3-23E - Horngren'S Financial And Managerial Accounting

Question

Question :Consider the following situations for Betterton Welding Services: a. Depreciation for the current year includes equipment, \(2,100. b. Each Monday, Betterton pays employees for the previous week’s work. The amount of weekly payroll is \)1,400 for a seven-day workweek (Monday to Sunday). This year, December 31 falls on Thursday. Learning Objective 3 Learning Objective 3 Learning Objective 3 Learning Objective 3 Beginning Prepaid Rent Payments for Prepaid Rent during the year Total amount to account for Subtract: Ending Prepaid Rent Rent Expense Situation A B C D \(1,400 700 2,100 800 \) a \(1,000 1,600 700 \)900 b \( 200 1,800 \)1,900 c d \( 700 600 \)1,000 f e CHAPTER 3 164 chapter 3 c. The beginning balance of Office Supplies was \(2,300. During the year, Betterton purchased office supplies for \)3,000, and at December 31 the office supplies on hand totaled \(1,000. d. Betterton prepaid a two full years’ insurance on July 1 of the current year, \)6,000. Record insurance expense for the year ended December 31. e. Betterton had earned \(2,800 of unearned revenue. f. Betterton had incurred (but not recorded) \)200 of interest expense on a note payable. The interest will not be paid until February 28. g. Betterton billed customers $3,000 for welding services performed. Journalize the adjusting entry needed on December 31 for each situation. Use the letters to label the journal entries

Step-by-Step Solution

Answer

Adjusting entries are as follows:

Transactions	Accounts and Explanation	Debit	Credit
(a)	Depreciation Expense—Equipment	$2,100
	Accumulated Depreciation—Equipment		$2,100
	To record depreciation on equipment
(b)	Salaries Expense	$800
	Salaries Payable		$800
	To record accrued salaries expense
(c)	Supplies Expense	$4,300
	Office Supplies		$4,300
	To record office supplies used
(d)	Insurance Expense	$1,500
	Prepaid Rent		$1,500
	To record insurance expense
(e)	Unearned Revenue	$2,800
	Service Revenue		$2,800
	To record service revenue earned
(f)	Interest Expense	$200
	Interest Payable		$200
	To record accrued interest expense
(g)	Accounts Receivable	$3,000
	Service Revenue		$3,000
	To record service revenue earned

Step-by-Step-Solution Step1: Calculation of Salaries Expense

Salaries expense is calculated as follows: $$\begin{gathered} \mathbf{SalariesExpense}\mathbf{=}\mathbf{SalariesPerWeek}\mathbf{\times }\frac{\mathbf{NumberofDaysExpired}}{\mathbf{NumberofDaysPerWeek}} \\ \mathbf{=}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{400}\mathbf{\times }\frac{\mathbf{4}}{\mathbf{7}} \\ \mathbf{=}\mathbf{\$}\mathbf{800} \end{gathered}$$

Step2: Calculation of Office Supplies Used

Office Supplies Used is calculated as follows:

$$\begin{gathered} \mathbf{OfficeSuppliesUsed}\mathbf{=}\mathbf{BeginningBalance}+\mathbf{Purchases}-\mathbf{OfficeSuppliesonHand} \\ \mathbf{=}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{300}+\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{000}-\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{000} \\ \mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{300} \end{gathered}$$ 

Step3: Calculation of Insurance Expense

Insurance expense is calculated as follows:

$$\begin{gathered} \mathbf{InsuranceExpense}\mathbf{=}\mathbf{AmountPaid}\mathbf{\times }\frac{\mathbf{NumberofMonthsExpired}}{\mathbf{TotalMonthsofInsurancePaid}} \\ \mathbf{=}\mathbf{\$}\mathbf{6}\mathbf{,}\mathbf{000}\mathbf{\times }\frac{\mathbf{6}}{\mathbf{24}} \\ \mathbf{=}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{500} \end{gathered}$$