Chapter 3: Q3-8DQ (page 139)
If a company initially records prepaid expenses with debits to expense accounts, what type of account is debited in the adjusting entries for those prepaid expenses?
The expense account will be debited.
Over 22 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
In making adjusting entries at the end of its accounting period, Chao Consulting mistakenly forgot to record:
∙ \(3,200 of insurance coverage that had expired (this \)3,200 cost had been initially debited to the Prepaid
Insurance account).
∙ \(2,000 of accrued salaries expense.
As a result of these oversights, the financial statements for the reporting period will [choose one] (1) understate
assets by \)3,200; (2) understate expenses by \(5,200; (3) understate net income by \)2,000; or
(4) overstate liabilities by $2,000.
Question: What is a prepaid expense, and where is it reported in the financial statements?
Question: The following three separate situations require adjusting journal entries to prepare financial statements as
of April 30. For each situation, present both:
∙ The April 30 adjusting entry.
∙ The subsequent entry during May to record payment of the accrued expenses.
Entries can draw from the following partial chart of accounts: Cash; Accounts Receivable; Prepaid
Interest; Salaries Payable; Interest Payable; Legal Services Payable; Unearned Revenue; Revenue; Salaries
Expense; Interest Expense; Legal Services Expense; Depreciation Expense.
a. On April 1, the company retained an attorney for a flat monthly fee of \(3,500. Payment for April legal
services was made by the company on May 12.
b. A \)900,000 note payable requires 12% annual interest, or \(9,000, to be paid at the 20th day of each
month. The interest was last paid on April 20, and the next payment is due on May 20. As of April 30,
\)3,000 of interest expense has accrued.
c. Total weekly salaries expense for all employees is $10,000. This amount is paid at the end of the day
on Friday of each five-day workweek. April 30 falls on a Tuesday, which means that the employees
had worked two days since the last payday. The next payday is May 3.
In the blank space beside each numbered balance sheet item, enter the letter of its balance sheet classification. If the item should not appear on the balance sheet, enter a Z in the blank.
A. Current assets E. Current liabilities
B. Long-term investments F. Long-term liabilities
C. Plant assets G. Equity
D. Intangible assets
14. Common stock
In the blank space beside each numbered balance sheet item, enter the letter of its balance sheet classification. If the item should not appear on the balance sheet, enter a Z in the blank.
A. Current assets E. Current liabilities
B. Long-term investments F. Long-term liabilities
C. Plant assets G. Equity
D. Intangible assets
8. Current portion of long-term note payable
What do you think about this solution?
We value your feedback to improve our textbook solutions.
