Chapter 3, P 2.

1.

Adjusting entries recorded

a.

Nov.

30

Supplies Expense

5,171

Supplies

5,171

To record supplies used

$2,350

+

$4,218

$1,397

=

$5,171

b.

30

Insurance Expense

6,874

Prepaid Insurance

6,874

To record expired insurance

$4,720

1,750

[ (

$4,200

12

months )

x

5

months ]

404

[ (

$7,272

36

months )

x

2

months ]

$6,874

c.

30

Depreciation ExpenseBuildings

16,000

Depreciation ExpenseEquipment

40,000

Accumulated DepreciationBuildings

16,000

Accumulated DepreciationEquipment

40,000

To record annual depreciation

d.

30

Unearned Service Revenue

4,650

Service Revenue

4,650

To record service revenue earned on

services collected in advance

(

$18,600

12

months )

x

3

months =

$4,650

e.

30

Accounts Receivable

7,000

Service Revenue

7,000

To record service revenue earned on

a contract to be billed in January

f.

30

Interest Expense

18,000

Interest Payable

18,000

To record accrued interest on note

payable

Chapter 3, P 2. (Continued)

g.

Nov.

30

Salaries Expense

10,000

Salaries Payable

10,000

To record accrued salaries

(

$15,000

6

days ) x

4

days

=

$10,000

h.

No entry

i.

30

Income Taxes Expense

23,000

Income Taxes Payable

23,000

To accrue estimated income taxes

for the year

2.

User Insight: Revenue recognition discussed

In transaction "e," $7,000 has to be recognized as revenue because services have

already been provided and there is an obligation to pay for them. In transaction

"h," November 29 is not a recognition point because no services have been pro-

vided and there is no obligation to pay for them. For each of the adjusting entries listed in the posted solution, explain why it is necessary and whether it increases or decreases financial position and whether it increases or decreases financial profitability.