The following information is available for Perry Sales on August 31 for the mont
ID: 2370139 • Letter: T
Question
The following information is available for Perry Sales on August 31 for the month just ended.a.$1,850 of the television advertising paid for in advance has been used.
b.Furniture purchased at the start of the month for $4,500 is estimated to have a useful life of five years. After this time, the furniture will be sold for $1,500.
c.A review of the $24,000 unadjusted balance in the prepaid rent account shows a remaining balance of $19,000 at the end of the month.
d.$5,000 of advertising Perry Sales placed in the local newspaper is unrecorded and unpaid.
e.Of the $8,000 consulting fees Perry Sales received in advance, $4,900 has not yet been earned.
Prepare the required adjusting entries at August 31, 2011.
Enter the transaction letter as the description when entering the transactions in the journal. Dates must be entered in the format dd/mmm (i.e., January 15 would be 15/Jan). For each journal entry, indicate how each account affects the balance sheet (Assets, Liabilities, Equity). Use + for increase and - for decrease. For example, if an account decreases equity, choose '-Equity'.
Explanation / Answer
The following information is available for Perry Sales on August 31 for the month just ended.
a.$1,850 of the television advertising paid for in advance has been used.
Debit: Advertising Expense 1850
Credit: Prepaid Advertising 1850
This will decrease equity (because it increases an expense) and decrease assets.
b.Furniture purchased at the start of the month for $4,500 is estimated to have a useful life of five years. After this time, the furniture will be sold for $1,500.
Depreciation assuming straight line: (4500 – 1500)/5 = 600 per year. For one month, it is 600/12 =50
Debit: Depreciation expense 50
Credit: Accumulated Depreciation 50
This will decrease equity (because it increases an expense) and decrease assets.
c.A review of the $24,000 unadjusted balance in the prepaid rent account shows a remaining balance of $19,000 at the end of the month.
Debit: Rent expense 5,000
Credit: Prepaid rent 5,000
This will decrease equity (because it increases an expense) and decrease assets.
d.$5,000 of advertising Perry Sales placed in the local newspaper is unrecorded and unpaid.
Debit: Advertising Expense 5,000
Credit: Accounts Payable 5,000
This will decrease equity (because it increases an expense) and increases liabilities.
e.Of the $8,000 consulting fees Perry Sales received in advance, $4,900 has not yet been earned.
They earned 8,000 – 4,900 = 3,100
Debit: Unearned Revenue 3,100
Credit: Earned Revenue 3,100
This will decrease liabilities and increase equity (because it increases revenue).
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