Andy Wright,D.D.S., opened a dental practice on January 1, 2008. During the first month
of operations the following transactions occurred.
1. Performed services for patients who had dental plan insurance. At January 31, $875 of such
services was earned but not yet recorded.
2. Utility expenses incurred but not paid prior to January 31 totaled $520.
3. Purchased dental equipment on January 1 for $80,000, paying $20,000 in cash and signing a
$60,000, 3-year note payable.The equipment depreciates $400 per month. Interest is $500 per
month.
4. Purchased a one-year malpractice insurance policy on January 1 for $12,000.
5. Purchased $1,600 of dental supplies. On January 31, determined that $400 of supplies were on
hand.
Instructions
Prepare the adjusting entries on January 31. Account titles are: Accumulated Depreciation—
Dental Equipment, Depreciation Expense, Service Revenue, Accounts Receivable, Insurance
Expense, Interest Expense, Interest Payable, Prepaid Insurance, Supplies, Supplies Expense,
Utilities Expense, and Utilities Payable.
To prepare the adjusting entries on January 31, we need to take into account the following information:
1. Performed services for patients with dental plan insurance: $875 of services were earned but not yet recorded. This means that we need to record the revenue for these services.
- Debit: Accounts Receivable (to record the revenue that is earned but not yet received)
- Credit: Service Revenue (to record the revenue for the services performed)
2. Utility expenses incurred but not paid prior to January 31: $520 of utility expenses need to be recorded. This means we need to recognize the expense for these utilities.
- Debit: Utilities Expense (to recognize the expense incurred)
- Credit: Utilities Payable (to record the amount payable for the utility expenses)
3. Depreciation of dental equipment: The dental equipment purchased on January 1 for $80,000 depreciates at $400 per month. We need to record the monthly depreciation expense.
- Debit: Depreciation Expense (to recognize the monthly depreciation expense)
- Credit: Accumulated Depreciation—Dental Equipment (to accumulate the depreciation over time)
4. Prepaid insurance: A one-year malpractice insurance policy was purchased on January 1 for $12,000. Since January has passed, we need to record the portion of the insurance that is now expired.
- Debit: Insurance Expense (to recognize the expired portion of the insurance policy)
- Credit: Prepaid Insurance (to reduce the prepaid insurance account)
5. Supplies: $1,600 of dental supplies were purchased, but on January 31, $400 of supplies are still on hand. We need to adjust the supplies account for the amount used during the month.
- Debit: Supplies Expense (to recognize the supplies used)
- Credit: Supplies (to reduce the supplies on hand)
So, the adjusting entries on January 31 are as follows:
1. Debit: Accounts Receivable - $875
Credit: Service Revenue - $875
2. Debit: Utilities Expense - $520
Credit: Utilities Payable - $520
3. Debit: Depreciation Expense - $400
Credit: Accumulated Depreciation—Dental Equipment - $400
4. Debit: Insurance Expense - $1,000 ($12,000 / 12 months)
Credit: Prepaid Insurance - $1,000
5. Debit: Supplies Expense - $1,200 ($1,600 - $400)
Credit: Supplies - $1,200