Concept explainers
Introduction: Each financial transaction or economic event will affect either assets, liabilities, or owners’ equity. Thus, the basis for recording the transaction in the accounting system depends on the
The necessary adjustments for each of the given transactions from (a) through (h) on April 30, 2017.
Answer to Problem 4.5.1P
Following are the adjustments required.
- Insurance expense$50
- Supply expenses $70
Depreciation expense office equipment $417- Depreciation expense Automobile $200
- Commission revenue $4,500
- Commission revenue $1,500
- Interest expense $20
- Salary $2,500
Explanation of Solution
- Adjustment for prepaid insurance
Activity: Operating
Accounts: Prepaid insurance − Decreases
Insurance expense − Increase
Statements:
Balance sheet | Income Statement | ||||
Assets = | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Prepaid insurance ($50) | ($50) | Insurance expense $50 | ($50) |
Computation of prepaid insurance:
Prepaid insurance balance $450
Given insurance expense $50, thus insurance expense can be taken.
b. Adjustment for supplies used during the year
Activity: Operating
Accounts: Supply inventory. Decrease
Supplies expense. Increase
Statements: Balance sheet and Income statement
Balance sheet | Income Statement | ||||
Assets = | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Supply inventory ($70) | ($70) | Supply expenses $70 | ($70) |
Supplies consumed during the year
Supplies in hand | $250 |
Less: Supplies in hand at the end of April 30, 2017 | ($180) |
Supplies consumed | $70 |
c. Adjustments for depreciation on office equipment
Activity: Operating
Accounts: Depreciation expense − office equipment Increases.
Statements: Balance sheet and Income statement.
Balance sheet | Income Statement | ||||
Assets= | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Office equipment ($417) | ($417) | Depreciation expense − office equipment $417 | ($417) |
d. Adjustments of depreciation on the automobile.
Activity: Operating
Accounts: Depreciation expense − office equipment Increases.
Accumulated depreciation − Office equipment. Increase
Statements: Balance sheet and Income statement.
Balance sheet | Income Statement | ||||
Assets= | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Automobile ($200) | ($200) | Depreciation expense − Automobile $200 | ($200) |
Depreciation expense for each month will be:
e. Adjustment for deferred commission
Activity: Operating
Accounts: Deferred commission. Decreases
Commission’s revenue. Increases
Statements: Balance sheet and income statement.
Balance sheet | Income Statement | ||||
Assets = | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Deferred commission($4,500) | $4,500 | Commission revenue $4,500 | $4,500 |
f. Adjustment for commission receivable
Activity: Operations
Accounts: Commission Receivable. Increases
Commission revenue. Increases
Statements: Balance sheet and Income Statement.
Balance sheet | Income Statement | ||||
Assets = | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Commission receivable $1,500 | $1,500 | Commission revenue $1,500 | $1,500 |
g. Adjustment for interest owed
Activity: Operating
Accounts: Interest payable. Increases
Interest expense. Increases
Statements: Balance sheet and Income statement.
Balance sheet | Income Statement | ||||
Assets = | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Interest payable $20 | ($20) | Interest expense $20 | ($20) |
h. Adjustment for Salaries owed
Activity: Operating
Account: Salarypayable. Increases
Salary expenses expense. Increases
Statements: Balance sheet and Income statement.
Balance sheet | Income Statement | ||||
Assets = | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Salary payable $2,500 | ($2,500) | Salary expense $2,500 | ($2,500) |
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Chapter 4 Solutions
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