Andy Wright, D.D.S, opened a dental practice on January 1, 2010. 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 consider the transactions and their impact on the different accounts. Here's a breakdown of each transaction and the corresponding adjusting entry:
1. Performed services for patients who had dental plan insurance, but $875 of such services were earned but not yet recorded.
Adjusting Entry:
Debit Service Revenue: $875
Credit Accounts Receivable: $875
This entry recognizes the revenue earned for the services provided to patients covered by dental plan insurance.
2. Utility expenses incurred but not paid prior to January 31 totaled $520.
Adjusting Entry:
Debit Utilities Expense: $520
Credit Utilities Payable: $520
This entry acknowledges the utility expenses incurred during the month and creates a liability for the unpaid amount.
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.
Adjusting Entry (Depreciation):
Debit Depreciation Expense: $400
Credit Accumulated Depreciation Dental Equipment: $400
This entry recognizes the monthly depreciation expense of the dental equipment.
Adjusting Entry (Interest):
Debit Interest Expense: $500
Credit Interest Payable: $500
This entry acknowledges the monthly interest expense on the note payable.
4. Purchased a one-year malpractice insurance policy on January 1 for $12,000.
Adjusting Entry:
Debit Insurance Expense: $12,000
Credit Prepaid Insurance: $12,000
This entry recognizes the portion of the insurance expense that has been used up during the month, reducing the prepaid insurance asset.
5. Purchased $1,600 of dental supplies. On January 31, determined that $400 of supplies were on hand.
Adjusting Entry:
Debit Supplies Expense: $1,200 ($1,600 - $400)
Credit Supplies: $1,200
This entry recognizes the supplies that have been used up during the month, reducing the supplies asset.
Once you record these adjusting entries, the accounts will reflect the accurate financial position of the dental practice as of January 31, taking into account the transactions and expenses incurred.