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Chapter 3: 3-22E (page 163)

Question :Consider the following independent situations at December 31: a. On October 1, a business collected \(3,000 rent in advance, debiting Cash and crediting Unearned Revenue. The tenant was paying one year’s rent in advance. On December 31, the business must account for the amount of rent it has earned. b. Salaries expense is \)1,800 per day—Monday through Friday—and the business pays employees each Friday. This year, December 31 falls on a Thursday. c. The unadjusted balance of the Office Supplies account is \(3,000. Office supplies on hand total \)1,900. d. Equipment depreciation was \(500. e. On April 1, when the business prepaid \)4,320 for a two-year insurance policy, the business debited Prepaid Insurance and credited Cash. Journalize the adjusting entry needed on December 31 for each situation. Use the letters to label the journal entries

Short Answer

Expert verified

Adjusting entries are as follows:

Transactions

Accounts and Explanation

Debit

Credit

(a)

Unearned Revenue

$750

Rent Revenue

$750

To record service revenue earned

(b)

Salaries Expense

$7,200

Salaries Payable

$7,200

To record accrued salaries expense

(c)

Supplies Expense

$1,100

Office Supplies

$1,100

To record office supplies used

(d)

Depreciation Expense—Equipment

$500

Accumulated Depreciation—Equipment

$500

To record depreciation on equipment

(e)

Insurance Expense

$1,620

Prepaid Rent

$1,620

To record insurance expense

Step by step solution

01

Step-by-Step-SolutionStep1: Calculation of Rent Revenue

Rent revenue is calculated as follows:

RentRevenue=AmountReceived×NumberofMonthsExpiredTotalMonthsofRentPaid=$3,000×312=$750

02

Calculation of Salaries Expense

Salaries expense is calculated as follows:

SalariesExpense=SalariesPerDay×NumberofDaysExpired=$1,800×4=$7,200

03

Calculation of Office Supplies Used

Office Supplies Used is calculated as follows:

OfficeSuppliesUsed=OfficeSuppliesBalanceBeforeAdjustment-OfficeSuppliesonHand=$3,000-$1,900=$1,100

04

Calculation of Insurance Expense

Insurance expense is calculated as follows:

InsuranceExpense=AmountPaid×NumberofMonthsExpiredTotalMonthsofInsurancePaid=$4,320×924=$1,620

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Most popular questions from this chapter

On October 1, Orlando Gold Exchange paid cash of $57,600 for computers that are expected to remain useful for three years. At the end of three years, the value of the computers is expected to be zero. Requirements 1. Calculate the amount of depreciation for the month of October using the straightline depreciation method. 2. Record the adjusting entry for depreciation on October 31. 3. Post the purchase of October 1 and the depreciation on October 31 to T-accounts for the following accounts: Computer Equipment, Accumulated Depreciation— Computer Equipment, and Depreciation Expense—Computer Equipment. Show their balances at October 31. 4. What is the computer equipment’s book value on October 31?

Question :What does accumulated depreciation represent?

Question :The accounting records of Mackay Architects include the following selected, unadjusted balances at March 31: Accounts Receivable, \(1,500; Office Supplies, \)700; Prepaid Rent, \(2,240; Equipment, \)8,000; Accumulated Depreciation—Equipment, \(0; Salaries Payable, \)0; Unearned Revenue, \(900; Service Revenue, \)4,100; Salaries Expense, \(800; Supplies Expense, \)0; Rent Expense, \(0; Depreciation Expense—Equipment, \)0. The data developed for the March 31 adjusting entries are as follows: a. Service revenue accrued, \(700. b. Unearned revenue that has been earned, \)100. c. Office Supplies on hand, \(300. d. Salaries owed to employees, \)200. e. One month of prepaid rent has expired, \(560. f. Depreciation on equipment, \)120. Requirements 1. Open a T-account for each account using the unadjusted balances given. 2. Journalize the adjusting entries using the letter and March 31 date in the date column. 3. Post the adjustments to the T-accounts, entering each adjustment by letter. Show each account’s adjusted balance.

On September 1, 2018, Salem Landscaping collected $24,000 in advance from customers for landscaping services. The service revenue will be earned monthly over the 12-month period ending August 31, 2019. Requirements 1. Journalize the entry on September 1 by using the alternative treatment of deferred revenues. 2. Record the December 31, 2018 adjusting entry

Identify the impact on the income statement and balance sheet if adjusting entries for the following situations were not recorded. a. Office Supplies used, \(800. b. Accrued service revenue, \)4,000. c. Depreciation on building, \(3,500. d. Prepaid Insurance expired, \)650. e. Accrued salaries expense, \(2,750. f. Service revenue that was collected in advance has now been earned, \)130
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