Edward Allen Interiors Inc. is a leading manufacturer and retailer of home furnishings in the United States and abroad. The following is adapted from Edward Allen’s September 30, 2016, trial balance. (The amounts shown represent millions of dollars.) Accounts Payable $ 147
Accounts Receivable 33
Cash 146
Common Stock 36
Equipment 390
Inventory 182
Notes Payable (long-term) 250
Notes Payable (short-term) 2
Prepaid Rent 38
Retained Earnings 401
Salaries and Wages Payable 43
Software 90
Assume that the following events occurred in the following quarter.
Paid $50 cash for additional inventory.
Issued additional shares of common stock for $30 in cash.
Purchased equipment for $240; paid $115 in cash and signed a note to pay the remaining $125 in two years.
Signed a short-term note to borrow $12 cash.
Conducted negotiations to purchase a sawmill, which is expected to cost $44.

1. Inventory (Dr.) $50

Cash (Cr.) $50

2. Cash (Dr.) $30

Share Capital (Cr.) $30

3. Equipment (Dr.) $240

Cash (Cr.) $115

Notes payable long term  (Cr.) $125

4.Cash (Dr.) $12

Notes payable Short term (Cr.) $12

5. no effect.

Explanation:

The adjusting entry is a journal entry recorded at end of accounting period to adjust events or transactions to comply with the accrual concept. In the event 1, the inventory is purchased on cash, there will be recording for the inventory received. In the event 2, there is issuance of further share capital then cash or bank will be debited and share capital account will be credited. In the event 3, there is purchase of equipment which is partially through cash and partially through signing notes payable. Event 4 reflects borrowing the cash by signing a short term note payable. Event 5, will have no effects as there is only negotiations and nothing has actually happened.

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