Prepare adjusting journal entries for the following. (Credit account titles are
ID: 2336134 • Letter: P
Question
Prepare adjusting journal entries for the following. (Credit account titles are automatica the account titles and enter O for the amounts.) 1. Bad debt expense is estimated to be $1,471. 2. Equipment is depreciated based on a 7-year life (no salvage value). 3. Insurance expired during the year $2,557. 4. Interest acrued on notes payable $3,492. 5. Sales salaries and wages earned but not paid $2,232. 6. Advertising paid in advance $722 7. Office supplies on hand $1,510, charged to Supplies Expense when purchased. No. Account Titles and Explanation Debit Credit 1. 2.Explanation / Answer
1) Bad debt expense - Debit $1471 in Income statement and Credit $1471 in allowance for doubtful accounts in Accounts receivable in current assets.
2) Equipment depreciation - Debit the Depreciation expense in Income statement and Credit the Accumulated depreciation account in the PP&E in Non-current assets.
3)Insurance expired during the year - Credit the Prepaid assets $2557 and debit the Interest expense. Usually this is spread monthly. So every month, Prepaid assets is credited by $2557/12 and expense is debited $2557/12 per month.
4) Notes payable of $3492 - > Notes payable is credited by $3492 and Accrued interest or Interest payable( $xx amount depending on % of interest) is credited in current liability under accrued expenses. It ($xx) will be recorded as debit entry to Interest expense account in Income statement.
5) Salaries earned but not paid - In this case - $2232 is credited to Accrued payroll liability under the accrued expense account of current liability. When this salary is paid, this will impact Cash account (Credit) and Salaries expense in SG&A account will be debited.
6) Advertising paid in Advance $722 - The prepayments (Prepaid accounts) will be debited by $722 and Cash will be credited by $722. When the services are used and expensed, then Advertising expense in the SG&A account will be debited and Prepayments (Prepaid assets) will be credited.
7) Office supplies - Cash will be credited by $1510. Supplies expense in SG&A account will be debited by $1510. Here all the expenses are expensed and not capitalized, that's why we dont have any asset account for the supplies.