How to record the prepaid expenses


Response to the following problem:

For each of the following separate cases, prepare adjusting entries required of financial statements for the year ended (date of ) December 31, 2011.

(Assume that prepaid expenses are initially recorded in asset accounts and that fees collected in advance of work are initially recorded as liabilities.)

a. One-third of the work related to $30,000 cash received in advance is performed this period.

b. Wages of $9,000 are earned by workers but not paid as of December 31, 2011.

c. Depreciation on the company's equipment for 2011 is $19,127.

d. The Office Supplies account had a $480 debit balance on December 31, 2010. During 2011, $5,349 of office supplies are purchased. A physical count of supplies at December 31, 2011, shows $587 of supplies available.

e. The Prepaid Insurance account had a $5,000 balance on December 31, 2010. An analysis of insurance policies shows that $2,200 of unexpired insurance benefits remain at December 31, 2011.

f. The company has earned (but not recorded) $750 of interest from investments in CDs for the year ended December 31, 2011. The interest revenue will be received on January 10, 2012.

g. The company has a bank loan and has incurred (but not recorded) interest expense of $3,500 for the year ended December 31, 2011. The company must pay the interest on January 2, 2012.

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Financial Accounting: How to record the prepaid expenses
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