Question

The Larkin Hotel purchased 7,500 worth of laundry supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the laundry supplies indicated only2,000 on hand. What is the adjusting entry that should be made by the hotel on June 30?

1) Debit Laundry Supplies Expense for $5,500 and credit Laundry Supplies for $5,500
2) Debit Laundry Supplies for $5,500 and credit Laundry Supplies Expense for $5,500
3) Debit Laundry Supplies Expense for $2,000 and credit Laundry Supplies for $2,000
4) Debit Laundry Supplies for $2,000 and credit Laundry Supplies Expense for $2,000

Answer 1

The correct adjusting entry to reflect used laundry supplies in the Larkin Hotel's books would be to debit Laundry Supplies Expense for $5,500 and credit Laundry Supplies for $5,500. This records the consumed supplies as an expense and reduces the asset value accordingly.

Step-by-step explanation:

The Larkin Hotel initially recorded the purchase of laundry supplies as an asset. When they performed an inventory at the end of the month, they realized they had $2,000 of supplies on hand. The difference between the purchased amount of $7,500 and the on-hand inventory of $2,000 is $5,500. This amount represents the laundry supplies that have been used during the month.

The appropriate adjusting entry would be to recognize the expense associated with the used supplies. Therefore, you would need to debit Laundry Supplies Expense for $5,500, which increases the expenses on the income statement, and credit Laundry Supplies for $5,500, which decreases the asset on the balance sheet. This reflects that $5,500 worth of supplies have been consumed.

The correct adjusting entry on June 30 would be Option 1: Debit Laundry Supplies Expense for $5,500 and credit Laundry Supplies for $5,500.