Adjusting entries affect at least one balance sheet account and at least one income statement account.
For the entries below, identify the account to be debited and the account to be credited from the following
accounts: Cash; Accounts Receivable; Prepaid Insurance; Equipment; Accumulated
Depreciation; Wages Payable; Unearned Revenue; Revenue; Wages Expense; Insurance Expense;
Depreciation Expense. Indicate which of the accounts is the income statement account and which is
the balance sheet account.
a. Entry to record revenue earned that was previously received as cash in advance.
b. Entry to record wage expenses incurred but not yet paid (nor recorded).
c. Entry to record revenue earned but not yet billed (nor recorded).
d. Entry to record expiration of prepaid insurance.
e. Entry to record annual depreciation expense.
The depreciation expense account is debited and accumulated depreciation is credited.
The fall in the value of the machinery due to constant use is known as depreciation.
Prepare adjusting journal entries for the year ended (date of) December 31, 2017, for each of these separate situations.
(Entries can draw from the following partial chart of accounts: Cash; Accounts Receivable; Supplies;
Prepaid Insurance; Equipment; Accumulated Depreciation—Equipment; Wages Payable; Unearned Revenue;
Revenue; Wages Expense; Supplies Expense; Insurance Expense; Depreciation Expense—Equipment.)
a. Depreciation on the company’s equipment for 2017 is computed to be $18,000.
b. The Prepaid Insurance account had a $6,000 debit balance at December 31, 2017, before adjusting for
the costs of any expired coverage. An analysis of the company’s insurance policies showed that $1,100
of unexpired insurance coverage remains.
c. The Office Supplies account had a $700 debit balance on December 31, 2016; and $3,480 of office
supplies were purchased during the year. The December 31, 2017, physical count showed $300 of supplies
d. Two-thirds of the work related to $15,000 of cash received in advance was performed this period.
e. The Prepaid Insurance account had a $6,800 debit balance at December 31, 2017, before adjusting for the
costs of any expired coverage. An analysis of insurance policies showed that $5,800 of coverage had expired.
f. Wage expenses of $3,200 have been incurred but are not paid as of December 31, 2017.
Question: For each case below, follow the three-step process for adjusting the unearned revenue liability
account on December 31. Step 1: Determine what the current account balance equals. Step 2: Determine
what the current account balance should equal. Step 3: Record the December 31 adjusting entry to get
from step 1 to step 2. Assume no other adjusting entries are made during the year.
a. Unearned Rent Revenue. The Krug Company collected $6,000 rent in advance on November 1, debiting
Cash and crediting Unearned Rent Revenue. The tenant was paying 12 months’ rent in advance
and occupancy began November 1.
b. Unearned Services Revenue. The company charges $75 per month to spray a house for insects. A
customer paid $300 on October 1 in advance for four treatments, which was recorded with a debit to
Cash and a credit to Unearned Services Revenue. At year-end, the company has applied three treatments
for the customer.
c. Unearned Rent Revenue. On September 1, a client paid the company $24,000 cash for six months of
rent in advance (the client leased a building and took occupancy immediately). The company recorded
the cash as Unearned Rent Revenue.
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