QuestionRecord adjusting entries for Wolverine Company on December 31, 2021, based on these transactions:
1. Rent received: (Deferred Revenue)
2. Insurance: (Prepaid Insurance)
3. Salaries: (to be paid in January)
4. Loan: (10% interest due in 2022)
5. Supplies: Start , add , end with .
Studdy Solution
STEP 1
Assumptions1. The transactions are for Wolverine Company during2021.
. The company receives \$4,000 cash from a company that is renting office space from Wolverine. The payment, representing rent for December and January, is credited to Deferred Revenue.
3. Wolverine purchases a one-year property insurance policy on July1,2021 , for \$13,200. The payment is debited to Prepaid Insurance for the entire amount.
4. Employee salaries of \$3,000 for the month of December will be paid in early January202.
5. On November1,2021 , the company borrows \$15,000 from a bank. The loan requires principal and interest at10% to be paid on October30,202.
6. Office supplies at the beginning of2021 total \$1,000. On August15 , Wolverine purchases an additional \$3,400 of office supplies, debiting the Supplies account. By the end of the year, \$500 of office supplies remains.
7. No financial statements were prepared during the year and no adjusting entries were recorded.
STEP 2
First, we need to adjust the Deferred Revenue account for the rent received in advance. Since the payment represents rent for December and January, half of the amount should be recognized as revenue in December.
STEP 3
Calculate the Deferred Revenue.
STEP 4
Next, we need to adjust the Prepaid Insurance account for the one-year property insurance policy. Since the policy was purchased on July1,2021, and covers a period of one year, half of the amount should be recognized as an expense in2021.
STEP 5
Calculate the Prepaid Insurance.
STEP 6
The employee salaries of \$3,000 for the month of December will be paid in early January2022. Therefore, this amount should be recognized as an expense in December2021 and a liability (Salaries Payable) should be recorded.
STEP 7
The company borrows \$15,000 from a bank on November1,2021, with interest at10% to be paid on October30,2022. The interest for two months (November and December) should be recognized as an expense in2021 and a liability (Interest Payable) should be recorded.
STEP 8
Calculate the Interest Payable.
STEP 9
Finally, we need to adjust the Supplies account. The company started the year with \$,000 in supplies, purchased an additional \$3,400 during the year, and ended the year with \$500 in supplies. Therefore, the amount of supplies used during the year is \$,000 + \$3,400 - \$500.
STEP 10
Calculate the Supplies Expense.
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