Chapter 3 Adjusing Accounts for Finencial Statements 133 Ricardo Construction be

Question

Chapter 3 Adjusing Accounts for Finencial Statements 133 Ricardo Construction began operations on December I. In setting up is accounting procedures, the com eredit revenue accounts when Exercise 3-11 pany decided to debit expense accounts when it prepays its expenses and lo customers pay for services in advance. Prepare journal entries for items a through d and the adjusting en recorded as expenses and tries as of its December 31 perio chan of accounls: Cash: Accounts Receivable: Interest Receivable: Supplies; Prepaid Insurance; Unearned recorded as revenues Adjusting for prepaids d-end for items e through g. (Entries can draw from the following partial unearned revenues s; Remodeling Fees Earned: Supplies Expense; Insurance Expense: Interest Expense) P4 a. Supplies are purchased on December 1 for $2,000 cash. b. The company prepaid its insurance premiums for $1.540 cash on December 2 c. On December 15, the compan y receives an advance payment of $13,000 cash from a customer for re modeling work d. On December 28, the company receives $3,700 cash from another customer for remodeling work to he e. A physical count on December 31 indicates that the Company has $1.840 of supplies available t. An analysis of the insurance policies in effect on December 31 shows that $340 of insurance coverage Check n g. As of December 31. only one remodeling project has been worked on and completed. The $5.570 fee performed in January rswande had expired. for this project had been received in advance and recorded as remodeling sees earned Fees Eaned, $13,130 200 Y

Explanation / Answer

a. Journal entries for transactions from a to d

b. Adjusting Journal entries for transactions from e to g

Note 1 - Supplies expenses

a. Total supplies purchased on December 1 = $2,000

b. Closing balance of supplies December 31 = $1,840

Supplies consumed from the December 1 to December 31 (a - b) = $2,000 - $1,840 = $160

Note 2 - prepaid Insurance

Prepaid Insurance recorded on December 2 = $1,540

Insurance expired or Insurance expenses during December = $340

Therefore prepaid insurance at the December 31 = $1,540 - $340 = $1200.

Journal entry explanation

What to debit: Prepaid Insurance is a asset to the company and an asset account has to be debited when they are recognised in the books of accounting So, to record the prepaid insurance which is an asset, 'prepaid insurance account' has to be debited.

What to credit: Insurance Expense account has debit balance of $1,540. But during December, the Insurance Expense is only $340. Therefore, company need to decrease this account by $1,200 by crediting the Insurance Expense account.

Note 3 - Unearned Remodeling Fees recognised

Total cash received in advance for the Remodeling work = $13,000 + $3,700 = $16,700

Value of Remodeling project worked on and completed during December= $5,570.

Unearned revenue = Unearned Remodeling fees = $16,700 - $5,570 = $11,130

During December, Out of $16,700 cash received from customers for remodeling work, remodeling work with value $5,570 is completed. Therefore company has to recognise only $5,570 as revenue in the books of accounts and remaining amount of $11,130 shall be recorded as unearned revenue.

What to debit: When the company received the cash (on December 15 and December 28)) in advance for remodeling work, company has recognised this entire amount of $16,700 as revenue by crediting the 'Remodeling Fees Earned account'. But the amount company actually earned is only $5,570. In order to bring the credit balance of $16,700 in 'Remodeling Fees Earned account', to $5,570, company has to debit the 'Remodeling Fees Earned account' with $11,130.

Date Account Titles and Explanation Debit Credit December 1 Supplies a/c $2,000 Cash a/c $2,000 [Supplies purchased] December 2 Insurance expenses a/c $1,540 Cash a/c $1,540 [Cash paid for insurance premium] December 15 Cash a/c $13,000 Remodeling Fees earned a/c $13,000 [cash received in advance for remodeling work] December 28 Cash a/c Remodeling Fees earned a/c [cash received in advance for remodeling work]

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.