Prepare adjusting entries for the following transactions.

1. Depreciation on equipment is $1,340 for the accounting period.

2. Interest owed on a loan but not paid or recorded (accrual) is $275.

3. There was no beginning balance of supplies and $550 of office supplies were purchased during the period. At the end of the period $100 of supplies were on hand.

4. Legal service revenues of $4,000 were collected in advance. By year-end $900 was still unearned.

5. Salaries incurred by year end but not yet paid or recorded amounted to $900.

Question

Henry Rogers

Business

2 December, 19:02

Prepare adjusting entries for the following transactions.

1. Depreciation on equipment is $1,340 for the accounting period.

2. Interest owed on a loan but not paid or recorded (accrual) is $275.

3. There was no beginning balance of supplies and $550 of office supplies were purchased during the period. At the end of the period $100 of supplies were on hand.

4. Legal service revenues of $4,000 were collected in advance. By year-end $900 was still unearned.

5. Salaries incurred by year end but not yet paid or recorded amounted to $900.

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Answers (1)

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Adrianna Fitzgerald · Answer 1

1. Debit Depreciation expense $1,340

Credit Accumulated depreciation $1,340

2. Debit Interest expense $275

Credit Accrued Interest $275

3. Debit Supplies expense $450

Credit Supplies Account $450

4. Debit Unearned Service revenue $3,100

Credit Service revenue $3,100

5. Debit Salaries expense $900

Credit Accrued Salaries $900

Explanation:

Depreciation is the systematic allocation of the cost of an asset to the income statement over the estimated useful life of that asset.

It is determined as the depreciable value of the asset over the estimated useful life of the asset where the depreciable value is the difference between the cost and salvage value of the asset

Mathematically,

Depreciation = (Cost - Salvage value) / Estimated useful life

It is recorded by debiting depreciation and crediting accumulated depreciation.

When interest is incurred as an expense but yet to be paid, it will be accrued for by Debiting Interest expense and crediting accrued Interest. The same applies to salaries incurred but yet to be paid.

When Supplies is purchased, Debit supplies and credit Cash/Accounts payable. As Supplies are used up, debit supplies expense (with the amount used) and Credit Supplies account.

Amount of supplies used up = $550 - $100

= $450

When a fee is received in advance for a service yet to be rendered, the revenue for such fee is said to be unearned. The entries required are

Debit Cash account and Credit Unearned fees or deferred revenue.

As the service is performed and the revenue is earned, debit Unearned fees and credit revenue.

Earned revenue = $4,000 - $900

= $3,100