P4-2A, Prepare adjusting entries, post to ledger accounts, and prepare adjusted
ID: 2378337 • Letter: P
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P4-2A, Prepare adjusting entries, post to ledger accounts, and prepare adjusted trial balance. Ken Lumas started his own consulting firm, Lumas Consulting, on June 1, 2014. The trial balance at June 30 is as follows. LUMAS CONSULTING Trial Balance June 30, 2014 Debit Credit Cash $6,850 Accounts Receivable 7,000 Prepaid Insurance 2,880 Supplies 2,000 Equipment 15,000 Accounts Payable $4,230 Unearned Service Revenue 5,200 Common Stock 22,000 Service Revenue 8,300 Salaries and Wages Expense 4,000 Rent Expense 2,000 $39,730 $39,730 In addition to those accounts listed on the trial balance, the chart of accounts for Lumas also contains the following accounts: Accumulated Depreciation P4-2A, Prepare adjusting entries, post to ledger accounts, and prepare adjusted trial balance. Ken Lumas started his own consulting firm, Lumas Consulting, on June 1, 2014. The trial balance at June 30 is as follows. LUMAS CONSULTING Trial Balance June 30, 2014 Debit Credit Cash $6,850 Accounts Receivable 7,000 Prepaid Insurance 2,880 Supplies 2,000 Equipment 15,000 Accounts Payable $4,230 Unearned Service Revenue 5,200 Common Stock 22,000 Service Revenue 8,300 Salaries and Wages Expense 4,000 Rent Expense 2,000 $39,730 $39,730 In addition to those accounts listed on the trial balance, the chart of accounts for Lumas also contains the following accounts: Accumulated DepreciationExplanation / Answer
Before we prepare the trial balance, we need to "update the books" and make sure the general ledger balances reflect ALL activity during the period. Not everything up to this point has been entered into the general journal, so we need to prepare journal entries, i.e., adjusting entries, to determine the correct ending balances.
Our adjusting entries will be based on the information under "Other data."
1. The balance in Supplies should be $980. According to the beginning of the year balances, however, it is $2000. We need to "adjust" the balance of Supplies so that it reflects the actual amount of supplies on hand and to recognize, as an expense, the amount of supplies used up.
Our adjusting entry looks like this:
Supplies expense . . . . . 1020
. . Supplies . . . . . . . . . . . . . . 1020
2. There is a liability for utilities outstanding at the end of the month. We need to report this liability as well as ensure that this expense is recorded - after all, the utilities bill is for THIS month.
Utilities expense . . . . . . . 180
. . . Utilities payable . . . . . . . . 180
3. The insurance policy, purchased for $2640, is for one year. One month has passed, so one month of the insurance policy has been "used up." What we're really doing is matching expenses with revenues; the insurance policy needs to be expensed throughout its life.
Insurance expense . . . . . 220
. . . Prepaid insurance . . . . . . 220
. . . . [ 2640 / 12 ]
4. At the beginning of the month, unearned service revenue of $5200 is reported. $3900 was earned during the month, so we need to 1) recognize the revenue earned and 2) decrease our liability, as we no longer owe our customers $5200 of services.
Unearned service revenue . . . 3900
. . . Service revenue . . . . . . . . . . . . 3900
5. Like #2, salaries is an accrued expense, an expense of the period that won't be paid until next month. This means that, as of June 30, there is a liability to pay the employees the salary they earned.
Salaries and wages expense . . . 1250
. . . Salaries and wages payable . . . . . 1250
6. Similar to the the prepaid insurance, we need to expense the cost of the equipment throughout its useful life. For long-lived assets such as equipment, this is known as depreciation. $250 of the assets cost will be expensed each month.
Depreciation expense . . . . . . . . . . . . . . . 250
. . . Accumulated deprecation - equipment . . . 250
7. The company performed services - earned revenue - for which no journal entries have yet been made.
Accounts Receivable . . . . . 3500
. . . Service revenue . . . . . . . . . . 3500
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