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 $ 18,000 a. $ 25,000 Commissions earned 36,500 36,500 Total revenues $ 54,500 61,500 Expenses Depreciation expense—Computers 0 b. 1,600 Depreciation expense—Office furniture 0 c. 1,850 Salaries expense 13,500 d. 15,750 Insurance expense 0 e. 1,400 Rent expense 3,800 3,800 Office supplies expense 0 f. 580 Advertising expense 2,500 2,500 Utilities expense 1,245 g. 1,335 Total expenses 21,045 28,815 Net income $ 33,455 $ 32,685 Analyze the statements and prepare the eight adjusting entries a through g that likely were recorded. Note: Answer for a has two entries (i) the $7,000 adjustment for Fees Earned, 30% (or $2,100) has been earned but not billed, and (ii) the other 70% (or $4,900) has been earned by performing services that were paid for in advance.

Answer 1

Answer To record earned but unbilled fees.

31 Dec Accounts receivable A/C Dr.$2100

To Fees earned A/C $2100

To record earned fees collected in advance.

31 Dec Unearned fees A/C Dr. $4900

To fees earned A/C $4900

To record depreciation on computer

31 Dec Depreciation expenses-Computers A/C Dr. $1600

To Accumulated Depreciation -computers A/C $1600

To record depreciation on office furniture:

31 Dec Depreciation expenses-Office Furniture A/C Dr. $1850

To Accumulated Depreciation -Office Furniture A/C $1850

To record accrued salaries

31 Dec Salaries Expense A/C Dr. $2250

To Salaries Payable A/C $2250

To record expired prepaid insurance.

31 Dec Insurance Expense A/C Dr. $1400

To Prepaid insurance A/C $1400

To record use of office supplies.

31 Dec Office supplies Expense A/C Dr. $580

To Office supplies A/C $580To record incurred and unpaid utility costs.

31 Dec Utilities Expense A/C Dr. $90

To Utilities Payable A/C $90

Explanation: Dec. 31

To record earned but unbilled fees:

Fees Earned = (30% x $7,000) = $2100

To record earned fees collected in advance:

Fees Earned = (70% x $7000) = $4900