditors on account, 6,450. 20.Returned a portion of the office supplies purchased on April 2, receiving full credit for their cost, 325. 23.Paid advertising expense, 4,300. Enter the following transactions on Page 19 of the two-column journal: 27.Discovered an error in computing a commission; received cash from the salesperson for the overpayment, 2,500. 28.Paid automobile expense (including rental charges for an automobile), 1,500. 29.Paid miscellaneous expenses, 1,400. 30.Recorded revenue earned and billed to clients during the month, 57,000. 30.Paid salaries and commissions for the month, 11,900. 30.Withdrew cash for personal use, 4,000. 30.Rented land purchased on April 15 to local merchants association for use as a parking lot in May and June, during a street rebuilding program; received advance payment of 10,000. Instructions 1. Record the April 1, 2019, balance of each account in the appropriate balance column of a four-column account, write Balance in the item section, and place a check mark () in the Posting Reference column. 2. Journalize the transactions for April in a two-column journal beginning on Page 18. Journal entry explanations may be omitted. 3. Post to the ledger, extending the account balance to the appropriate balance column after each posting. 4. Prepare an unadjusted trial balance of the ledger as of April 30, 2019. 5. Assume that the April 30 transaction for salaries and commissions should have been 19,100. (a) Why did the unadjusted trial balance in (4) balance? (b) Journalize the correcting entry. (c) Is this error a transposition or slide?arrow_forward
- Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningFinancial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage LearningFinancial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College