Prepare adjusting journal entries for the year ended (or date of) December 31, 2005, for each of these separate situations.
Assume that prepaid expenses are initially recorded in asset accounts. Also assume that fees collected in advance of work are initially recorded as liabilities.
a. Depreciation on the company's equipment for 2005 is computed to be $16,000.
b. The Prepaid Insurance account had a $7,000 debit balance at December 31, 2005, before adjusting for the costs of any expired coverage. An analysis of the company's insurance policies showed that $1,040 of unexpired insurance coverage remains.
c. The Office Supplies account had a $300 debit balance on December 31, 2004; and $2,680 of office supplies was purchased during the year. The December 31, 2005, physical count showed $354 of supplies available.
d. One-half of the work related to $10,000 cash received in advance was performed this period.
e. The Prepaid Insurance account had a $5,600 debit balance at December 31, 2005, before adjusting for the costs of any expired coverage. An analysis of insurance policies showed that $4,600 of coverage had expired.
f. Wage expenses of $4,000 have been incurred but are not paid as of December 31, 2005.
a. Depreciation expense 16000
Accumulated depreciation 16000
b. Insurance expense 5960
The solution shows the exact adjusting journal entries needed for each of the items presented.