Prepare adjusting journal entries for the year ended December 31, 2011 for each of the independent situation in (a) to (f). Assume that prepaid expenses are initially recorded in asset accounts. Assume that fees collected in advance of work are initially recorded as liabilities.
a. Amortization on the company`s equipment for 2011 was estimated to be $32,000.
b. The prepaid insurance account had a $14,000 debit balance at December 31, 2011 before adjusting for the costs of any expired coverage. An analysis of the company`s insurance policies showed $2080 of unexpired insurance remaining.
c. The Office Supplies account had a $600 debit balance on January 1, 2011. $5,360 of office supplies were purchased during the year, and the December 31, 2011 count showed that $708 of supplies are on hand.
d. Two-thirds of the work for a $30,000 fee received in advance has now been performed.
e. The Prepaid insurance account had an $11,200 debit balance at December 31, 2011 before adjusting for the costs of any expired coverage. An analysis of the company`s insurance policies showed that $9,200 of coverage has expired.
f. Wages of $8,000 have been earned by workers but not paid as of December 31, 2011.
g. Record the January 6, 2012 payment of $20,000 in wages inclusive of the $8,000 December 31, 2011 account in (f) above.
Good
To prepare the adjusting journal entries for each situation, we need to determine the appropriate accounts affected and the amounts to be recorded.
a. Amortization expense is a non-cash expense that represents the gradual reduction in value of an asset. In this case, the equipment amortization expense for 2011 is estimated to be $32,000. The journal entry would be:
Debit: Amortization Expense $32,000
Credit: Accumulated Amortization - Equipment $32,000
b. The prepaid insurance account represents the portion of insurance that has been paid but not yet expired. The analysis shows $2,080 of unexpired insurance remaining. The adjusting entry would be:
Debit: Insurance Expense $11,920 ($14,000 - $2,080)
Credit: Prepaid Insurance $11,920
c. The Office Supplies account represents the amount of supplies purchased but not yet used. Given that supplies worth $5,360 were purchased during the year and $708 are still on hand, the adjusting entry would be:
Debit: Office Supplies Expense $5,192 ($5,360 - $708)
Credit: Office Supplies $5,192
d. Two-thirds of the work for the $30,000 fee received in advance has been performed. This means that $20,000 ($30,000 * 2/3) has now been earned. The adjusting entry would be:
Debit: Unearned Revenue $20,000
Credit: Revenue $20,000
e. The Prepaid Insurance account had a $11,200 debit balance at December 31, 2011, before adjusting for the costs of any expired coverage. The analysis shows that $9,200 of coverage has expired. The adjusting entry would be:
Debit: Insurance Expense $9,200
Credit: Prepaid Insurance $9,200
f. Wages of $8,000 have been earned by workers but not yet paid as of December 31, 2011. The adjusting entry would be:
Debit: Wages Expense $8,000
Credit: Wages Payable $8,000
g. Assuming that the $8,000 from situation (f) is included in the $20,000 payment made on January 6, 2012, the adjusting entry would be recorded in 2012.
Debit: Wages Payable $8,000
Credit: Wages Expense $8,000
These adjusting journal entries are necessary to accurately reflect the appropriate expenses, revenues, and liabilities for the year ended December 31, 2011. It ensures that the financial statements present a true and fair view of the company's financial position.
a. Debit: Amortization Expense ($32,000)
Credit: Accumulated Depreciation on Equipment ($32,000)
b. Debit: Insurance Expense ($11,920)
Credit: Prepaid Insurance ($11,920)
c. Debit: Office Supplies Expense ($4,252)
Credit: Office Supplies ($4,252)
d. Debit: Unearned Revenue ($20,000)
Credit: Revenue ($20,000)
e. Debit: Insurance Expense ($2,000)
Credit: Prepaid Insurance ($2,000)
f. Debit: Wages Expense ($8,000)
Credit: Wages Payable ($8,000)
g. Debit: Wages Payable ($8,000)
Debit: Wages Expense ($12,000)
Credit: Cash ($20,000)