question archive PROBLEM #1 Prepare adjusting journal entries for the year ended (or date of) December 31, 2005, for each of these separate situations
PROBLEM #1 Prepare adjusting journal entries for the year ended (or date of) December 31, 2005, for each of these separate situations
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PROBLEM #1 Prepare adjusting journal entries for the year ended (or date of) December 31, 2005, for each of these separate situations. a. Depreciation on the company's equipment for 2005 is computed to be $16,000. b. The Prepaid Insurance account had a $7,000 debit balance at December 31, 2005, before adjusting for the costs of any expired coverage. An analysis of the company's insurance policies showed that $680 of unexpired insurance coverage remains. c. The Office Supplies account had a $415 debit balance on December 31, 2004; and $2,680 of office supplies was purchased during the year. The December 31, 2005, physical count showed $489 of supplies available. d. One-fifth of the work related to $10,000 cash received in advance was performed this period. e. The Prepaid Insurance account had a $5,600 debit balance at December 31, 2005, before adjusting for the costs of any expired coverage. An analysis of insurance policies showed that $4,920 of coverage had expired. f. Wage expenses of $4,000 have been incurred but are not paid as of December 31, 2005.
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A) Depreciation expense 16000
Accumulated depreciation 16000
B) Insurance expense 6320
Prepaid insurance 6320
C) Inventory end 489
Cost of goods sold 2606
Purchases 2680
Inventory, beg 415
D) Unearned service Income 2000
Service Income 2000
E) Insurance expense 4920
Prepaid insurance 4920
F)Wage expenses 4000
Wages payable 4000
B) Unexpired insurance is the remaining prepaid insurance (asset) for the year (7000 -680). This amount of expired portion is already incurred thus should be expensed.
D) Only the earned portion (service performed) should be recorded as income and the other as liability (unearned)
E)Unlike entry B, the expired portion is already given. Thus the amount is immediately expensed, prepaid insurance on the other hand should be decreased to unexpired portion.
F)Expenses are recognized if incurred regardless if paid.
