MASTERINGADJUSTINGENTRIES

HOMEWORKEXERCISESANDPROBLEMS
A.EXERCISES
Section1WHYWEUSEACCRUALS,DEFERRALSANDOTHERADJUSTMENTS

1. OnOctober1,20X0,EspreeCo.takesouta$10,000loanandagreestopayinterest
twiceeachyearforthelifeoftheloan:$300onApril1and$300onOctober1.How
muchinterestexpensewillEspreereportonitsincomestatementfortheyearended
December31,20X0if:
a.itisonacashbasis?
$0.Nointerestwaspaidduring20X0
b.itisontheaccrualbasis?
$150interestaccruedforOctober,NovemberandDecember

2. Neartheendof20X0,JNTEnterprisescompletesservicesforacustomerandsendsan
invoicefor$500.AsofJNTsyearend,nopaymenthasbeenreceived.IfJNTreports20X0
accrual basisaccounting.
revenueof$500,itmustbeusing
3. OnDecember2,20X1,P&Tpays$1,000toanexterminatorforworkthatwillstartin
January.IfP&Treportsonitsincomestatement$1,000forexterminatingexpensefor
cashbasisaccounting.
20X1,itmustbeusing

4. Foreachofthefollowingunrelatedscenarios,showhowmuchrevenueisreportedon
theincomestatementfor20X0underthecashbasisv.accrualbasis.

CashBasis AccrualBasis
OnNovember1,20X0,AlexiInc.receives$1,800
inrentalpaymentsforNovember,December, $1,200
andJanuary($600permonth). $1,800 ($6002)
MNMcaterssixlunchesinDecember20X0.
Eachofthesixcustomersisinvoiced$100,but $600
asofDecember31,20X0,onlyonehaspaid. $100 ($100x6)
Amusicianaccepts$200for8upcoming
weddings.AsofDecember31,20X0,the $1,600 $400
musicianhasperformedat2ofthe8. ($2008) ($2002)

5. Foreachofthefollowingunrelatedscenarios,showtotalexpensesreportedonthe
incomestatementfor20X0underthecashbasisv.accrualbasis.
CashBasis AccrualBasis
InDecember20X0,ByCorunsadscosting
$30,000.ByCoreceivestheinvoicebutdoesnot
payituntilJanuary20X1. $0 $30,000
OnDecember1,20X0,KPTpays$2,400forthe $200
next12monthspropertyinsurance. $2,400 ($2,400/12
1)

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MasteringAdjustingEntries
InDecember20X0,Andrespays$400toPest
Controlfor4monthsservice.Thefirsttreatment
willbeinJanuary20X1. $400 $0

AmericanInstituteofProfessionalBookkeepers,2010

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Section2ACCRUEDREVENUE

1. Selectthetermontherightthatbestcompletesthestatementontheleft.Termsmaybe
usedonce,morethanonce,ornotatall.

Failingtomaketheentrytoaccruerevenue__d__netincome. a.increases
Theentrytorecordaccruedrevenue__a__assets. b.decreases
Accruedrevenueisrevenuethatis__e__butnotcollected c.overstates
Failingtomaketheentrytoaccruerevenue__d__assets. d.understates
Theentrytorecordaccruedrevenue__a__netincome. e.earned
f.unearned

2. KurtzRentalsrentsequipmenttoDitkaonFebruary1.LeasetermsrequireDitkato
makepaymentstoKurtzof$2,000eachquarter:April30,July31,October31,and
January31.KurtzreceivespaymentsforApril,July,andOctober.
a. WhatjournalentryshouldKurtzrecordonDecember31?

RentReceivable 1,333
RentRevenue 1,333
b. Ifthisentryisnotrecorded,howwillitaffectKurtzsfinancialstatements?
Netincomewillbeunderstatedbecausetoolittlerevenueisreported.Assets
willbeunderstatedaswell.
3. Intelllicensestechnologiestoamanufacturer.TheagreementcallsforIntelltoreceive
$3foreachunitmanufacturedwithlicensingfeesremittedquarterly.AsofDecember31,
Intellhasreceivedthefollowingpayments:
Period Units LicensingFees
Manufactured
1/1to3/31 475 $1,425
4/1to6/30 350 $1,050
7/1to9/30 525 $1,575
10/1to12/31 600 $1,800
Intellhasreceivedchecksforthefirsttwoquarters,butnotthethird;thefourth
quartercheckisnotdueuntilJanuary.
a. IfIntellisontheaccrualbasis,whatadjustingentryshoulditrecordatyearendto
recognizerevenueearnedfromthismanufacturer?
LicensingFeesReceivable 3,375
LicensingFeesRevenue 3,375
Undertheaccrualmethod,revenueisrecognizedintheyearearned.Thus,
revenueof$3,375($1,575+$1,800=$3,375)earnedfromJuly1December31
isrecognized,eventhoughithasnotbeenreceived
b. Ifthisentryisnotrecorded,howwillitaffectIntellsfinancialstatements?

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Netincomewillbeunderstatedontheincomestatement.Assetswillbe
understatedonthebalancesheet.

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MasteringAdjustingEntries

4. Yourfirmholdsa$15,000,8%notereceivableissuedonAugust1,20X0.Interestispaid
onceayearonJuly31.OnJuly31,20X6,youreceivethenormalinterestpayment.
a. WhatadjustingentrymustyourecordDecember31,20X6?
InterestReceivable 500
InterestRevenue 500
$15,0008%=$1,200annualinterest5/12=$500
b. Ifthisentryisnotrecorded,howwillitaffectyourcompanysfinancialstatements?
Netincomewillbeunderstatedontheincomestatement.Assetswillbe
understatedonthebalancesheet.

5. Yourcompany,whichhasafiscalyearendingOctober31,sellsscentedbarsofsoapfor
a12%commission.AsofOctober31,totalsalesare$400,000.Yourcompanyhas
received$30,000,whichyoucreditedtoRevenue.
a. Howmuchadditionalrevenuemustyourecordforthefiscalyear?
$18,000($400,00012%=$48,000revenueearned $30,000revenuebooked)
b. Whatisthejournalentrytorecordtheadditionalrevenue?
CommissionsReceivable 18,000
CommissionsRevenue 18,000

Section3ACCRUEDEXPENSES(ACCRUEDLIABILITIES)

1. DillCoborrows$200,000onSeptember1,20X0,fromFirstBancorp.Monthlyinterestis
$1,200.TheloanagreementrequiresDillCotopaytheinterestevery6months.Thefirst
interestpaymentisdueFebruary28,20X1.
a. WhatadjustingentrymustDillComakeonDecember31,20X0torecognizethe
accruedinterest?
InterestExpense 4,800
InterestPayable 4,800
$1,2004months(September December)=$4,800
b. Explaintheimpactonthefinancialstatementsifthisentryisnotrecorded.
Becausetoolittleinterestexpensehasbeenrecognizednetincomewillbe
overstatedontheincomestatement.Liabilitieswillbeunderstatedonthe
balancesheet.

2. SalaryexpenseatQuickDinnerInc.is$7,500perweekforaMondayFridayworkweek.
EmployeesarepaideachFriday.
a. IfthecompanysyearendsonaWednesday,whatadjustingentrymustitrecord?
SalariesExpense 4,500
SalariesPayable 4,500

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$7,500/5=$1,500foreachworkday3=$4,500
b. Explaintheimpactonthefinancialstatementsifthisentryisnotrecorded.
Becausetoolittlesalariesexpensehasbeenrecognized,netincomewillbe
overstatedontheincomestatement.Liabilitieswillbeunderstatedonthe
balancesheet.

3. SalaryexpenseatSlowCookeris$6,000perweekforaTuesdaySundayworkweek.
EmployeesarepaidonSunday.
a. IfthecompanysyearendsonaTuesday,whatadjustingentrymustitmake?
SalariesExpense 1,000
SalariesPayable 1,000
$6,000/6=$1,000foreachworkday1=$1,000
b. Explaintheimpactonthefinancialstatementsifthisentryisnotrecorded.
Becausetoolittlesalariesexpensehasbeenrecognized,netincomewillbe
overstatedontheincomestatement.Liabilitieswillbeunderstatedonthe
balancesheet.

4. RojoEquipment,whichhasanOctober31fiscalyear,reportsincomeof$200,000forthe
yearended10/31/20X7.OnOctober31,Rojodiscoversthefollowing:
A$2,000utilitybillbookedonOctober30,20X7,wasnotpaid.
Rojohasa$10,000notepayablewitha12%annualinterestrate.Paymentsare
dueeverysixmonths.ThelastinterestpaymentwasmadeonJune30,20X7.
Rojoshas4salariedemployees,eachpaid$800aweekforaMondayFriday
workweek.PaychecksaredistributedonFridays.October31isaThursday.
a. PreparetheadjustingentriesrequiredfortheyearendedOctober31,20X7.
UtilitiesExpense 2,000
UtilitiesPayable 2,000
InterestExpense 400
InterestPayable 400
$10,00012%=$1,200annualinterest/124months=$400
SalariesExpense 2,560
SalariesPayable 2,560
$8004=$3,200weeklysalaries/54=$2,560
b. WhatRojosnetincomefor20X7?
$195,040($200,000 $2,000 $400 $2,560)

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Section4REVENUECOLLECTEDINADVANCE(UNEARNEDREVENUE)
1.Atyearend,Bijourecordsanadjustingentryforunearnedrevenue.
a. Iftheadjustingentryincreasesliabilities,whatjournalentrywasrecordedwhenthe
cashwasreceived?
IftheAJEincreasesliabilities,thentheentryis:
Revenue xxxx
UnearnedRevenue xxxx
Therefore,theoriginaljournalentryrecordedwhencashwasreceivedwas:
Cash xxxx
Revenue xxxx
b. Iftheadjustingentryincreasesrevenues,showthejournalentrythatwasrecorded
whenthecashwasreceived.
IftheAJEincreasesrevenues,thenitis:
UnearnedRevenue xxxx
Revenue xxxx
Therefore,theoriginaljournalentryrecordedwhencashwasreceivedwas:
Cash xxxx
UnearnedRevenue xxxx

2. WyCosfiscalyearendsSeptember30.OnSeptember10,itcollects$30,000forapainting
jobandcreditsUnearnedPaintingRevenue.AsofSeptember30,60%oftheworkhas
beendone.WhatadjustingentrymustWyCorecordonSeptember30?
UnearnedPaintingRevenue 18,000
PaintingRevenue 18,000
$30,00060%=$18,000paintingrevenueisrecognizedfortheyear.Thus,
$18,000mustbetransferredfromUnearnedPaintingRevenuetoPainting
Revenue.

3. OnAugust1,InsureCowritesa2yearpolicyforatotalof$12,000andreceivestheentire
paymentinadvance.IfInsureCocreditsRevenue,whatadjustingentrymustitrecordon
December31?
Revenue 9,500
UnearnedRevenue 9,500
Theoriginalentrymusthavebeen:
Cash $12,000
Revenue $12,000
OnDecember31,InsureCorecognizes5monthsrevenue,or$2,500($12,000/24
5).Theremaining$9,500($12,000 $2,500)mustbetransferredtoUnearned
Revenue.

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4. OnNovember1ATDentersa1yearcontracttoprovidesecurityforCorpCoswarehouses
for$12,000ayearandreceivesthefirst3monthspaymentatsigning.
a. IfATDbooksthepaymentasrevenue,whatadjustingentrymustitrecordatyear
end?Howwillitsfinancialstatementsbemisstatediftheentryisnotrecorded?
Theoriginalentryfor3monthsservice($12,000/123=$3,000)wouldhave
been:
Cash 3,000
Revenue 3,000
Atyearend,2monthsrevenuehasbeenearned,soitmustrecordthe
followingAJE:
Revenue 1,000
UnearnedRevenue 1,000
IfATDdoesnotrecordthisAJE,revenuewillbeunderstatedby$1,000,
causingnetincometobeunderstatedbythisamount.Liabilitieswillbe
understatedby$1,000.
b. IfATDbooksthepaymentasaliability,whatadjustingentrymustitrecordatyear
end?Howwillitsfinancialstatementsbemisstatediftheentryisnotrecorded?
Theoriginaljournalentrywouldhavebeen:
Cash 3,000
UnearnedRevenue 3,000
Torecognize2monthsrevenueearnedasofyearend,ATDrecordsthe
followingAJE:
UnearnedRevenue 2,000
Revenue 2,000
IfATDdoesnotrecordthisAJE,revenuewillbeunderstatedby$2,000and
netincomeoverstatedbythisamount.Liabilitieswillbeoverstatedby
$2,000.
5. Thefollowingtableshowssubscriptionrevenueforthreeunrelatedcompanies:
Company
I II III
BeginningbalanceinUnearnedSubscriptionRevenue $2,400 $3,000 $4,500
Paymentsreceivedduringtheyear 40,000 25,000 ?
EndingbalanceinUnearnedSubscriptionRevenue ? 4,000 2,000
Subscriptionrevenueearnedduringtheyear 39,000 ? 25,000

a. Fillinthemissingamounts.
I. Asofthebeginningoftheyear,ATDhasonitsbooks$2,400forservicesit
hadnotyetperformed.Duringtheyear,ATDreceivesanadditional$40,000.

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IfATDearns$39,000revenuefortheyear,then$3,400remainsunearned,as
follows:
BeginningbalanceinUnearnedSubscriptionRevenue $2,400
+ Paymentsreceivedduringtheyear 40,000

= EndingbalanceinUnearnedSubscriptionRevenue $42,400
Subscriptionrevenueearnedduringtheyear (39,000)
= EndingbalanceinUnearnedSubscriptionRevenue $3,400
II. $3,000+$25,000=$28,000 $24,000(SubscriptionRevenue)=$4,000
III.$4,500+$22,500(paymentsreceived)=$27,000 $25,000=$2,000
b. Ignoringdollaramounts,whatjournalentriesmayhaverecordedthepayments?
Thepaymentsmayhavebeenrecordedasaliability:
Cash xxxx
UnearnedRevenue xxxx
orasrevenue:
Cash xxxx
Revenue xxxx

6. OnFebruary1,Altascollects$60,000forajobandcreditsRevenue.AsofApril30,Altas
yearend,45%oftheworkiscompleted.WhatadjustingentrydoesAltarecordonApril30?
Revenue 33,000
UnearnedRevenue 33,000
$60,00045%=$27,000revenuemustberecognizedfortheyear.Before
recordingtheAJE,AltasRevenueaccountshowsabalanceof$60,000.
Therefore,$33,000($60,000 $27,000)mustbetransferredtoUnearned
Revenue.

Section5PREPAID(DEFERRED)EXPENSES

1. OnDecember1,20X7,yourcompanypaysanannualinsurancepremiumof$3,600that
coversDecember1,20X7,toNovember30,20X8.
a. ShowtheadjustingentryonDecember31,20X7,ifthe$3,600paymentwasrecorded
inPrepaidInsurance.
InsuranceExpense 300
PrepaidInsurance 300
AsofDecember31,20X7,1monthsinsurancehasbeenusedup,sotheAJE
musttransfer$300($3,600/121)fromPrepaidInsurancetoInsurance
Expense.

b. ShowtheadjustingentryonDecember31,20X7,ifthe$3,600paymentwasrecorded
inInsuranceExpense.

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PrepaidInsurance 3,300
InsuranceExpense 3,300
AsofDecember31,20X7,1monthsinsurancehasbeenusedup,sotheending
balanceinInsuranceExpensemustbe$300(theamountthatwillbereported
onthe20X7incomestatement).Thisrequirestransferring$3,300toPrepaid
Insurance.
2. GilCopays$900forofficesuppliesinAprilanddebitsOfficeSupplies.OnMay31,
GilCosyearend,aphysicalcount,finds$200insupplies.
a.Whatistheadjustingentry?
SuppliesExpense 700
Supplies 700
If$900inofficesupplieswaspurchasedand$200ofsuppliesareonhandat
yearend,$700ofsupplieswereusedupduringtheyear.TheAJEmust
transfer$700toSuppliesExpense
b. Ifthisentryisnotrecorded,howwillitaffectGilCosfinancialstatements?
Bothnetincomeandtotalassetswillbeoverstated

3. Thefollowingtableshowsinsurancepremiumspaidbythreeunrelatedcompanies:
Case
I II III
BeginningbalanceinPrepaidInsurance $500 $300 $4,500
PremiumspaidduringtheYear 4,000 2,500 ?
EndingbalanceinPrepaidInsurance ? 400 200
Insuranceusedupduringtheyear 3,000 ? 5,500

a. Fillinthemissinginformation.
I. $1,500
BeginningbalanceinPrepaidInsurance+premiumspaidduringthe
year insuranceexpenseusedupasofyearend=endingbalancein
PrepaidInsurance.Tocompute:$500+$4,000 $3,000=$1,500
II. $2,400
$300+$2,500 $X=$400
III.$1,200
$4,500+$X $5,500=$200
b. Ignoringdollaramounts,giveallpossiblejournalentriestorecordthepremiumpayments.
Ifthepaymentswererecordedasanasset,theoriginaljournalentrywouldhave
been:
PrepaidInsurance xxxx
Cash xxxx
Ifthepaymentswererecordedasanexpense,theoriginaljournalentrywould
havebeen:

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InsuranceExpense xxxx
Cash xxxx
4. OnSeptember1,BarCosignsa2yearrentalagreementpaying$6,000rentinadvance.
a. Iftheprepaymentwasbookedasprepaidrent,whatistheyearendadjustingentry?
RentExpense 1,000
PrepaidRent 1,000[$6,000/24months4months=$1,000]
b. Iftheprepaymentwasbookedasrentexpense,whatistheyearendadjustingentry?
PrepaidRent 5,000
RentExpense 5,000
$6,000/24months4months=$1,000ofrentexpenseusedupduringthe
year.Thatleaves$5,000ofprepaidrenttobeusedupinthefuture.

5. InAugust,JemCo,whichhasanOctober31yearend,pays$1,200forofficesuppliesand
recordsitinSuppliesExpense.OnOctober31,aphysicalcountreveals$440ofsuppliesunused.
a.WhatadjustingentrymustJemCorecordonOctober31?
Supplies 440
SuppliesExpense 440
Because$440ofsupplieshadnotbeenusedupbyyearend,theAJEmust
transferthisamountoutofSuppliesExpenseandintotheSuppliesaccount.
b. Ifthisentryisnotrecorded,howwillitaffectJemCosfinancialstatements?
Suppliesexpensewillbeoverstatedby$440andnetincomewillbe
understatedbythesameamount.TotalAssetswillbeunderstatedbythe
same$440

Section6OTHERENDOFPERIODENTRIES

1. GoCopurchasesabuildingfor$350,000.Ifthebuildinghasanestimatedlifeof30years
andaresidualvalueof$50,000,whatistheadjustingentryintheyearofpurchase?
DepreciationExpense 10,000
AccumulatedDepreciation 10,000[$350,000 $50,000)/30=
$10,000]
2. For20X9,PyCohascreditsalesof$200,000.Basedonpastexperience,Pyloestimates
that3%ofcreditsaleswillbeuncollectible.Atyearend,thebalanceinAllowancefor
DoubtfulAccountsis$4,000.Whatistheadjustingentrytorecord20X9baddebt
expense?
BadDebtExpense 6,000
AllowanceforDoubtfulAccounts 6,000
$200,0003%=$6,000.Underthepercentageofcreditsalesmethod,thecurrent
balanceintheAllowanceaccountisnotusedtocomputetheAJE.

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3. Attheendof20X9,SpendCohasaccountsreceivableof$70,000,ofwhichitestimates
10%willbebaddebt.AllowanceforDoubtfulAccountshasadebitbalanceof$4,000.
a. WhatdoesthedebitbalanceinAllowanceforDoubtfulAccountsimplyabout20X8?
Toolittlebaddebtexpensewasrecordedin20X8.
b. Whatisthe20X9adjustingentryforbaddebt?
BadDebtExpense 11,000
AllowanceforDoubtfulAccounts 11,000
$70,00010%=$7,000.Toobtainacreditbalanceof$7,000intheAllowance
accounttheAJEmustbefor$11,000.

c. WhatisthetermforthedifferencebetweentheclosingbalancesinAccounts
ReceivableandAllowanceforDoubtfulAccounts?
Netrealizablevalue

4. Matchthetermsinthelefthandcolumnbelowwiththedescriptionsontheright.
1.Percentageofcredit a. RequiredtorecognizebaddebtunderGAAP
salesmethod
2. Directwriteoffmethod b.Estimateofbaddebtexpensebasedontheage
ofoutstandingreceivables
3. Allowancemethod c. Estimateofbaddebtbasedoncreditsales
4. Percentageofaccounts d. Requiredtorecognizebaddebtundertaxlaw
receivablemethod

1. c. 2. d 3. a. 4. b.

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5. BelowarePruCosentriestotwoaccountsfortheyear.

a. WhatdothedebitstotheAllowanceaccountrepresent?Showthethreejournalentries
thatledtothethreedebitsintheAllowanceaccount.
EachdebittotheAllowanceaccountrepresentsaspecificaccountsreceivable
beingwrittenoffduringtheyear.
AllowanceforDoubtfulAccounts 200
AccountsReceivable 200
AllowanceforDoubtfulAccounts 100
AccountsReceivable 100
AllowanceforDoubtfulAccounts 400
AccountsReceivable 400

b. Prucousesthepercentageofcreditsalesmethod.Ifitestimatesthat2%ofits$250,000
increditsaleswillnotbecollected,whatadjustingentrydoesPruCorecordtorecognize
baddebtexpensefortheyear?
BadDebtExpense 5,000
AllowanceforDoubtfulAccounts 5,000
$250,0002%=$5,000

c. NowassumethatPrucousesthepercentageofaccountsreceivablemethod.Ifit
estimatesthat$4,000ofitsreceivableswillnotbecollectable,whatadjustingentrydoes
PruCorecordtorecognizebaddebtexpensefortheyear?
BadDebtExpense 3,450
AllowanceforDoubtfulAccounts 3,450
$4,000 $550currentbalance=$3,450requiredadjustment

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Section7FROMUNADJUSTEDTRIALBALANCETOFINANCIAL
STATEMENTS

1. Foreachaccountlistedbelow,fillinthenormalbalanceasdebitorcredit.

Account Normalbalance
AccountsPayable CREDIT
AccountsReceivable DEBIT
AccumulatedDepreciationEquipment CREDIT
AdvertisingExpense DEBIT
Cash DEBIT
DepreciationExpenseAutomobiles DEBIT
DepreciationExpenseEquipment DEBIT
Equipment DEBIT
FeesEarned CREDIT
InterestEarned CREDIT
InterestExpense DEBIT
InterestPayable CREDIT
InterestReceivable DEBIT
B.Anders,Capital CREDIT
B.Anders,Withdrawals DEBIT
Land DEBIT
LongtermNotesPayable CREDIT
NotesReceivable DEBIT
OfficeSupplies DEBIT
OfficeSuppliesExpense DEBIT
RepairsExpense DEBIT
SalariesExpense DEBIT
SalariesPayable CREDIT
UnearnedFees CREDIT
WagesExpense DEBIT

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2. Shownbelow,inalphabeticalorder,aretheaccountsofAPlus,Inc.Usetheworksheet
onthefollowingpagetosetupatrialbalanceforthefiscalyearendingJune30,20X7.

AccountsPayable $49,000
AccumulatedDepreciationBuilding 75,000
AccumulatedDepreciationEquipment 33,000
Building 110,000
Cash 155,000
DepreciationExpenseBuilding 4,000
DepreciationExpenseEquipment 5,000
Equipment 72,000
InsuranceExpense 1,000
InterestExpense 1,100
InterestPayable 9,000
Land 75,000
LongtermNotesPayable 107,000
PostageExpense 200
PrepaidInsurance 4,000
ProfessionalFees 142,000
PropertyTaxesPayable 9,000
J.Crow,Capital 193,900
J.Crow,Withdrawals 49,000
RentExpense 35,000
RentPayable 3,400
RepairsExpense 18,900
ShorttermInvestments 27,000
Supplies 2,700
SuppliesExpense 3,400
TelephoneExpense 900
UnearnedProfessionalFees 500
UtilitiesExpense 1,300
WageExpense 68,000
WagesPayable 11,700

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APlus,Inc.
Trialbalance
June30,20X7
Debit Credit
Cash 155,000
ShorttermInvestments 27,000
Supplies 2,700
PrepaidInsurance 4,000
Equipment 72,000
Accum.DepreciationEquipment 33,000

Building 110,000
Accum.DepreciationBuilding 75,000

Land 75,000
AccountsPayable 49,000

InterestPayable 9,000

RentPayable 3,400

WagesPayable 11,700

PropertyTaxesPayable 9,000

UnearnedProfessionalFees 500

LongtermNotesPayable 107,000

J.Crow,Capital 193,900

J.Crow,Withdrawals 49,000
ProfessionalFees 142,000

DepreciationExpenseBuilding 4,000
DepreciationExpenseEquipment 5,000
WageExpense 68,000
InterestExpense 1,100
InsuranceExpense 1,000

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RentExpense 35,000
SuppliesExpense 3,400
PostageExpense 200
RepairsExpense 18,900
TelephoneExpense 900
UtilitiesExpense 1,300
Totals 633,500 633,500

Importantthefollowingquestionisoptional:Neithercertificationnorthe
certificationexamrequirespresentationofthefinancialstatements,butonlythroughthe
adjustedtrialbalance.Recommended:Focusontheadjustmentsandadjustedtrial
balance.

3. BelowistheadjustedtrialbalanceforShadysIllusions.Usethisinformationto
prepareShadysincomestatementandbalancesheetfortheyear.

No. Accounttitle Debit Credit

101 Cash 158,000

109 OfficeSupplies 25,000
111 Equipment 80,000
112 AccumulatedDepreciationEquipment 44,000
200 AccountsPayable 33,000
201 WagesPayable 12,000
300 S.Shady,Capital 129,700
301 S.Shady,Withdrawals 25,000
400 EntertainmentRevenue 228,000
510 RentExpense 26,800
511 GasandOilExpense 3,000
512 WagesExpense 105,000
513 DepreciationExpenseEquipment 12,500
514 LegalExpense 11,400

Totals 446,700 446,700
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ShadysIllusions
IncomeStatement
FortheyearendedDecember31,20X4

Entertainmentrevenue $228,000
Less:
Rentexpense $26,800
Gasandoilexpense 3,000
Wageexpense 105,000
Depreciationexpense 12,500
Legalexpense 11,400 158,700
Netincome $69,300

ShadysIllusions
BalanceSheet
December31,20X4

Assets
Cash $158,000
Officesupplies 25,000
Equipment(net) 36,000
Totalassets $219,000

LiabilitiesandCapital
Accountspayable $33,000
Wagespayable 12,000
S.Shady,Capital* 174,000
Totalliabilitiesandcapital $219,000
*S.Shady,Capital=$129,700+$69,300 $25,000

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Section8 APPLYINGYOURKNOWLEDGETOTHETRIALBALANCE

Importantthefollowingquestionisoptional:Neithercertificationnorthe
certificationexamrequirespresentationofthefinancialstatements,butonlythroughthe
adjustedtrialbalance.Recommended:Focusontheadjustmentsandadjustedtrial
balance.

1. UsingThornesunadjustedtrialbalancebelowandfactsah,completethefollowing
worksheetbyfillingintheadjustments,adjustedtrialbalanceandfinancialstatements.

ThorneConstruction
Unadjustedtrialbalance
FortheyearendedJuly31,20X8
Debit Credit
Cash 12,500
AccountsReceivable 40,000
AllowanceforDoubtfulAccounts 2,000
OfficeSupplies 1,850
Prepaidinsurance 6,500
PrepaidRent
Equipment 154,000
Accum.DepreciationEquipment 38,500
AccountsPayable 23,000
InterestPayable
WagesPayable
LongtermNotesPayable 30,000
W.Thorne,Capital 82,300
W.Thorne,Drawing 25,000
ConstuctionRevenues 112,000
BadDebtExpense
DepreciationExpenseEquipment
WageExpense 29,400
InterestExpense 900
InsuranceExpense
RentExpense 10,800
OfficeSuppliesExpense
RepairsExpense 100
UtilitiesExpense 6,750
Totals 287,800 287,800
a. AphysicalcountofofficesuppliesasofJuly31,20X8shows$800insuppliesonhand.
b. OnMarch1,20X7,ThorneConstructionprepaid$9,000foran18monthinsurancepolicy
ofwhich5months($2,500)wasusedupduringfiscalyear20X7.
c. Theequipmenthasa28yearlifeandnosalvagevalue.Thorneusesstraightlinedepreciation.
d. Julyseletricbillfor$420isnotincludedbecauseitarrivedaftertheworksheetwasprepared.
e. Thereare$1,800ofaccruedwagesasofthefiscalyearend.

HomeworkSolutions 20
MasteringAdjustingEntries
f. Thornesrentof$800amonthispayablequarterly,inadvance.Itsmostrecentpayment
was$2,400onJune30,20X8tocoverJuly,August,andSeptember20X8.
g. Thorneestimatesbaddebtat2%ofcreditsales.
h. Thelongtermnotepayablebearsinterestat1%amonthpayablebythe10 thofthe
followingmonth.TheinterestforJulyhasneitherbeenpaidnorrecorded.

HomeworkSolutions 21
 a. SuppliesExpense 1,050
OfficeSupplies 1,050
$1,850 $800suppliesonhand=$1,050suppliesexpense

b. InsuranceExpense 6,000
PrepaidInsurance 6,000
$9,000/18=$500amonth12months=$6,000

c. DepreciationExpense Equipment 5,500

AccumulatedDepreciationEquipment 5,500
($154,000 $0)/28=$5,500

d. UtilitiesExpense 420
UtilitiesPayable 420

e. WageExpense 1,800
WagesPayable 1,800

f. PrepaidRent 1,600
RentExpense 1,600
$8002months(AugustamdSeptember)wasnotusedupasofyearend.

g. BadDebtExpense 2,240
AllowanceforDoubtfulAccounts 2,240
$112,0002%=$2,240

h. InterestExpense 300
InterestPayable 300
$30,0001%=$300

HomeworkSolutions 22
MasteringAdjustingEntries

ThorneConstructionWorksheet
July31,20X8
Unadjusted Adjusted Income Balance
trialbalance Adjustments trialbalance statement sheet
Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr
Cash 12,500 12,500 12,500
AccountsReceivable 40,000 40,000 40,000
Allow.forDoubtfulAccts 2,000 2,240 4,240 4,240
OfficeSupplies 1,850 1,050 800 800
PrepaidInsurance 6,500 6,000 500 500
PrepaidRent 1,600 1,600 1,600
Equipment 154,000 154,000 154,000
Accum.Depr.Equip. 38,500 5,500 44,000 44,000
AccountsPayable 23,000 23,000 23,000
InterestPayable 300 300 300
UtilitiesPayable 420 420 420
WagesPayable 1,800 1,800 1,800
LongtermNotesPayable 30,000 30,000 30,000
W.Worthington,Capital 82,300 82,300 82,300
W.Worthington,Drawings 25,000 25,000 25,000
ConstuctionRevenues 112,000 112,000 112,000
BadDebtExpense 2,240 2,240 2,240
Depr.Exp.Equipment 5,500 5,500 5,500
WageExpense 29,400 1,800 31,200 31,200
InterestExpense 900 300 1,200 1,200
InsuranceExpense 6,000 6,000 6,000
RentExpense 10,800 1,600 9,200 9,200

HomeworkSolutions 23
MasteringAdjustingEntries

SuppliesExpense 1,050 1,050 1,050

RepairsExpense 100 100 100
UtilitiesExpense
6,750
42 7,170
7,17
0 0
Totals 287,800 287,800 18,910 18,910 298,060 298,060 63,660 112,000 234,400 186,060
NetIncome 48,34
48,340

0
112,00 112,000 234,400 234,400
0

HomeworkSolutions 24
 B.PROBLEMSFORSECTIONS18

1. DanzaInc.reportedincomeof$440,000fortheyearendedJune30,20X8.However,the
recordsshowthatatyearend,thefollowingitemshadnotbeenrecorded:
OnMay1,20X8,Danzareceiveda$12,000advanceforasixmonthjobandcredited
Revenuefor$12,000.
Interestona$12,000notepayablebearinga10%interestrateispaidquarterly.The
lastpaymentwasmadeattheendofMay20X8.
Danzaspayrollis14salariedemployees,eachearning$900aweekfora5day
workweek.Fridayispayday.June30wasaTuesday.
a. PreparetheadjustingentriesnecessaryfortheyearendedJune30,20X8.
Revenue 8,000
UnearnedRevenue 8,000
$12,000/6=$2,000earnedeachmonth2=$4,000earnedfortheyear
$12,000 $4,000=$8,000ofunearnedrevenueasofJune,30,20X8.
InterestExpense 100
InterestPayable 100
$12,00010%=$1,200annualinterest/12months1month=$100
SalariesExpense 5,040
SalariesPayable 5,040
$90014=$12,600weeklysalaries/52=$5,040
b. WhatisDanzasnetincomefor20X8?
$426,860($440,000 $8,000 $100 $5,040)

2. MikadoCo.reportedincomeof$224,000fortheyearendedDecember31,20X9.However,a
reviewofthebooksshowsthefollowingitemsunaccountedforatyearend:
OnAugust1,20X9,Mikadoreceiveda$27,000advancefora9monthjob,recording
thepaymentinUnearnedRevenue.
Interestona$20,000notepayablewitha12%interestrateispaidevery3months,
thelastinterestpaymenthavingbeenattheendofJune20X9.
Mikadospayrollis7salariedemployees,eachearning$1,000aweekfora
MondayFridayworkweek.PaydayisFriday.December31wasaThursday.

HomeworkSolutions 25
MasteringAdjustingEntries
a. PreparetheadjustingentriesfortheyearendedJune30,20X8.
UnearnedRevenue 15,000
Revenue 15,000
$27,000/9=$3,000earnedeachmonth5=$15,000revenuefor20X9.
InterestExpense 1,200
InterestPayable 1,200
$20,00012%=$2,400annualinterest/12months6months=$1,200
SalariesExpense 5,600
SalariesPayable 5,600
$1,0007=$7,000weeklysalaries/54=$5,600
b. WhatisMikadosnetincomefor20X9?

$232,200($224,000+$15,000 $1,200 $5,600)

3. Youarehandedthefollowingunadjustedtrialbalance:

ChampionProfessionalServices
Unadjustedtrialbalance
December31,20X7
Debit Credit
Cash 25,000
Accountsreceivable 0
Supplies 3,800
Prepaidinsurance 9,800
Prepaidrent 500
Equipment 60,000
AccumulateddepreciationEquipment 22,900
Accountspayable 6,000
Salariespayable 0
UnearnedFees 4,000
F.Mercury,Capital 51,000
F.Mercury,Withdrawals 14,000
FeesEarned 71,900
DepreciationExpenseEquipment 0
SalariesExpense 24,800
InsuranceExpense 0
RentExpense 5,500
SuppliesExpense 0
AdvertisingExpense 6,000

HomeworkSolutions 26
MasteringAdjustingEntries
UtilitiesExpense 6,400 _______
Totals 155,800 155,800

HomeworkSolutions 27
MasteringAdjustingEntries

Using the data below, complete the worksheet on the following page by filling in the
adjustmentsandadjustedtrialbalanceforChampionfortheyearendedDecember31,20X7.
a. 8employeesarepaidweekly.Atyearend,3dayswageshaveaccruedat$120adayfor
eachemployee.

b. Aphysicalcountshows$600ofofficesuppliesonhandatyearend.

c. $2,600ofprepaidinsurancecoveragehasexpired.

d. Annualdepreciationontheequipmentis$8,450.

e. OnNovember1,Championcontractedforanewjobforwhichitispaid$1,000amonth.It
receiveda4monthadvanceandbookeditasunearnedfees.

f. Aclientreneweditscontractfor3monthsat$1,300amonth,startingonNovember1.
ThefirstpaymentisdueonFebruary28th.

g. ThebalanceinPrepaidRentisDecembersrent.

a. SalariesExpense 2,880
SalariesPayable 2,880
$120 8employees 3days=$2,880
b. SuppliesExpense 3,200
Supplies 3,200
$3,800beginningbalance $600endingbalance=$3,200usedupduringthe
year
c. InsuranceExpense 2,600
PrepaidInsurance 2,600
d. DepreciationExpense 8,450
AccumulatedDepreciation 8,450
e. UnearnedFees 2,000
FeesEarned 2,000
$1,000monthlyfee 2months(January February20X8)unearnedasofyear
end
f. AccountsReceivable 2,600
FeesEarned 2,600
$1,300 2monthsearnedasofyearend
g. RentExpense 500
PrepaidRent 500

HomeworkSolutions 28
 MasteringAdjustingEntries

ChampionProfessionalServices
trialbalance
December31,20X7
Unadjustedtrial Adjustedtrial
balance Adjustments balance
Dr Cr Dr Cr Dr Cr
Cash 25,000 25,000
AccountsReceivable 0 (f)2,600 2,600
Supplies 3,800 (b)3,200 600
PrepaidInsurance 9,800 (c)2,600 7,200
PrepaidRent 500 (g)500 0
Equipment 60,000 60,000
Acc.Depreciation
Equipment 22,900 (d)8,450
31,350
AccountsPayable 6,000 6,000
SalariesPayable 0 (a)2,880 2,880
UnearnedFees 4,000 (e)2,000 2,000
F.Mercury,Capital 51,000 51,000
F.Mercury,
Withdrawals 14,000 14,000
FeesEarned 71,900 (e)2,000 76,500
(f)2,600
DepreciationExp. 0
Equipment (d) 8,450
8,450
SalariesExpense 24,800 (a) 27,680
2,880
InsuranceExpense 0 (c)2,600 2,600
RentExpense 5,500 (g) 6,000
500
SuppliesExpense 0 (b) 3,200
3,200
AdvertisingExpense 6,000 6,000
UtilitiesExpense 6,400
6,400
Total 155,800 155,800 22,230 22,230 169,730 169,730

HomeworkSolutions 29
MasteringAdjustingEntries

HomeworkSolutions 30
 MasteringAdjustingEntries

Importantthefollowingquestionisoptional:Neithercertificationnorthe
certificationexamrequirespresentationofthefinancialstatements,butonlythroughthe
adjustedtrialbalance.Recommended:Focusontheadjustmentsandadjustedtrial
balance.

4. UsingtheadjustedtrialbalancefromProblem3,completetheIncomeStatementandBalance
SheetcolumnsoftheworksheetforChampion.When the worksheet is complete, prepare
Champions financial statements.

ChampionProfessionalServices.Worksheet
December31,20X7
Adjustedtrial Income Balance
balance statement sheet
Dr Cr Dr Cr Dr Cr
Cash 25,000 25,000
AccountsReceivable 2,600 2,600
Supplies 600 600
PrepaidInsurance 7,200 7,200
PrepaidRent 0 0
Equipment 60,000 60,000
Acc.DepreciationEquipment 31,350 31,350
AccountsPayable 6,000 6,000
SalariesPayable 2,880 2,880
UnearnedFees 2,000 2,000
F.Mercury,Capital 51,000 51,000
F.Mercury,Withdrawals 14,000 14,000
FeesEarned 76,500 76,500
DepreciationExpenseEquipment 8,450 8,450
SalariesExpense 27,680 27,680
InsuranceExpense 2,600 2,600
RentExpense 6,000 6,000
SuppliesExpense 3,200 3,200
AdvertisingExpense 6,000 6,000
UtilitiesExpense 6,400 6,400
Totals 169,730 169,730 60,330 76,500 109,400 93,230

HomeworkSolutions 31
MasteringAdjustingEntries
NetIncome 16,170 16,170

76,500 76,500 109,400 109,400

HomeworkSolutions 32
MasteringAdjustingEntries

ChampionProfessionalServices
IncomeStatement
FortheyearendedDecember31,20X7

Revenue $76,500
Less:
Salariesexpense $27,680
Insuranceexpense 2,600
Rentalexpense 6,000
Suppliesexpense 3,200
Advertisingexpense 6,000
Utilitiesexpense 6,400
Depreciationexpense 8,450 60,330
Netincome $16,170

ChampionProfessionalServices
BalanceSheet
December31,20X7

Assets
Cash $25,000
Accountsreceivable 2,600
Supplies 600
Prepaidinsurance 7,200
Equipment(net) 28,650
Totalassets $64,050

LiabilitiesandCapital
Accountspayable $6,000
Salariespayable 2,880
Unearnedfees 2,000
F.Mercury,capital* 53,170
Totalliabilitiesandcapital $64,050
*F.Mercury,capital=$51,000+$16,170netincome $14,000
withdrawals
HomeworkSolutions 33
MasteringAdjustingEntries

5. Belowarethe20X8unadjustedandadjustedtrialbalancesforOlympicConsulting.
Analyzethedifferencesbetweentheunadjustedandadjustedtrialbalances,
determineeachadjustmentthatOlympicmusthavemadeatyearendandinsertitin
theAdjustmentscolumn.Labeleachadjustment(a),(b),etc.,thenputthesame
letterinthecorrespondingworksheetcellwithabriefexplanationoftheadjustment.

OlympicConsulting
Trialbalance
December31,20X8
Unadjusted Adjustedtrial
trialbalance Adjustments balance
Dr Cr Dr Cr Dr Cr
Cash 2,500 2,500
AccountsReceivable 10,000 (a) 11,000
1,000
OfficeSupplies 4,000 (b) 2,200
1,800
PrepaidRent 1,800 (c) 1,100
700
OfficeEquipment 15,900 15,900
Accum.Depreciation
OfficeEquipment 4,100 (d) 4,600
500
AccountsPayable 4,000 4,000
SalariesPayable 0 (e) 600
600
UtilitiesPayable 0 (f) 400
400
UnearnedConsulting
Fees 2,200 (a) 800
1,400
Texiera,Capital 30,500 30,500
Texiera,Withdrawals 2,100 2,100
ConsultingFees 42,000 (a) 44,400
Earned 2,400
DepreciationExpense 0 (d) 500
OfficeEquipment 500
SalariesExpense 32,000 (e) 32,600
600

HomeworkSolutions 34
 MasteringAdjustingEntries
SuppliesExpense 0 (b) 1,800
1,800
RentExpense 6,700 (c) 7,400
700
UtilitiesExpense 7,800 (f)
8,200
400
Total 82,800 82,800 6,400 6,400 85,300 85,300

HomeworkSolutions 35
MasteringAdjustingEntries

(a) AccountsReceivable 1,000

UnearnedConsultingFees 1,400
ConsultingFeesEarned 2,400
Thefirmmusthaverecordedthisadjustmentbecauseatsomepointduringthe
year$1,400wasreceivedforservicesnotyetperformed.Theinitialentry
debitedCashandcreditedUnearnedConsultingFees.Asofyearend,$2,400of
consultingserviceshadbeencompleted,butnotrecorded.Ofthisamount,
$1,000hasnotyetbeenpaid.

(b) SuppliesExpense 1,800

OfficeSupplies 1,800
WhentheofficesupplieswerepurchasedtheentrymusthavedebitedOffice
SuppliesandcreditedCash.Atyearend,$2,200ofsupplieswereonhand,so
OlympicmusthaverecordedanAJEtoaccountforsuppliesusedupduringthe
year.

(c) RentExpense 700

PrepaidRent 700
Basedonthetrialbalance,OlympicprepaidtherentdebitingPrepaidRent
andcreditingCash.Atyearend,$700ofrenthadbeenusedup,soOlympichad
tohaverecordedanAJEtoreducethebalanceinPrepaidRentbycreditingit
$700andtransferringthisamounttoRentExpense,whichitdebitedfor$700.

(d) DepreciationExpense 500

AccumulatedDepreciation 500
Basedontheinformation,OlympicmusthavedebitedDepreciationExpensefor
$500andcreditedAccumulatedDepreciationforthesameamountinorderto
recorddepreciationexpenseontheequipmentfortheyear.

(e) SalariesExpense 600

SalariesPayable 600
OlympicmustdebitedSalaryExpensefor$600andcreditedSalariesPayable
forthesameamounttoaccruesalariesowedbutnotpaidasofyearend.

(f) UtilitiesExpense 400

UtilitiesPayable 400
ThefirmapparentlydebitedUtilitiesExpensefor$400andcreditedUtilities
Payableforthesame$400toaccrueutilitiesexpenseincurred,butnotpaidas
ofyearend.

HomeworkSolutions 36