559670-2-35P AID: 30951 | 18/09/2017

1)
Commented [SM1]: Provide side Heading as “Adjusting
At the end of each accounting period, in order to report all asset, liability, and owner’s entries”.

equity amounts and to recognize all revenues and expenses for the period on accrual
basis, accountants are required to make any necessary adjustments prior to preparing the
financial statements. The entries that reflect these adjustments are called adjusting entries.

a)

The Accounts payable account is credited with $4300 and Supplies expense account is
debited with $4300. Commented [SM2]: This is wrong. Entry for Payment to the
suppliers on account was made by debiting the accounts payable
account and crediting cash account.

b)

Calculate the depreciation of the building from straight line method using the following
formula.

Cost
Depreciati on 
Useful Life
Here fair value of the building will be considered as the cost of building during purchase.
Substitute $141,000 for cost and 30 years for useful life.

Cost
Depreciati on 
Useful Life
141000

30
 4700

Therefore the annual depreciation for the building is $4,700.

Commented [SM3]: There is no explanation as to how the
entry to be recorded.

c)

Calculate the allowance for bad debt using the following formula.
Allowance for bad debit  .05 * Accounts receivable  Debit balance of allowance

Substitute $52000 for accounts receivable and $200 for debit balance for allowance for
bad debit.
Allowance for bad debit  .05 * Accounts receivable  Debit balance of allowance Commented [SM4]: Provide necessary spacing between the
lines.
 .05 * 52000  200
 $2,800
Therefore the allowances for bad debit account to be credited with $2,800. Commented [SM5]: Provide full explanation of how the entry
should be made.

d)

Calculate the interest revenue for the loan provided to the customer till December 2011
using the following formula.
P*r*t
Interest revenue 
12
Here substitute $80,000 as principal amount for P, 0.11 as annual rate for r and t is
current period which is 4 months.
P*r*t Commented [SM6]: Provide necessary spacing between the
Interest revenue  lines.
12
80000 * .11 * 4

12
 $2933.33
 $2933
Therefore credit the interest revenue account by $2933. Commented [SM7]: Provide full explanation of how the entry
should be made.

e)

Calculate the unearned sales revenue for the year 2012 using the following formula.
A * 80
Unearned sales revenue revenue 
100
Here substitute $15,200 as amount received for A.
A * 80
Unearned sales revenue revenue 
100
15200 * 80

100
 $12,160
Therefore credit the unearned sales revenue account by $12,160. Commented [SM8]: The entry was wrong. Firstly it is the
service revenue not the sales revenue. So this account should be
nullified by debiting it with the entire $15,200 credited to it earlier.
Now it is said that 80% of the services will be provided in 2012
which means that 20% services are provided in 2011. So the entry is
f)
Unearned sales revenue dr $15,200
Here credit the interest expense account by $300. Service revenue cr $3,040
($15,200 × 20%)
Unearned service revenue cr $12,160
($15,200 × 80%)

Prepare adjusting entries for Trinkets Supply Company as shown below.

 Adjusting entries
December 31, 2011
Debit Credit
a) Accounts Payable $4,300 Commented [SM9]: The entry was wrong. The entry for
payment to suppliers is Accounts payable dr to cash
Supplies Expense $4,300
b) Depreciation- Building 4,700 Commented [SM10]: The entry was wrong. In the journal entry
first the debit part and after the credit part should be written.
Depreciation expense 4,700
c) Allowance for Bad debit 2,800 Commented [SM11]: The entry was wrong. In the journal entry
first the debit part and after the credit part should be written.
Bad debt expense 2,800
d) Interest Receivable 2,933
Interest Revenue 2,933
e) Sales Revenue 12,160 Commented [SM12]: The entry was wrong. The correct entry is
Unearned sales Revenue 12,160 Unearned sales revenue dr $15,200
f) Interest Expense 300 Service revenue cr $3,040
($15,200 × 20%)
Prepaid Interest 300 Unearned service revenue cr $12,160
Total $27,193 $27,193 ($15,200 × 80%)

Commented [SM13]: The entry was wrong. The entry should

be
2) Discount allowed dr $300
Interest expense cr $300
Calculate the net change in income due to adjustments using the following formula. Commented [SM14]: The entries should be provided
individually with sufficient narrations.

Change in income  Revenues - Expenses

Substitute all the revenues and expense from the adjusting entries done.

Change in income  Revenues - Expenses

 2933  300 - 4300 - 4700 - 2800 - 12160
 -$20,727

Therefore the income reduces by $20,727 due to the above adjustments.