In: Accounting
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 $5,400 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.
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. | $ | 29,400 | |||||
Commissions earned | 42,500 | 42,500 | ||||||||
Total revenues | $ | 66,500 | 71,900 | |||||||
Expenses | ||||||||||
Depreciation expense—Computers | 0 | b. | 1,350 | |||||||
Depreciation expense—Office furniture | 0 | c. | 1,575 | |||||||
Salaries expense | 12,500 | d. | 14,705 | |||||||
Insurance expense | 0 | e. | 1,170 | |||||||
Rent expense | 4,500 | 4,500 | ||||||||
Office supplies expense | 0 | f. | 432 | |||||||
Advertising expense | 3,000 | 3,000 | ||||||||
Utilities expense | 1,250 | g. | 1,313 | |||||||
Total expenses | 21,250 | 28,045 | ||||||||
Net income | $ | 45,250 | $ | 43,855 | ||||||
Adjusting Jounal entries
Account Titles and Explanation | Debit | Credit | |
a. | Accounts receivables [Note 1] | $1,620 | |
Fees earned | $1,620 | ||
[To record accrued fees earned] | |||
Unearned fees revenue | $3,780 | ||
Fees earned [$5,400 - $1,620] | $3,780 | ||
[To record accrued fees earned] | |||
b | Depreciation expense—Computers | $1,350 | |
Accumulated depreciation - Computers | $1,350 | ||
[To record depreciation expense] | |||
c. | Depreciation expense—Office furniture | $1,575 | |
Accumulated depreciation - Office furniture | $1,575 | ||
[To record depreciation expense] | |||
d. | Salaries expense [$14,705 - $12,500] | $2,205 | |
Salaries payable | $2,205 | ||
[To record accrued salary expense] | |||
e. | insurance expense | $1,170 | |
Pre-piad Insurance | $1,170 | ||
{To record insurance expense] | |||
f. | Office supplies expense | $432 | |
Supplies | $432 | ||
[To record supplies consumed] | |||
g. | Utilities expense [$1,313 - $1,250] | $63 | |
Accounts payable | $63 | ||
[To record utilities expense] |
Note 1
Billing of fees earned which was unbilled earlier at the year end = $5,400 x 30% = $1,620