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.
Responses
To prepare the adjusting entries on January 31, we need to consider the transactions that occurred during the first month of operations. Let's go through each transaction and determine the appropriate adjusting entry for each.
1. Performed services for patients with dental plan insurance:
Since $875 of services were earned but not yet recorded, we need to recognize the revenue. The adjusting entry would be:
Debit: Accounts Receivable $875
Credit: Service Revenue $875
2. Utility expenses incurred but not paid:
Since $520 of utility expenses were incurred but not yet paid, we need to recognize the expense and the corresponding liability. The adjusting entry would be:
Debit: Utilities Expense $520
Credit: Utilities Payable $520
3. Depreciation of dental equipment:
The equipment has a total cost of $80,000 and depreciates at a rate of $400 per month. Since we're adjusting for one month, the depreciation expense would be $400. The adjusting entry would be:
Debit: Depreciation Expense $400
Credit: Accumulated Depreciation—Dental Equipment $400
4. Prepaid insurance for malpractice insurance:
Since a one-year malpractice insurance policy was purchased for $12,000 on January 1, and one month has passed, the portion of the insurance that has been used up is $1,000 ($12,000 divided by 12 months). The adjusting entry would be:
Debit: Insurance Expense $1,000
Credit: Prepaid Insurance $1,000
5. Supplies on hand:
We purchased $1,600 of dental supplies, but on January 31, we determined that only $400 of supplies were still on hand. This means $1,200 of supplies have been used up. The adjusting entry would be:
Debit: Supplies Expense $1,200
Credit: Supplies $1,200
That covers all the transactions. Make sure to review the adjusting entries for accuracy and completeness before finalizing them.