Solution of Adjusting Entries - Case 4.1 - Financial and Managerial Accounting

Solution of Adjusting Entries - Case 4.1 - Financial and Managerial Accounting 15e is given blow;

A.  

No adjusting entry is required because the revenue has already been earned prior to December 31^st.

B.  

Adjusting Entry:

Unearned Revenue……….Dr

Revenue Earned ……….Cr

Explanation

3 months revenue was collected in advance on December 1^st and was credited to an Unearned Revenue A/c. At December 31^st an adjusting entry is needed to recognize 1/3 of this amount as revenue.

Effect of Adjusting Entry:

The effect of this adjusting entry will be reduced the liability, increase the revenue earned in this period and thus increase in owner’s equity.

C.  

Adjusting Entry:

Accounts Receivable……….Dr

Revenue Earned……….Cr

Explanation

Adjusting entry is required to record the revenue which we have earned because we have rendered a part of the services to the customer before the billed. Therefore the services we have rendered should be recorded.

Effect of Adjusting Entry:

The effect of the adjusting entry will increase in asset, increase the revenue which lead to increase in owner’s equity.

D.  

No adjusting entry is required because the benefit of insurance policy will start from January 2, 2010 and entry for the payment of unexpired insurance has already been recorded which is

Unexpired Insurance……….Dr

            Cash……………………..Cr

E.  

Adjusting Entry:

Depreciation Expense: Equipment………………Dr

Accumulated Depreciation: Equipment………Cr

Explanation

Equipment is our asset, it was debited to assets account, it is correct. But the adjusting entry is required because the depreciation of asset (equipment) is not recorded.

Effect of Adjusting Entry:

This adjusting entry will increase the expense which leads to decrease in revenue and thus owner’s equity also decreases.

F.   

Adjusting Entry:

Salaries Expense………..Dr

Salaries Payable…….Cr

Explanation

Adjusting entry is required because salaries have been earned by employees and due on January 2, 2010, but not yet have been recorded.

Effect of Adjusting Entry:

This adjusting entry will increase liabilities of business and expenses will be increased which leads to decrease in revenue earned thus owner’s equity also decrease.