Question

Wages of $6,000 are earned by workers but not paid as of December 31. Depreciation on the company’s equipment for the year is $11,680. The Supplies account had a $410 debit balance at the beginning of the year. During the year, $5,776 of supplies are purchased. A physical count of supplies at December 31 shows $628 of supplies available. The Prepaid Insurance account had a $5,000 balance at the beginning of the year. An analysis of insurance policies shows that $1,900 of unexpired insurance benefits remain at December 31. The company has earned (but not recorded) $900 of interest revenue for the year ended December 31. The interest payment will be received 10 days after the year-end on January 10. The company has a bank loan and has incurred (but not recorded) interest expense of $3,500 for the year ended December 31. The company will pay the interest five days after the year-end on January 5.

For each of the above separate cases, analyze each adjusting entry by showing its effects on the accounting equation—specifically, identify the accounts and amounts (including (+) increase or (−) decrease) for each transaction or event.

Answer 1

Accounting equation

	Assets			=	Liabilities			+	Stockholder's equity
a					wages payable	+	6000		Wages expense	-	6000
b	Accumulated depreciation	-	11680						Depreciation expense	-	11680
c	Supplies	-	5558						Supplies expense	-	5558
d	Prepaid insurance	-	3100						Insurance expense	-	3100
e	Interest receivable	+	900						Interest revenue	+	900
f					Interest payable	+	3500		Interest expense	-	3500