Question

Wells Technical Institute (WTI), a school owned by Tristana Wells, provides training to individuals who pay tuition directly to the school. WTI also offers training to groups in off-site locations
Its unadjusted trial balance as of December 31, 2017, follows:

WELLS TECHNICAL INSTITUTE
Unadjusted Trial Balance
December 31, 2017
Debit Credit
Cash $26,793
Accounts receivable 0
Teaching supplies 10,304
Prepaid insurance 15,458
Prepaid rent 2,062
Professional library 30,913
Accumulated depreciation-Professional library $9,275
Equipment 72,119
Accumulated depreciation-Equipment 16,489
Accounts payable 34,431
Salaries payable 0
Unearned training fees 14,000
Common stock 14,800
Retained earnings 51,539
Dividends 41,220
Tuition fees earned 105,188
Training fees earned 39,158
Depreciation expense-Professional library 0
Depreciation expense-Equipment 0
Salaries expense 49,464
Insurance expense 0
Rent expense 22,682
Teaching supplies expense 0
Advertising expense 7,214
Utilities expense 5,771
Totals $284,800 $284,888

WTI initially records prepaid expenses and unearned revenues in balance sheet accounts.
Descriptions of items a through h that require adjusting entries on December 31, 2017, follow:

a. An analysis of WTI's insurance policies shows that $3,203 of coverage has expired.
b. An inventory count shows that teaching supplies costing $2,776 are available at year-end 2017.
c. Annual depreciation on the equipment is $12,814.
d. Annual depreciation on the professional library is $6,407.
e. On November 1, WTI agreed to do a special six-month course (starting immediately) for a client. The contract calls for a monthly fee of $2,800 and the client paid the first five months' fees in advance. When the cash was received, the Unearned Training Fees account was credited. The fee for the sixth month will be recorded when it is collected in 2018.
f. On October 15, WTI agreed to teach a four-month class (beginning immediately) for an individual for $3,500 tuition per month payable at the end of the class. The class started on October 15, but no payment has yet been received. (WTI's accruals are applied to the nearest half-month; for example, October recognizes one-half month accrual.)
g. WTI's two employees are paid weekly. As of the end of the year, two days' salaries have accrued at the rate of $100 per day for each employee.
h. The balance in the Prepaid Rent account represents rent for December.

Required:
Prepare the adjusting entries.

Answer 1

Answer:

See explanation Section

Explanation:

Adjusting Entries

Req. A, B

A. Since the partial amount of insurance policy has been expired-

Debit      Insurance Expense        $3,203

Credit             Prepaid Insurance              $3,203

An expense will be appeared and the current assets will be decreased.

B. Debit     Teaching supplies Expense        $7,528

Credit               Teaching supplies                               $7,528

As the company has $2,776 supplies available from $10,304, teaching supplies expense will appear as $7,528 = (10,304 - 2,776)

Req. C, D, and E

C. Debit     Depreciation expense-equipment      $12,814

Credit            Accumulated depreciation-equipment      $12,814

D. Debit     Depreciation expense-professional library     $6,407

Credit            Accumulated depreciation-professional library      $6,407

E. Debit      Unearned revenue             $5,600

Credit             Service revenue                          $5,600

Note: Monthly fee of $2,800 from November to December. Therefore, 2 months fee = $2,800*2 = $5,600 has been earned.

Req. F, G and H

F. Debit      Accounts receivable         $8,750

Credit                   Service revenue                    $8,750

Note: As WTI has not yet received any payment from October 15 to December 31, there will be 2 and a half months bill due. Each month = 3,500. Therefore, 2 months = $7,000, and a half-month = $(3,500 ÷ 2) = $1,750. Total receivable = $7,000 + $1,750 = $8,750.

G. Debit    Salaries expense          $400

Credit                  Salaries payable            $400

Note: As there are two employees and two days salary have been accured, total salaries payable = $100 per day × 2 employees × 2 days = $400

H. Debit     Rent Expense           $2,062

Credit               Prepaid rent                    $2,062