Question

During the course of your examination of the financial statements of the Hales Corporation for the year ended December 31, 2021, you discover the following: a. An insurance policy covering three years was purchased on January 1, 2021, for $3,000. The entire amount was debited to insurance expense and no adjusting entry was recorded for this item. b. During 2021, the company received a $575 cash advance from a customer for merchandise to be manufactured and shipped in 2022. The $575 was credited to sales revenue. No entry was recorded for the cost of merchandise. c. There were no supplies listed in the balance sheet under assets. However, you discover that supplies costing $505 were on hand at December 31. d. Hales borrowed $13,000 from a local bank on October 1, 2021. Principal and interest at 12% will be paid on September 30, 2022. No accrual was recorded for interest. e. Net income reported in the 2021 income statement is $28,000 before reflecting any of the above items.

Record journal entry for each.

Answer 1

S.No.	DATE	Accounts Name and Explanation	Debit	Credit
a.	Dec. 31, 2021	Prepaid Inurance	2,000		(3000/3*2)
		Insurance Expense		2,000	(3000/3*2)
		(To record 2 years prepaid insurance)
b.	Dec. 31, 2021	Sales Revenue	575
		Unearned Revenue		575
		(To record unearned revenue)
c.	Dec. 31, 2021	Supplies	505
		Supplies Expense		505
		(To record supplies expense)
d.	Dec. 31, 2021	Interest Expense	390		(13000*12%)/12*3
		Interest Payable		390
		(To record interest expense)