Question

Prepare the adjusting entries for the transactions

Dec. 1 Family members contributed $50,000 cash to the business in exchange for capital.

Dec. 2 Purchased $10,800 of equipment for the store paying cash.

Dec. 3 Paid $4,500 for a 9-month insurance policy starting on December 1.

Dec. 4 Paid $18,000 cash to purchase land to be used in operations.

Dec. 5 Purchased office supplies on account, $3,000.

Dec. 6 Borrowed $28,000 from the bank for business use. You signed a bank payable note for an interest rate of 5% APR.

Dec. 7Paid $800 for advertising expenses.

Dec. 8 Purchased inventory (dog food) for the store at a cost of $1,500

Dec. 9 Paid for office supplies $3,000

Dec 10 Received a bill for utilities to be paid in January, $200.

Dec 31 Service Revenues earned during the month included $18,500 cash and $2,000 on account.

Dec. 31 Sold one hundred percent of the dog food purchased on Dec. 8^th for $2,100 in cash.

Dec. 31 Paid employees' salaries $2,000 and building rent $800.

Dec. 31 Dividends of $200 were paid.

Dec. 31 Customer prepaid $1,000 for boarding services in January.

1. Office Supplies used during the month, $600.
2. Depreciation on the Equipment for the month should be calculated based on straight-line depreciation and a useful life of 4 years (zero residual).
3. One month insurance has expired.
4. Calculate accrued interest expense and make adjusting entry.
5. Service charge from bank totaled $25.
6. Sales Method for reserving for doubtful accounts was executed (Remember, only A/R balances are considered).

Answer 1

Adjusting entries

S.no	Particulars	Debit	Credit
1	Supplies expense	600.00
	Office supplies		600.00
	(To record supplies used for the month)
2	Depreciation expense	225.00
	Accumulated depreciation		225.00
	(To record asset costing 10,800 depreciated over useful life of 4 years for a month)
3	Insurance expense	500.00
	Prepaid Insurance		500.00
	(To record amortization of one month's insurance paid for 9 months , 4,500 / 9 = 500)
4	Interest expense	116.67
	Interest payable		116.67
	(To record interest for a month of the cash borrowed at 5%)
	(28,000 x 5% / 12 months)
5	No Entry possible
	Since neither the percentage nor the amount of doubtful debts given
	Entry for doubtful debts
	Bad debts expense	XXX
	Allowance for doubtful accounts		XXX

Adjusting entries are those entries passed at the end of the accounting period to comply with the accounting concepts prescribed (concepts such as accrual , revenue recognition , etc)

Sales method of reserving doubtful accounts is only the method that is to be used for calculating doubtful debts and not the way to calculating it.