Question

Reece Financial Services Co. Unadjusted Trial Balance July 31, 2019, Debit Balances Credit Balances Cash 10,200 Accounts Receivable 34,750 Prepaid Insurance 6,000 Supplies 1,725 Land 50,000 Building 155,750 Accumulated Depreciation—Building 62,850 Equipment 45,000 Accumulated Depreciation—Equipment 17,650 Accounts Payable 3,750 Unearned Rent 3,600 Joni Reece, Capital 153,550 Joni Reece, Drawing 8,000 Fees Earned 158,600 Salaries and Wages Expense 56,850 Utilities Expense 14,100 Advertising Expense 7,500 Repairs Expense 6,100 Miscellaneous Expense 4,025 400,000 400,000 The data needed to determine year-end adjustments are as follows: Depreciation of building for the year, $6,400. Depreciation of equipment for the year, $2,800. Accrued salaries and wages on July 31, $900. Unexpired insurance on July 31, $1,500. Fees earned but unbilled on July 31, $10,200. Supplies on hand at July 31, $615. Rent unearned on July 31, $300.

The data needed to determine year-end adjustments are as follows:
Depreciation of building for the year, $6,400.
Depreciation of equipment for the year, $2,800.
Accrued salaries and wages on July 31, $900.
Unexpired insurance on July 31, $1,500.
Fees earned but unbilled on July 31, $10,200.
Supplies on hand at July 31, $615.
Rent unearned on July 31, $300.
1. Journalize the adjusting entries using the following additional accounts: Salaries and Wages Payable; Rent Revenue; Insurance Expense; Depreciation Expense—Building; Depreciation Expense—Equipment; and Supplies Expense.
2. Determine the balances of the accounts affected by the adjusting entries, and prepare an adjusted trial balance. If an amount box does not require an entry, leave it blank.

Answer 1

Adjusting entries are made to update account balances before preparing financial statements. They include recording depreciation, adjusting prepaid expenses, recognizing accrued expenses and unearned revenues, and adjusting for revenues earned but not yet billed. After journalizing these entries, the adjusted trial balance is prepared with updated account balances.

Step-by-step explanation:

To journalize the adjusting entries for Reece Financial Services Co., we use the given year-end adjustment data and the appropriate additional accounts. The journal entries would look like this:

1. Depreciation Expense—Building 6,400
   Accumulated Depreciation—Building 6,400
   (Record depreciation for the building)
2. Depreciation Expense—Equipment 2,800
   Accumulated Depreciation—Equipment 2,800
   (Record depreciation for the equipment)
3. Salaries and Wages Expense 900
   Salaries and Wages Payable 900
   (Record accrued salaries and wages)
4. Insurance Expense 4,500
   Prepaid Insurance 4,500
   (Adjust the prepaid insurance account)
5. Accounts Receivable 10,200
   Fees Earned 10,200
   (Record fees earned but not yet billed)
6. Supplies Expense 1,110
   Supplies 1,110
   (Adjust the supplies account)
7. Unearned Rent Revenue 300
   Rent Revenue 300
   (Recognize earned portion of previously unearned rent)

To determine the adjusted trial balance, we would take the unadjusted trial balance and adjust the balances for the impact of the journal entries made above. To illustrate, the Building account would still show a debit balance of 155,750, but the Accumulated Depreciation—Building account would now show a credit balance of 69,250 (62,850 + 6,400), reflecting the additional depreciation. Similarly, each of the other accounts affected by the adjustments would be updated to reflect the journal entries. These new balances would be used to prepare the adjusted trial balance.

Answer 2

Reece Financial Services Co.

1. Journal for Adjusting Entries:

Debit Credit

a) Depreciation Expense - Building $6,400

Accumulated Depreciation - Building $6,400

To record depreciation expense for the year.

Debit Credit

b) Depreciation Expense - Equipment $2,800

Accumulated Depreciation - Equipment $2,800

To record depreciation expense for the year.

Debit Credit

c) Salaries and Wages $900

Salaries and Wages Payable $900

To record accrued salaries on July 31

Debit Credit

d) Prepaid Insurance $4,500

Insurance Expense $4,500

To record unexpired insurance on July 31.

Debit Credit

e) Accounts Receivable $10,200

Fees Earned $10,200

To record fees earned but unbilled on July 31.

Debit Credit

f) Cost of Supplies $1,110

Supplies $1,110

To record cost of supplies used

g) Unearned Rent $3,300

Rent Received $3,300

To record rent received on July 31.

2a) Accounts Receivable

As per Trial Balance = $34,750

add Fees Earned but not billed = $10,200

Balance $44,950

2b) Prepaid Insurance

As per Trial Balance = $6,000

less Insurance Exp. $4,500

Balance $1,500

2c) Supplies

As per Trial Balance = $1,725

less Cost of Supplies = $1,110

Ending Supplies = $615

2d) Accumulated Depreciation - Building:

As per Trial Balance = $62,850

add Depreciation Exp $6,400

Balance $69,250

2e) Accumulated Depreciation - Equipment:

As per Trial Balance = $17,650

add Depreciation Exp $2,800

Balance $20,450

2f) Unearned Rent:

As per Trial Balance = $3,600

less Rent Received = $3,300

Balance $300

2g) Fees Earned:

As per Trial Balance = $158,600

add unbilled fees = $10,200

Balance $168,800

2h) Salaries & Wages Expense:

As per Trial Balance = $56,850

add accrued salaries $900

Balance $57,750

2i) Adjusted Trial Balance:

Debit Credit

Cash $10,200

Accounts Receivable 44,950

Prepaid Insurance 1,500

Insurance Expense 4,500

Ending Supplies 615

Cost of Supplies 1,110

Land 50,000

Building 155,750

Accumulated Depreciation—Building $69,250

Depreciation Expense - Building 6,400

Equipment 45,000

Accumulated Depreciation—Equipment 20,450

Depreciation Expense - Equipment 2,800

Accounts Payable 3,750

Unearned Rent 300

Rent Received 3,300

Joni Reece, Capital 153,550

Joni Reece, Drawing 8,000

Fees Earned 168,800

Salaries and Wages Expense 57,750

Salaries and Wages Payable 900

Utilities Expense 14,100

Advertising Expense 7,500

Repairs Expense 6,100

Miscellaneous Expense 4,025

Total $420,300 $420,300

Step-by-step explanation:

Adjusting entries are entries used to bring year-end balances to their accrued amounts, in accordance with the accrual concept and the matching principle of US GAAP. These require that revenue, expenses, and other business transactions are attributed to the period when they occur and not when cash is received or paid.