Question

Blue Ink, Inc has the following unadjusted account balances at year
end December 31, 2017

Cash 430,000
Accounts Receivable 2,000
Prepaid Insurance 14,000
Prepaid Rent 22,000
Equipment 60,000
Accumulated Depreciation -
Accounts Payable 10,000
Common Stock 16,000
Sales Revenue 823,100
Wage Expense 290,400
Utilities Expense 11,200
Insurance Expense 8,500
Rent Expense 11,000
Depreciation Expense -

At year-end Blue Ink, Inc. makes adjusting journal entries to properly
record revenue and expenses. The following information applies to
the adjusting journal entries.

a. The prepaid insurance balance relates to an insurance policy
purchased on January 1, 2017, that covers the period of 1/1-17-12/31/17.

b. The prepaid rent balance relates to rent paid in June, 2017 to cover
period of 7/1/17 - 6/30/18.

c. Wages for 2017 in the amount of $26,000 will be paid after
year-end and have not yet been recorded.

d. Blue Ink purchased equipment Jan 1, 2017 and will depreciate the
equipment on an annual basis. No depreciation has been recorded.
The equipment has a useful life of 15 years, no residual value and will
be depreciated on a straight-line basis.

Required: Provide the appropriate adjusting entries.

Answer 1

Solution:

Adjusting Journal Entries - Blue Ink Inc.
Event	Particulars	Debit	Credit
a	Insurance expense Dr	$14,000.00
	To Prepaid insurance		$14,000.00
	(To record insurance expense)
b	Rent expense Dr ($22,000*6/12)	$11,000.00
	To Prepaid rent		$11,000.00
	(To record rent expense)
c	Wages expense Dr	$26,000.00
	To Wages Payable		$26,000.00
	(To record accrued wages)
d	Depreciation expense Dr ($60,000/15)	$4,000.00
	To Accumulated depreciation - Equipment		$4,000.00
	(To record depreciation on equipment)