Question

The partial trial balance of Babsy Co as of December 31 of the current year includes the following selected accounts before adjusting entries have been prepared:

Debit: Supplies $595
Debit: Prepaid Rent $60,000
Debit: Equipment $52,000
Credit: Unearned Revenue $3,000
Credit: Salaries Payable $0
Credit: Taxes Payable $0
Prepare the year-end adjusting entries for the 7 items above, assuming no adjusting entries have been made since the end of the prior fiscal year.

Answer 1

To prepare the year-end adjusting entries for Babsy Co, the following actions need to be taken: determining supplies used, recognizing rent expense, recognizing earned revenue, and making adjustments for accounts with no balance changes.

Step-by-step explanation:

To prepare the year-end adjusting entries for Babsy Co, we need to consider the following:

1. Supplies: Since the Supplies account shows a debit balance, we need to determine the amount of supplies used during the year. Let's assume the ending balance of the Supplies account is $200. The adjusting entry will be:
   Debit: Supplies Expense $395
   Credit: Supplies $395
2. Prepaid Rent: Since the Prepaid Rent account shows a debit balance, we need to determine the amount of rent that has been used up. Let's assume that $6,000 of rent has been used up. The adjusting entry will be:
   Debit: Rent Expense $6,000
   Credit: Prepaid Rent $6,000
3. Equipment: There are no adjusting entries required for the Equipment account.
4. Unearned Revenue: Since the Unearned Revenue account shows a credit balance, we need to recognize the revenue that has been earned during the year. Let's assume that $1,500 of revenue has been earned. The adjusting entry will be:
   Debit: Unearned Revenue $1,500
   Credit: Revenue $1,500
5. Salaries Payable: There are no adjusting entries required for the Salaries Payable account.
6. Taxes Payable: There are no adjusting entries required for the Taxes Payable account.