Use the 3-step adjusting entry process to prepare the adjusting entry necessary
ID: 2428012 • Letter: U
Question
Use the 3-step adjusting entry process to prepare the adjusting entry necessary to correctly report the revenue earned or the expense incurred: Step 1: Determine what the current account balance equals (See General Ledger tab) Step 2: Determine what the current account balance should equal. Step 3: Prepare an adjusting entry to get from Step 1 to Step 2.
Jenna Aracel opened a business called Aracel Engineering and recorded the following transactions in its first month of operations. Jun. 1 Jenna Aracel, the owner, invested $100,000 cash, office equipment with a value of $5,000, and $60,000 of drafting equipment to launch the company. Jun. 2 The company purchased land worth $49,000 for an office by paying $6,300 cash and signing a long-term note payable for $42,700. Jun. 2 The company purchased a portable building with $55,000 cash and moved it onto the land acquired on June 2. Jun. 2 The company paid $3,000 cash for the premium on a 15-month insurance policy. Jun. 7 The company completed and delivered a set of plans for a client and collected $6,200 cash. Jun. 12 The company purchased $20,000 of additional drafting equipment by paying $9,500 cash and signing a long-term note payable for $10,500. Jun. 14 The company completed $14,000 of engineering services for a client. This amount is to be received in 30 days. Jun. 15 The company purchased $1,150 of additional office equipment on credit. Jun. 17 The company completed engineering services for $22,000 on credit. Jun. 18 The company received a bill for rent of equipment that was used on a recently completed job. The $1,333 rent cost must be paid within 30 days. Jun. 20 The company collected $7,000 cash in partial payment from the client billed on June 14. Jun. 21 The company paid $1,200 cash for wages to a drafting assistant. Jun. 23 The company paid $1,150 cash to settle the account payable created on June 15. Jun. 24 The company paid $925 cash for minor maintenance of its drafting equipment. Jun. 26 Jenna Aracel withdrew $9,480 cash from the company for personal use. Jun. 28 The company paid $1,200 cash for wages to a drafting assistant. Jun. 30 The company paid $2,500 cash for advertisements on the web during June. Descriptions of items that require adjusting entries on June 30, 2015, follow. a) The company has completed, but not yet billed, $6,000 of engineering services for a client. b) Straight-line depreciation on the office equipment, assuming a 5-year life and a $150 salvage value, is $100 per month. c) Straight-line depreciation on the drafting equipment, assuming a 5-year life and a $2,000 salvage value, is $1,300 per month. d) Straight-line depreciation on the building, assuming a 25-year life and a $1,000 salvage value, is $180 per month. e) The balance in prepaid insurance represents a 15-month policy that went into effect on June 1. f) Accrued interest on the long-term note payable is $75. g) The drafting assistant is paid $1,200 for a 5-day work week. 2 days' wages have been incurred but are unpaid as of month-end.Explanation / Answer
Prepare adjusting journal entries as on June 30, 2015:
a)
Date
Account Titles and Explanation
Debit
Credit
June 30,
2015
Accounts receivable
$ 6,000
Service reevenue
$ 6,000
(Recorded services done for client)
b)
Date
Account Titles and Explanation
Debit
Credit
June 30,
2015
Depreciation expenses -office equipment
$ 100
Accumulated expenses
$ 100
(Recorded depreciation expenses)
c)
Date
Account Titles and Explanation
Debit
Credit
June 30,
2015
Depreciation expenses -drafting equipment
$ 1,300
Accumulated expenses
$ 1,300
(Recorded depreciation expenses)
d)
Date
Account Titles and Explanation
Debit
Credit
June 30,
2015
Depreciation expenses -Building
$ 180
Accumulated expenses
$ 180
(Recorded depreciation expenses)
e)
Date
Account Titles and Explanation
Debit
Credit
June 30,
2015
Insurance expenses
$ 200
Prepaid insurance
$ 200
(Prepaid insurance expenses recorded)
f)
Date
Account Titles and Explanation
Debit
Credit
June 30,
2015
Interest expenses
$ 75
Accrued Interest
$ 75
(Accrued Interest recorded)
g)
Date
Account Titles and Explanation
Debit
Credit
June 30,
2015
Wages expenses ($1200/5)*2
$ 480
Accrued wages
$ 480
(Accrued wages recorded)
Date
Account Titles and Explanation
Debit
Credit
June 30,
2015
Accounts receivable
$ 6,000
Service reevenue
$ 6,000
(Recorded services done for client)
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