Question

As of December 31, Taste Buds Kitchen's year-end, the following adjusting entry data are provided:

a. A count reveals that $100 of baking and marketing supplies are on hand.
b. Depreciation on equipment for the year is $200.
c. Prepaid insurance has expired during the year by $50.
d. Accrued salaries for the year are $100.
e. Unearned revenue for the year is $250.
Which of the following adjusting entries is correct?
a. Debit Supplies Expense, $100; credit Baking and Marketing Supplies, $100.
b. Debit Depreciation Expense, $200; credit Accumulated Depreciation, $200.
c. Debit Prepaid Insurance Expense, $50; credit Prepaid Insurance, $50.
d. Debit Salaries Expense, $100; cre)dit Salaries Payable, $100.
e. Debit Unearned Revenue, $250; credit Revenue, $250

Answer 1

Correct adjusting entries involve debiting expenses or assets when they increase and crediting revenues or liabilities when they increase. For Taste Buds Kitchen, each situation provided requires an adjustment to accurately reflect the financial state at year-end.

The correct adjusting entry for each situation provided by Taste Buds Kitchen's year-end adjustments would be the following:

1. Debit Supplies Expense, $100; credit Baking and Marketing Supplies, $100. This reflects the value of supplies used.
2. Debit Depreciation Expense, $200; credit Accumulated Depreciation, $200. This entry accounts for the wear and tear on equipment.
3. Debit Insurance Expense, $50; credit Prepaid Insurance, $50. This recognizes the insurance that has expired during the period.
4. Debit Salaries Expense, $100; credit Salaries Payable, $100. This entry accrues for salaries that have been earned but not yet paid.
5. Debit Unearned Revenue, $250; credit Revenue, $250. This entry recognizes revenue that has now been earned.

So, the correct adjusting entries ensure that Taste Buds Kitchen's financial statements provide an accurate picture of its financial health as of December 31st.