Question

Following are two income statements for Alexis Co. for the year ended December 31. The left number column is prepared before any adjusting entries are recorded, and the right column includes the effects of adjusting entries. The company records cash receipts and payments related to unearned and prepaid items in balance sheet accounts. The middle column shows a blank space for each income statement effect of the eight adjusting entries a through g (the balance sheet part of the entries is not shown here).

ALEXIS CO. Income Statements For Year Ended December 31
	Unadjusted				Adjustments				Adjusted
Revenues
Fees earned	$	24,000				a.			$	28,800
Commissions earned		42,500								42,500
Total revenues	$	66,500								71,300
Expenses
Depreciation expense—Computers		0				b.				1,200
Depreciation expense—Office furniture		0				c.				1,400
Salaries expense		12,500				d.				14,460
Insurance expense		0				e.				1,040
Rent expense		4,500								4,500
Office supplies expense		0				f.				384
Advertising expense		3,000								3,000
Utilities expense		1,250				g.				1,306
Total expenses		21,250								27,290
Net income	$	45,250							$	44,010

  

Analyze the statements and prepare the eight adjusting entries a through g that likely were recorded. Note: Answer for a has two entries 30% of (i) the $4,800 adjustment for Fees Earned has been earned but not billed, and (ii) the other 70% has been earned by performing services that were paid for in advance.

1-Record the adjusting entry for accrued revenues.

2-Record the adjusting entry related to fees collected in advance.

3-Record depreciation on computers.

4-Record depreciation on office furniture.

5-Record the adjusting entry related to salaries.

6-Record the adjusting entry related to insurance.

7-Record the adjusting entry related to office supplies.

8-Record the adjusting entry related to utilities.

	Transaction General Journal Debit Credit a1.

Answer 1

• First calculate amount of adjustments:

	Unadjusted	Adjustments	Adjusted	Increased (Decreased)
Revenues
Fees earned	$                                   24,000.00	a.	$                                     28,800.00	$           4,800.00
Commissions earned	$                                   42,500.00		$                                     42,500.00	$                        -
Total revenues	$                                   66,500.00		$                                     71,300.00
Expenses
Depreciation expense—Computers	$                                                  -	b.	$                                        1,200.00	$           1,200.00
Depreciation expense—Office furniture	$                                                  -	c.	$                                        1,400.00	$           1,400.00
Salaries expense	$                                   12,500.00	d.	$                                     14,460.00	$           1,960.00
Insurance expense	$                                                  -	e.	$                                        1,040.00	$           1,040.00
Rent expense	$                                     4,500.00		$                                        4,500.00	$                        -
Office supplies expense	$                                                  -	f.	$                                           384.00	$               384.00
Advertising expense	$                                     3,000.00		$                                        3,000.00	$                        -
Utilities expense	$                                     1,250.00	g.	$                                        1,306.00	$                 56.00
Total expenses	$                                   21,250.00		$                                     27,290.00
Net income	$                                   45,250.00		$                                     44,010.00

• Adjustment entries based on above “Increase (decrease)”

Transaction	General Journal	Debit	Credit
a1.	Accounts receivables	$               1,440.00
[4800 x 30%]	Fees earned		$                                        1,440.00
a2	Unearned Revenue	$                     3,360.00
[4800 x 70%]	Fees earned		$                                        3,360.00
b	Depreciation expense—Computers	$                     1,200.00
	Accumulated Depreciation Computers		$                                        1,200.00
c	Depreciation expense—Office furniture	$                     1,400.00
	Accumulated Depreciation Office Furniture		$                                        1,400.00
d	Salaries expenses	$                     1,960.00
	Salaries Payable		$                                        1,960.00
e	Insurance expense	$                     1,040.00
	Prepaid Insurance		$                                        1,040.00
f	Office supplies expense	$                        384.00
	Office Supplies		$                                           384.00
g	Utilities expense	$                           56.00
	Utilities Payable		$                                              56.00