Identification of transactions and adjusting entries
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Divtek's Variety Store is completing the accounting process for the year just ended on December 31, 2017. The transactions during 2017 have been journalized and posted. The following data with respect to adjusting entries are available:
a.Wages earned by employees during December 2017, unpaid and unrecorded at December 31, 2017, amounted to $3,600. The last payroll was December 28; the next payroll will be January 11, 2018.
b.Office supplies inventory at January 1, 2017, was $690. Office supplies purchased and debited to office supplies inventory during the year amounted to $550. The year-end count showed $363 of supplies on hand.
c.One-fourth of the basement space is rented to Heald's Specialty Shop for $620 per month, payable monthly. On December 31, 2017, the rent for November and December 2017 had not been collected or recorded. Collection is expected January 10, 2018.
d.The store used delivery equipment that cost $95,500; the estimated depreciation for 2017 was $19,100.
e.On July 1, 2017, a two-year insurance premium amounting to $3,840 was paid in cash and debited in full to prepaid insurance. Coverage began on July 1, 2017.
f.The remaining basement space of the store is rented for $1,470 per month to another merchant, M. Carlos Inc. Carlos sells compatible, but not competitive, merchandise. On November 1, 2017, the store collected six months' rent in the amount of $8,820 in advance from Carlos; it was credited in full to deferred rent revenue when collected.
g.Divtek's Variety Store operates a repair shop to meet its own needs. The shop also does repairs for M. Carlos. At the end of December 31, 2017, Carlos had not paid $730 for completed repairs. This amount has not yet been recorded as repair shop revenue. Collection is expected during January 2018.
Required:
1.Identify each of these transactions as a deferred revenue, deferred expense, accrued revenue, or accrued expense.
2.Prepare for each situation the adjusting entry that should be recorded for Divtek's Variety Store at December 31, 2017.
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Solution Summary
The solution provides the required calculation to arrive at the figures of the adjusting entries, after initially identifying the transactions as either deferred revenue, deferred expense, accrued revenue, or accrued expense.
Solution Preview
1. Identification of transactions:
Accrued expense - expense incurred but not yet paid
Deferred revenue - Revenue not yet earned but cash received
Accrued revenue - Goods sold/services rendered but cash not received yet
Deferred expense - Cost incurred but not yet been consumed
a. Accrued expense
b. Deferred expense
c. Accrued ...
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