Prepare adjusting journal entries on December 31 (in proper form) to record the following unrelated yearend adjustments for

Bryce Company.
a.Bryce Company employs 5 employees whom each earn $100 per day for a five-day workweek.
(Monday-Friday). The employees were last paid on Friday, December 27 and have worked full days on
Monday (Dec 30) and Tuesday (Dec 31).
b.On October 1, Bryce Company received an advance payment of $6,000 for consulting services to cover
a 6-month period. The original $6,000 was credited to Unearned Consulting Revenue.
c. Bryce Company performed $2,000 worth of consulting services to a client, but the client has not yet
paid.
d. Estimated depreciation on office equipment for the year is $2,500.

a. Dec. 31 Salaries Expense ..............................................................

Salaries Payable .......................................................

1,000
1,000

How did we get that answer??:

DECEMBER
Sunday

Monday

Tuesday

Wednesday

Thursday

Friday

27P
27

Pay

Saturday

28

Day!

29

30

31

Employees:

Employees:

We worked
today but we
havent been
paid for
today!!! The 5
of us in total
EARNED
$500 today!!

We worked
today but we
havent been
paid for
today!!! The 5
of us in total
EARNED
$500 today!!

So as of Dec 31, the 5 employees worked 2 days (earned $1,000) but they have not been paid, therefore,
you havent recorded that expense yet. So we must do an adjusting entry to record the expense and the
liability (since we have not paid them yet-so were LIABLE to pay them later).

b. Dec. 31 Unearned Consulting Revenue ........................................

Consulting Revenue Earned ...................................

3,000
3,000

Or
Dec. 31 Unearned Consulting Revenue ........................................
Consulting Revenue ................................................
Either is fine
2

3,000
3,000

How did we get that answer??:

Originally (on Oct 1) we did the entry
Oct 1 Cash...................................................................................
6,000
Unearned Consulting Revenue ...............................
6,000
But as of Dec 31, we have earned 3 months worth (all of Oct, all of Nov, all of Dec). So we
should reduce the liability by half (the debit) and recognize half of the revenue (since we now
earned it)(the credit).

c. Dec. 31 Accounts Receivable ........................................................

Consulting Revenue Earned ...................................

2,000
2,000

Or
Dec. 31 Accounts Receivable ........................................................
Consulting Revenue ................................................

2,000

d. Dec. 31 Depreciation Expense Office Equipment .....................

Accumulated Depreciation Office Equipment .....

2,500

[Note]Remember the DEAD entry?!

Depreciation Expense
Accumulated Depreciation

2,000

2,500

Wigor Inc. completed the following transactions during the year ended December
31, 2009, its first year of operations:
a. Bill Wiggins personally invests $30,000 in the new business in exchange for
common stock and deposits the cash in a bank account opened under the
name of Wigor Inc.
b. Equipment for use in the business was purchased for $9,000. Two-thirds of
the price was paid in cash; the rest was due in a year.
c. Service fees earned were $60,000; $6,000 of this was on credit.
d. Operating expenses incurred were $35,000; $4,000 was on credit.
e. Wigor Co. collected half the money owed to it.
f. Wigor Co. paid off $2,000 it owed.
g. Wiggins bought a car for $12,000 for his personal use, half paid for now
from his personal savings and half to be paid in a year.
Required:
1.

Prepare journal entries for each of the events.

2.

Prepare a trial balance at the end of the year for Wigor Inc.

1.
a.

b.

c.

d.

e.

f.

g.

Cash ..............................................................
Common Stock ......................................

Dr.
30,000

Cr.
30,000

Equipment ....................................................
Cash ........................................................
Accounts Payable ..................................

9,000

Cash ..............................................................
Accounts Receivable ....................................
Service Fee Earned ...............................

54,000
6,000

Operating Expenses .....................................

Cash ........................................................
Accounts Payable ..................................

35,000

Cash ..............................................................
Accounts Receivable .............................

3,000

Accounts Payable .........................................

Cash ........................................................

2,000

6,000
3,000

60,000

31,000
4,000

3,000

2,000

No entry because this is a personal

transactions

2.
WIGOR INC.
Trial Balance
December 31, 2009
Cash.....................................................................................
Accounts receivable ...........................................................
Equipment ..........................................................................
Accounts payable ...............................................................
Common Stock ...................................................................
Service fees earned.............................................................
Operating expenses ............................................................
Totals...................................................................................

Dr.
$48,000
3,000
9,000

35,000
$95,000

Cr.

$ 5,000
30,000
60,000
______
$95,000

On July 1, 2009, Howard M. Tenant, Inc., rents office space from John Q. Landlord
for two years, starting immediately, at a rate of $100 per month, or $2,400 in total.
The full $2,400 was paid on this date.
Required:
Record the original transaction and the appropriate adjusting entries in 2009, 2010,
and 2011 from the point of view of Tenant and Landlord.

Tenant
7/1/09
Prepaid Rent ...................
Cash
12/31/09
Rent Expense ...................
Prepaid Rent ...........
12/31/10
Rent Expense ...................
Prepaid Rent ...........
12/31/11
Rent Expense ...................
Prepaid Rent ...........

Landlord
2,400

Cash .................................
Unearned Rent
Rev. .......................

2,400

600

2,400
2,400

Unearned Rent Rev.

Rent Revenue

600

600

Unearned Rent Rev.

Rent Revenue

1,200

1,200

Unearned Rent Rev.

Rent Revenue

600

600

1,200

600

600

1,200

600

The trial balance of Large Company, Inc. at the end of its annual accounting period
is as follows:
LARGE COMPANY, INC.
Trial Balance
December 31, 2009
Cash...................................................................................
Prepaid Insurance............................................................
Supplies ............................................................................
Equipment .......................................................................
Accumulated depreciation equipment ...........................
Common stock .................................................................
Retained earnings ............................................................
Revenue.............................................................................
Salaries expense ...............................................................
Rent expense ....................................................................
Totals.................................................................................

Additional information:

Expired insurance, $600.

Unused supplies, per inventory, $800.

Estimated depreciation, $1,000.

Earned but unpaid salaries, $700.

Required:
1.

Prepare adjusting entries.

2.

Prepare closing entries.

3.

Prepare a post-closing trial balance.

$ 4,000
1,600
2,100
20,000
$ 2,000
10,000
7,000
33,000
18,300
6,000
$52,000

______
$52,000

1.

Insurance Expense ...........................................................

600

Prepaid Insurance ....................................................

Supplies Expense ..............................................................

600
1,300

Supplies .....................................................................
Depreciation Expense Equip. ..........................................

1,300
1,000

Accumulated Depreciation Equip...........................

Salaries Expense...............................................................

1,000
700

Salaries Payable .......................................................

2.

Revenue .............................................................................

700
33,000

Income Summary .....................................................

Income Summary .............................................................

33,000
27,900

Salaries Expense .......................................................

19,000

Rent Expense ............................................................

6,000

Insurance Expense ...................................................

600

Supplies Expense ......................................................

1,300

Depreciation Expense ..............................................

1,000

Income Summary .............................................................

5,100

Retained Earnings ....................................................

3.

5,100

LARGE COMPANY, INC.

Post-Closing Trial Balance
December 31, 2009
Dr.
Cash ...................................................................................

$4,000

Prepaid Insurance ............................................................

1,000

Supplies .............................................................................

800

Equipment ........................................................................

20,000

Cr.

Accumulated depreciation, equipment ..........................

$ 3,000

Salaries payable................................................................

700

Common stock ..................................................................

10,000

Retained earnings ............................................................

______

12,100

Totals .................................................................................

$25,800

$25,800

The following information for Nelsen Company is available on June 30, 2005, the end of a monthly
accounting period. You are to prepare the necessary adjusting journal entries for Nelsen Company for the
month of June for each situation given. Appropriate adjusting entries had been recorded in previous
months. You may omit journal entry explanations.
1. Nelsen Company purchased a 2-year insurance policy on February 1, 2005 and debited Prepaid
Insurance for $1,800.
2. On January 1, 2005, a tenant in an apartment building owned by Nelsen Company paid $5,700 which
represents six months' rent in advance. The amount received was credited to the Unearned Rent account.
3. On June 1, 2005, the balance in the Office Supplies account was $200. During June, office supplies
costing $480 were purchased. A physical count of office supplies at June 30 revealed that there was $240
still on hand.
4. On March 31, 2005, Nelsen Company purchased a delivery van for $42,000. It is estimated that the
annual depreciation will be $6,000.
5. Nelsen Company has two employees who earn $80 and $120 per day, respectively. They are paid each
Friday for a five-day work week that begins each Monday. Assume June 30 is a Wednesday in 2005.

10

1. Insurance Expense .............................................................................................. 75

Prepaid Insurance ..................................................................................... 75
2. Unearned Rent ..................................................................................................... 950
Rent Revenue ............................................................................................ 950
3. Office Supplies Expense ..................................................................................... 440
Office Supplies .......................................................................................... 440
4. Depreciation Expense Delivery Van................................................................. 500
Accumulated DepreciationDelivery Van .............................................. 500
5. Salaries Expense ................................................................................................. 600
Salaries Payable ........................................................................................ 600

11

As of Dec 31, 2008, a company had $50,000 worth of assets. During 2009, liabilities decreased by
$10,000 and at Dec 31, 2009 they equaled $30,000. Assets increased $5,000 during 2009. Calculate the
beginning and ending values of equity?

12

Beg.
Activity
End.

Assets
50,000
5,000
55,000

Liabilities
40,000
(10,000)
30,000

13

Equity
10,000
15,000
25,000

14. An adjusted trial balance

a. is prepared after the financial statements have been prepared.
b. proves the equality of the debits and the credits of the ledger accounts.
c. is required by GAAP.
d. is prepared after the post-closing trial balance.
Use the following information from the Income Statement for the month of June, 2006 of Littles
Housesitting Enterprises to answer questions 16-20.
Revenues $7,000
Expenses:
Wages Expense $2,000
Advertising Expense 200
Rent Expense 1,000
Supplies Expense 300
Insurance Expense 100
Total expenses 3,600
Net income $3,400
16. The entry to close the revenue account includes
a. a debit to Income Summary for $3,400.
b. a credit to Income Summary for $3,400.
c. a debit to Income Summary for $7,000.
d. a credit to Income Summary for $7,000.
17. The entry to close the expense accounts includes
a. a debit to Income Summary for $3,400.
b. a credit to Rent Expense for $1,000,
c. a credit to Income Summary for $3,600.
d. a debit to Wages Expense for $2,000.
18. After the revenue and expense accounts have been closed, the balance in Income Summary will be
a. $0.
b. a debit balance of $3,400.
c. a credit balance of $3,400.
d. a credit balance of $7,000.
19.The entry to close Income Summary to Retained Earnings includes
a. a debit to Revenue for $7,000.
b. credits to Expenses totalling $3,600.
c. a credit to Income Summary for $3,400
d. a credit to Retained Earnings for $3,400.
20. At June 1, 2006, Pet Sitters reported Retained Earnings of $35,000. The company paid no dividends
during June. At June 30, 2006, the company will report a Retained Earnings balance of
a. $35,000 credit.
b. $42,000 credit.
c. $38,400 credit.
d. $31,600 credit.

14

14. B
16. D
17. B
18. C
19. D
20. C

15

11. The standards and rules that are recognized as a general guide for financial reporting are called
a. generally accepted accounting standards.
b. generally accepted accounting principles.
c. operating guidelines.
d. standards of financial reporting
14. Which of the following is not a goal of financial reporting?
a. To provide information that is useful to those making investment decisions
b. To provide information that is useful to those making credit decisions
c. To provide information that is useful in understanding everything about the company
d. To provide information that identifies changes in resources and claims
15. Which one of the following is not a qualitative characteristic of useful accounting information?
a. Relevance
b. Reliability
c. Materiality
d. Comparability
16. In order for accounting information to be relevant, it must
a. have very little cost.
b. have predictive or feedback value.
c. not be reported to the public.
d. be used by a lot of different firms.
17. Accounting information should be verifiable in order to enhance
a. comparability.
b. reliability.
c. consistency.
d. feedback value.
18. The assumption that states that the activities of each company be kept separate from the activities of
its owners and all other companies is the
a. economic entity assumption.
b. going concern assumption.
c. monetary unit assumption.
d. time period assumption.
19. The economic entity assumption states that
a. the economic life of a business can be divided into artificial time periods.
b. economic events can be identified with a particular entity.
c. the accounting period should not exceed one year.
d. it is assumed that the business will operate indefinitely.
20. The going concern assumption assumes that the business
a. will be liquidated in the near future.
b. will be purchased by another business.
c. is in a growth industry.
d. will continue in operation long enough to carry out its existing objectives and commitments.
21. The time period assumption states that the economic life of a business can be divided into
a. equal time periods.
b. cyclical time periods.
c. artificial time periods.
d. perpetual time periods.

16

22. The basic principles of accounting include each of the following except the
a. cost principle.
b. full disclosure principle.
c. going concern principle.
d. matching principle.
23. The revenue recognition principle
a. states that revenue should be recognized in the period when received.
b. states that expense recognition is tied to revenue recognition.
c. requires that revenue be recognized in the accounting period when it is earned.
d. requires that events which make a difference to financial statement users be disclosed.
24. The principle that dictates that expense be matched with revenues in the period in which efforts are
made to generate revenues is the
a. revenue recognition principle.
b. matching principle.
c. cost expiration principle.
d. cash flow principle.

17

11. B
14. C
15. C
16. B
17. B
18. A
19. B
20. D
21. C
22. C Its the going concern assumption, not principle
23. C
24. B

18

19

20

Part 1
Company A
(a)

Equity on December 31, 2008:

Assets ....................................................................
Liabilities................................................................
Equity ....................................................................

(b)

Equity on December 31, 2009:

Equity, December 31, 2008 ...................................
Plus owner investments........................................
Plus net income .....................................................
Less cash dividends .............................................
Equity, December 31, 2009 ...................................

(c)

$33,000
(27,060)
$ 5,940

$ 5,940
6,000
7,760
(3,500)
$16,200

Liabilities on December 31, 2009:

Assets ....................................................................
Equity ....................................................................
Liabilities................................................................

$36,000
(16,200)
$19,800

The way I would work the problem: First, fill in all the info the problem gives you for Company A
(in green). Next, fill in the blanks (in blue) Assets of 33,000 liabilities of 27,060 = 5,940 of equity
(beginning balance). Assets increased from 33,000 to 36,000, so there must have been an increase
of 3,000 during 2009. The beginning balance of equity was 5,940 and we know that during 2009
there was an increase of 10,260 (+7,760+6,000-3,500). So the ending balance of equity is 16,200.
Assets of 36,000 equity of 16,200 = 19,800 of liabilities (ending balance). Beg. Bal. of liabilities
was 27,060 and the end. Bal. was 19,800, so the activity during 2009 must have been a decrease of
7,260. [This particular problem doesnt ask you for the liabilities during 2009, but this is how I
would find any missing info.
Assets

Beginning
Balance
(12/31/08)
During 2009
(Activity)
Ending
Balance
(12/31/09)

Liabilities

33,000

27,060

3,000

(7,260)

36,000

19,800

+
Equity
+Net Income* + Common Stock - Dividends

5,940

+7,760+6,000-3,500

16,200

*Net Income is +Revenues - Expenses

21

Part 2
Company B
(a) and (b)
Equity:
12/31/2008
Assets ..........................................
$25,740
Liabilities ......................................
(18,018)
Equity ...........................................
$ 7,722
(c)

Net income for 2009:

Equity, December 31, 2008 ................................
Plus owner investments.....................................
Plus net income ..................................................
Less cash dividends ..........................................
Equity, December 31, 2009 ................................

12/31/2009
$25,920
(17,625)
$ 8,295

$ 7,722
1,400
?
(2,000)
$ 8,295

Therefore, net income must have been $ 1,173

Part 3
Company C
First, calculate the beginning balance of equity:
Dec. 31, 2008
Assets .................................................................... $21,120
Liabilities................................................................
(11,404)
Equity .................................................................... $ 9,716
Next, find the ending balance of equity by completing this table:
Equity, December 31, 2008 ...................................
Plus owner investments........................................
Less net loss..........................................................
Less cash dividends .............................................
Equity, December 31, 2009 ...................................

$ 9,716
9,750
(1,289)
(5,875)
$12,302

Finally, find the ending amount of assets by adding the ending balance of equity to the
ending balance of liabilities:
Dec. 31, 2009
Liabilities................................................................ $11,818
Equity ....................................................................
12,302
Assets .................................................................... $24,120
Part 4
Company D
First, calculate the beginning and ending equity balances:
12/31/2008 12/31/2009
Assets .............................................
$58,740
$65,520
Liabilities.........................................
(40,530)
(31,449)
Equity .............................................
$18,210
$34,071

22

Then, find the amount of owner investments during 2009:

Equity, December 31, 2008 ......................................
Plus owner investments...........................................
Plus net income ........................................................
Less cash dividends ................................................
Equity, December 31, 2009 ......................................

$18,210
?
8,861
0
$34,071

Thus, owner investments must have been .............

$ 7,000

Part 5
Company E
First, compute the balance of equity as of December 31, 2009:
Assets ....................................................................
Liabilities................................................................
Equity ....................................................................

$ 99,360
(78,494)
$ 20,866

Next, find the beginning balance of equity as follows:

Equity, December 31, 2008 ...................................
Plus owner investments........................................
Plus net income .....................................................
Less cash dividends .............................................
Equity, December 31, 2009 ...................................

?
6,500
7,348
(11,000)
$20,866

Thus, the beginning balance of equity is: $18,018

Finally, find the beginning amount of liabilities by subtracting the beginning balance of equity from the
beginning balance of assets:
Dec. 31, 2008
Assets ....................................................................
$90,090
Equity ....................................................................
(18,018)
Liabilities................................................................
$72,072

23

2. Taco Hut pays the current months rent, $600. This transaction
a. increases revenues by $600.
b. increases assets by $600.
c. decreases liabilities by $600.
d. decreases stockholders equity by $600.
3. A corporation with total stockholders equity of $85,000 paid a $5,000 business debt. As a result of this
transaction, total stockholders equity
a. did not change.
b. increased by $5,000.
c. decreased by $5,000.
d. increased to $90,000.
4. The right side of an account is always
a. the debit side.
b. the credit side.
c. the balance of that account.
d. carried forward to the next accounting period.
5. Posting is the process of
a. preparing a chart of accounts.
b. adding a column of figures.
c. transferring journal entries to ledger accounts.
d. recording entries in a journal.
6. Warton Company depreciates its equipment at the rate of $500 per month. The January 31 entry to
record depreciation expense would include
a. a debit to Equipment for $500.
b. a credit to Retained Earnings for $500.
c. a credit to Accumulated Depreciation for $500.
d. a credit to Depreciation Expense for $500.
7. Logan Company debited Prepaid Insurance for $960 on July 1, 2005 for a one-year fire insurance
policy. If the company prepares monthly financial statements, failure to make an adjusting entry on July
31 for the amount of insurance that has expired would cause
a. assets to be overstated by $960 and expenses to be understated by $960.
b. expenses to be overstated by $80 and assets to be understated by $80.
c. assets to be overstated by $80 and expenses to be understated by $80.
d. expenses to be overstated by $960 and assets to be understated by $960.
8. Which one of the following accounts is not closed at the end of an accounting period?
a. Common Stock
b. Dividends
c. Service Revenue
d. Insurance Expense
9. The second set of debit and credit columns on a work sheet is generally used for
a. closing entries.
b. the trial balance.
c. the balance sheet figures.
d. the adjustments.
24

2. d
3. a
4. b
5. c
6. c
7. c
8. a
9. d

25

Match the items below by entering the appropriate letter in the space.
____ 1. Partnership
____ 2. Liabilities
____ 3. Accrued expenses
____ 4. General ledger
____ 5. Matching principle
____ 6. Unearned revenues
____ 7. Income summary
____ 8. Intangible assets
____ 9. Depreciation
A. A liability created when cash is received in advance of performing a service for a
customer.
B. Noncurrent resources that do not have a physical substance.
C. An economic entity which is not a separate legal entity.
D. The process of allocating the cost of an asset to expense over its useful life.
E. The matching of efforts (expenses) with accomplishments (revenues).
F. Creditors claims on total assets.
G. A temporary account used in closing revenue and expense accounts.
H. Contains all assets, liabilities, and stockholders equity accounts.
I. Expenses incurred but not yet paid in cash or recorded

26

1. C
2. F
3. I
4. H
5. E
6. A
7. G
8. B
9. D

27

The end of the period account balances after adjustments of Dryer Cleaners and Laundry are as follows:

Cash
Cleaning Supplies
Prepaid Rent
Equipment
Accumulated DepreciationEquipment
Accounts Payable
Retained Earnings
Common Stock
Dividends
Dry Cleaning Revenues
Laundry Revenues
Cleaning Supplies Expense
Depreciation Expense
Rent Expense
Salaries Expense
Utilities Expense

Account Balances
(After Adjustments)
$ 9,000
3,500
3,600
128,000
20,000
8,500
6,400
100,000
8,000
25,000
4,000
5,000
3,000
900
2,400
500

Instructions
Prepare the end of the period closing entries for Dryer Cleaners and Laundry. You may omit journal entry
explanations.

28

Dry Cleaning Revenues ............................................................................................. 25,000

Laundry Revenues ...................................................................................................... 4,000
Income Summary ..................................................................................................... 29,000
Income Summary ........................................................................................................ 11,800
Cleaning Supplies Expense ..................................................................................... 5,000
Depreciation Expense .............................................................................................. 3,000
Rent Expense ............................................................................................................. 900
Salaries Expense ....................................................................................................... 2,400
Utilities Expense ........................................................................................................ 500
Income Summary ........................................................................................................ 17,200
Retained Earnings..................................................................................................... 17,200
Retained Earnings........................................................................................................ 8,000
Dividends................................................................................................................... 8,000

29

1.

The periodicity principle assumes that an organization's activities can be divided into specific time periods
including:
a. Months
b. Quarters
c. Years

2.

d. All of the above.

The accounting principle that requires revenue to be reported when earned is the:
a. Matching Principle.
b. Revenue Recognition Principle
c. Time Period Principle

3.

d. Going-Concern Principle.
Adjusting entries
a. Affect only income statement accounts.
b. Affect only balance sheet accounts.
c. Affect both income statement and balance sheet accounts.

4.

d. Affect only cash flow statement accounts.

Revenues, expenses, and owner's withdrawal accounts, which are closed at the end of each accounting period,
are referred to as:
a. Real Accounts
b. Temporary Accounts
c. Closing Accounts

5.

d. Permanent Accounts
The recurring steps performed each accounting period, starting with analyzing and recording transactions in the
journal and continuing through the post-closing trial balance, is referred to as the:
a. Accounting Period.
b. Operating Cycle.
c. Accounting Cycle.

6.

d. Closing Cycle.
A classified balance sheet:
a. Measures a company's ability to pay its bills on time.
b. Organizes assets and liabilities into important subgroups.
c. Presents revenues, expenses, and net income.
d. Reports operating, investing, and financing activities.

30

7.

If a company failed to make an adjusting entry at the end of its accounting period to record depreciation for this
period, the omission will cause:
a. An understatement of expenses
b. An overstatement of revenues.
c. An understatement of assets.

8.

d. An overstatement of liabilities.
The total amount of depreciation recorded against an asset or group of assets during the entire time the asset or
assets have been owned:
a. Is referred to as depreciation expense.
b. Is referred to as accumulated depreciation.
c. Is shown on the income statement in the final period.

9.

d. Is only recorded when an asset is disposed of.

Which of the following assets is not depreciated?
a. Store Fixtures
b. Computers
c. Land
d. Buildings

31

1.
2.
3.
4.
5.
6.
7.
8.
9.

d
b
c
b
c
b
a
b
c

32

The following are steps in the accounting cycle. List them in the order in which
they are completed
Preparing Adjusted Trial Balance
Posting
Preparing an Unadjusted Trial Balance
Journalizing
Preparing the Financial Statements
Closing the Temporary Accounts
Adjusting the Accounts
Preparing a Post-Closing Trial Balance
Analyze Transactions

33

Preparing Adjusted Trial Balance

Posting

Preparing an Unadjusted Trial Balance

Journalizing

Preparing the Financial Statements

Closing the Temporary Accounts

Adjusting the Accounts

Preparing a Post-Closing Trial Balance

Analyze Transactions

34

Classified balance sheets commonly include the following categories:

a.

Current Assets

b.

Investments

c.

Plant Assets

d.

Intangible Assets

e.

Current Liabilities

f.

Long-Term Liabilities

g.

Equity

Indicate the typical classification of each item listed below by placing the letter of
the correct balance sheet category a through g in the blank space next to the
item.
1.

Buildings used in business operations

2.

Office Supplies

3.

Land held for future plant expansion

4.

Long-term note payable

5.

Accounts Receivable

6.

Retained Earnings

7.

Accounts Payable

8.

Merchandise Inventory

9.

Patents

10.

Wages Payable

11.

Prepaid Expenses

12.

Cash

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1.

Buildings used in business operations

2.

Office Supplies

3.

Land held for future plant expansion

4.

Long-term note payable

5.

Accounts Receivable

6.

Retained Earnings

7.

Accounts Payable

8.

Merchandise Inventory

9.

Patents

10.

Wages Payable

11.

Prepaid Expenses

12.

Cash

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Following are selected accounts and their balances for a company after the
adjustments as of May 31, the end of its fiscal year. (All accounts have normal
balances).
Common Stock

$20,000

Retained Earnings

10,000

Dividends

6,000

Service Revenue

20,000

Salaries Expense

7,000

Insurance Expense

350

Utilities Expense

75

Supplies Expense

500

Supplies

400

Salaries Payable

300

Depreciation Expense

425

Prepare all necessary closing entries for this company.

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Close the Revenue Accounts

Service Revenue

20,000

Income Summary

20,000

Close the Expense Accounts

Income Summary

8,350

Salaries Expense

7,000

Insurance Expense

350

Utilities Expense

75

Supplies Expense

500

Depreciation Expense

425

Close the Income Summary Account

Income Summary

11,650

Retained Earnings

11,650

Close the Dividends Account

Retained Earnings

6,000

Dividends

6,000

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In general journal form, record the December 31 adjusting entries for the
following transactions and events. Assume that December 31 is the end of the
annual accounting period.
a.

The Prepaid Insurance account shows a debit balance of

$2,340, representing the cost of a three-year fire
insurance policy that was purchased on October 1 of the
current year.

b.

The Office Supplies account has a debit balance of $400;

a year-end inventory count reveals $80 of supplies still
available.

c.

On November 1 of the current year, Rent Earned was

credited for $1,500. This amount represented the rent
earned for a three-month period beginning November 1.

d.

Depreciation on office equipment is $600.

e.

Accrued salaries amount to $400.

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Solution
Insurance Expense

195

Prepaid Insurance

195

($2,340/36 = $65/mo; $65 x 3 mos = $195)

Office Supplies Expense

320

Office Supplies ($400 - $80)

320

Rent Earned

500

Unearned Rent ($1500/3)

500

Depreciation Expense - Office Equipment

600

Accumulated Depreciation - Office Equip

Salaries Expense

400

Salaries Payable

More explanation on c:

600

400

st

The company received 1,500 on Nov 1 for 3 months of rent that they would provide. The company
recognized the revenue on that date. As of Dec 31, they had recognized 2 months of the revenue, so they
have to do an adjusting entry to move 1 month to unrecognized rent revenue. They cannot report revenue
that is not yet earned on the financial statements.

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The following items are from the 2009 balance sheet of Kellogg Company. (All dollars are in millions.)
Common stock
Other assets
Notes payablecurrent
Other current assets
Cash and cash equivalents
Other long-term liabilities
Retained earnings
Accounts payable
Other current liabilities
Accounts receivable, net
Property, net
Inventories
Long-term debt

$ 577
5,632
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221
334
1,802
1,698
1,077
1,167
1,093
3,010
910
4,835

Instructions
Prepare a classified balance sheet for Kellogg Company as of December 31, 2009.

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KELLOGG COMPANY
Balance Sheet
December 31, 2009
(in millions)
Assets
Current assets
Cash and cash equivalents ................................
Accounts receivable, net ....................................
Inventories ...........................................................
Other current assets ...........................................
Total current assets.....................................
Property, net................................................................
Other assets ................................................................
Total assets .........................................................

$ 334
1,093
910
221
$ 2,558
3,010
5,632
$11,200

Liabilities and Stockholders Equity

Current liabilities
Notes payable ......................................................
Accounts payable ...............................................
Other current liabilities .......................................
Total current liabilities ................................
Long-term liabilities
Long-term debt ....................................................
Other long-term liabilities ...................................
Total long-term liabilities ............................
Total liabilities .....................................................
Stockholders equity
Common stock ....................................................
Retained earnings ...............................................
Total stockholders equity ..........................
Total liabilities and stockholders equity...........

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44
1,077
1,167
$ 2,288
4,835
1,802
6,637
8,925
577
1,698
2,275
$11,200

These items are taken from the financial statements of Tilley, Inc.
Prepaid insurance
Equipment
Salaries and wages expense
Utilities expense
Accumulated depreciationequipment
Accounts payable
Cash
Accounts receivable
Salaries and wages payable
Common stock
Depreciation expense
Retained earnings (beginning)
Dividends
Service revenue
Maintenance and repairs expense
Insurance expense

$ 1,400
31,000
36,000
2,100
8,600
8,200
5,100
4,900
2,000
6,000
4,300
14,000
2,600
53,000
2,600
1,800

Instructions
Prepare an income statement, a retained earnings statement, and a classified balance sheet as of December
31, 2012.

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TILLEY, INC.
Income Statement
For the Year Ended December 31, 2012
Revenues
Service revenue .....................................................
Expenses
Salaries and wages expense ................................
Depreciation expense ...........................................
Maintenance and repairs expense .......................
Utilities expense ....................................................
Insurance expense ................................................
Total expenses...............................................
Net income ....................................................................

$53,000
$36,000
4,300
2,600
2,100
1,800
46,800
$ 6,200

TILLEY, INC.
Retained Earnings Statement
For the Year Ended December 31, 2012
Retained earnings, January 1 ......................................
Plus: Net income .........................................................
Less: Dividends ...........................................................
Retained earnings, December 31 .................................

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$14,000
6,200
20,200
2,600
$17,600

TILLEY, INC.
Balance Sheet
December 31, 2012
Assets
Current assets
Cash .....................................................................
Accounts receivable ...........................................
Prepaid insurance ...............................................
Total current assets.....................................
Property, plant, and equipment
Equipment ...........................................................
Less: Accumulated depreciation .....................
Total assets .........................................................

$ 5,100
4,900
1,400
$11,400
31,000
8,600

22,400
$33,800

Liabilities and Stockholders Equity

Current liabilities
Accounts payable ...............................................
Salaries and wages payable ...............................
Total current liabilities ................................
Stockholders equity
Common stock ....................................................
Retained earnings ...............................................
Total stockholders equity ..........................
Total liabilities and stockholders equity...........

45

$8,200
2,000
$10,200
6,000
17,600
23,600
$33,800

If preparing adjusting entries:

1. When debiting interest expense, the following account should be credited
a. notes payable
b. interest payable
c. interest revenue
d. interest receivable
2. When debiting unearned service revenue, the following account should be credited
a. accounts receivable
b. notes payable
c. accounts payable
d. service revenue
3. When crediting prepaid insurance, the following account should be debited
a. accounts receivable
b. insurance expense
c. accounts payable
d. cash
4. When debiting accounts receivable, the following account should be credited
a. service revenue
b. unearned service revenue
c. cash
d. accounts payable

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1.
2.
3.
4.

B
D
B
A

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Online practice quizzes

http://www.accountingcoach.com/online-accounting-course/05Dpg01.html
http://www.dwmbeancounter.com/BCTutorSite/TestLectures/Tests/Quizzes/Intro/DrCr.html
http://www.dwmbeancounter.com/BCTutorSite/TestLectures/Tests/Quizzes/Intro/TermsQuiz3.html
http://www.dwmbeancounter.com/BCTutorSite/TestLectures/Tests/Quizzes/Intro/TermsQuiz2.html

These refer to dividends as draws. It means the same thing. Dividends are payments to owners and some
refer to this as draws (owners withdrawals).
http://www.dwmbeancounter.com/BCTutorSite/TestLectures/Tests/SkillsTests/Intro/EqTran.html
http://www.dwmbeancounter.com/BCTutorSite/TestLectures/Tests/SkillsTests/Intro/DrCrSkills1.html
http://www.dwmbeancounter.com/BCTutorSite/TestLectures/Tests/SkillsTests/Intro/DrCrSkills2.html
http://www.dwmbeancounter.com/BCTutorSite/TestLectures/Tests/Quizzes/Intro/TermsQuiz1.html

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