Review The Trial Balance And Prepare The Necessary

review the trial balance and prepare the necessary

Review the trial balance and narratives, and prepare the necessary adjusting entries. Asher Corporation's equipment had an original life of 140 months, and the straight-line depreciation method is used. As of January 1, the equipment was 40 months old. The equipment will be worthless at the end of its useful life. As of the end of the month, Asher Corporation has provided services to customers for which the earnings process is complete. Formal billings are normally sent out on the first day of each month for the prior month's work. January's unbilled work is $25,000. Utilities used during January, for which bills will soon be forthcoming from providers, are estimated at $1,500.

A review of supplies on hand at the end of the month revealed items costing $3,500. The $2,400 balance in prepaid insurance was for a 6-month policy running from January 1 to June 30. The unearned revenue was collected in December of 20X7. 60% of that amount was actually earned in January, with the remainder to be earned in February. The loan accrues interest at 1% per month. No interest was paid in January.

Paper For Above instruction

To ensure accurate financial reporting, Asher Corporation must record appropriate adjusting entries at the end of January 20X8. These entries will reflect the depreciation expense for equipment, unbilled revenue earned, utilities accrued, supplies used, insurance expense, unearned revenue earned, and interest accrued on the loan payable. This process guarantees that the company's financial statements accurately portray its financial position and results of operations for the period.

Adjusted Entries and Analysis

Initially, the equipment's depreciation needs to be calculated based on its original life and age. The equipment's original cost is $35,000 with a useful life of 140 months, and it was 40 months old as of January 1. Using straight-line depreciation, the monthly depreciation expense is $35,000 divided by 140 months, equaling $250 per month. Since the equipment is 40 months old, the accumulated depreciation before adjustment at January 1 was $10,000 (which matches the trial balance). For January, the depreciation expense remains $250, bringing total accumulated depreciation to $10,250, and the depreciation expense for January is $250.

Next, the unbilled revenue of $25,000 should be accrued, recognizing revenue earned but not yet billed. This entry will debit Accounts Receivable and credit Revenue, reflecting earned income for services provided in January.

Utilities expense estimated at $1,500 needs to be accrued for January, recognizing an expense and a liability for utilities used but not yet billed. The journal entry will debit Utilities Expense and credit Utilities Payable (or Accounts Payable).

Supplies on hand are valued at $3,500 at month end. Given the supplies balance is $7,113, the supplies used are $7,113 minus $3,500, totaling $3,613. The supplies expense account is debited, and supplies are credited, adjusting the supplies balance accordingly.

The prepaid insurance of $2,400 covers six months from January 1 to June 30. The insurance expense for January is $2,400 divided by 6, equating to $400. This amount will be debited to Insurance Expense, and Prepaid Insurance will be credited.

The unearned revenue collected in December ($8,500) has earned 60% of its amount in January, which is $8,500 * 0.60 = $5,100. Recognizing this earned revenue involves debiting Unearned Revenue and crediting Revenue for $5,100.

The loan payable accrues interest at 1% per month; with a principal of $15,000, the interest for January is $15,000 * 0.01 = $150. Since no interest was paid, the adjusting entry involves debiting Interest Expense and crediting Interest Payable for $150.

Executing these adjusting journal entries will update the ledger to reflect the accurate financial position for January 20X8, ensuring compliance with accounting principles such as revenue recognition and matching expenses to the period they relate to.

Summary of Adjusting Journal Entries

• Debit Equipment Depreciation Expense $250; Credit Accumulated Depreciation $250
• Debit Accounts Receivable $25,000; Credit Revenue $25,000
• Debit Utilities Expense $1,500; Credit Utilities Payable $1,500
• Debit Supplies Expense $3,613; Credit Supplies $3,613
• Debit Insurance Expense $400; Credit Prepaid Insurance $400
• Debit Unearned Revenue $5,100; Credit Revenue $5,100
• Debit Interest Expense $150; Credit Interest Payable $150

These entries ensure the financial statements will accurately present the company's assets, liabilities, revenues, and expenses for the period, reflecting an accurate picture of Asher Corporation's financial health.

References

• Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2020). Intermediate Accounting (17th ed.). Wiley.
• Gelman, A. (2019). Financial Accounting: An Introduction to Concepts, Methods, and Uses. Pearson.
• Weygandt, J. J., Kieso, D. E., & Kimmel, P. D. (2019). Financial Accounting (10th ed.). Wiley.
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