158. Match the following types of adjustments (a though d) with the transactions (1 through
4).
1. Prepaid expense
2. Unearned revenue
3. Accrued expense
4. Accrued revenue
159. Discuss the importance of periodic reporting and the time period assumption.
160. Discuss how accrual accounting enhances the usefulness of financial statements.
161. Identify the differences between accrual accounting and cash basis accounting.
162. Explain the purpose of adjusting entries at the end of a period.
163. List the three-steps of the adjusting process.
164. Identify the types of adjusting entries and explain the purpose of each type.
165. Explain how accounting adjustments affect financial statements.
166. How is profit margin calculated? Discuss its use in analyzing a company’s performance.
167. Describe the types of entries required in later periods that result from accruals.
168. What are the types of adjusting entries used for prepaid expenses, depreciation and
unearned revenues?
169. What are the types of adjusting entries used for accrued expenses and accrued revenues?
170. Describe the two alternate methods used to account for prepaid expenses.
171. What is an adjusted trial balance? Why is it prepared?
172. What is the usual order in which financial statements are prepared from the adjusted trial
balance? Why are they prepared in that order?
173. Explain how the owner of a company uses the accrual basis of accounting.
Problems
174. On December 31, the year end, a company forgot to record $7,000 of depreciation on
office equipment. In the current year financial statements, what is the effect of this error on
assets, net income, and equity?
175. Given the table below, indicate the impact of the following errors made during the
adjusting entry process. Use a “+” followed by the amount for overstatements, a “-” followed
by the amount for understatements, and a “0” for no effect. The first one is done as an
example.
Ex. Failed to recognize that $600 of unearned revenues, previously recorded as liabilities, had
been earned by year-end.
1. Failed to accrue salaries expense of $1,200.
2. Forgot to record $2,700 of depreciation on office equipment.
3. Failed to accrue $300 of interest on a note receivable.
Error Revenues Expenses Assets Liabilities Equity
EX -$600 0 0 +$600 -$600
1. _________ _________ _________ _________ _________
2. _________ _________ _________ _________ _________
3. _________ _________ _________ _________ _________
176. A company issued financial statements for the year ended December 31, but failed to
include the following adjusting entries:
A. Accrued service fees earned of $2,200.
B. Depreciation expense of $8,000.
C. Portion of office supplies (an asset) used $3,100.
D. Accrued salaries of $5,200.
E. Revenues of $7,200, originally recorded as unearned, have been earned by the end of the
year.
Determine the correct amounts for the December 31 financial statements by completing the
following table:
Assets Liabilities Equity Net Income
Reported amounts………… $350,000 $200,000 $150,000 $70,000
Add (subtract) to
correct for item:
A…………………………..
B…………………………..
C…………………………..
D…………………………..
E…………………………..
Corrected amounts……… $ $ $ $
177. Using the table below, indicate the impact of the following errors made during the
adjusting entry process. Use a “+” for overstatements, a “-” for understatements, and a “0” for
no effect. The first one is provided as an example.
Error Revenues Expenses Assets Liabilities
Equity
Ex. Did not record depreciation for this period………………………………. 0 –
+ 0 +
1. Did not record unpaid utility bill……..
2. Did not adjust unearned revenue account for revenue earned this period.
3. Did not adjust office supplies for supplies used this period…………..
4. Did not accrue employees wages for this period…………………………
5. Recorded rent expense with a debit to salary expense and a credit to rent
payable…………………………
178. Reed’s net income was $180,000; its total assets were $1,050,000; and its net sales were
$3,500,000. Calculate the company’s profit margin ratio.
179. Ned’s net income was $780,000; its net assets were $5,200,000; and its net sales were
$9,000,000. Calculate its profit margin ratio.
180. From the information provided, calculate Wooden’s profit margin ratio for each of the
three years. Comment on the results, assuming that the industry average for the profit margin
ratio is 6% for each of the three years.
2011 2010 2009
Net income $ 2,630 $ 2,100 $ 1,850
Net Sales 36,500 32,850 31,200
Total Assets 400,000 385,000 350,000
7.2% 6.4% 5.9%
181. On December 14 Bench Company received $3,700 cash for consulting services that will
be performed in January. Bench records all such prepayments in a liability account. Prepare a
general journal entry to record the $3,700 cash receipt.
182. On December 31, Connelly Company had performed $5,000 of management services for
clients that had not yet been billed. Prepare Connelly’s adjusting entry to record these fees
earned.
183. A company has 20 employees who each earn $500 per week for a 5-day week that begins
on Monday. December 31 of Year 1 is a Monday, and all 20 employees worked that day.
a) Prepare the required adjusting journal entry to record accrued salaries on December 31,
Year 1.
b) Prepare the journal entry to record the payment of salaries on January 4, Year 2.
184. Pfister Co. leases an office to a tenant at the rate of $5,000 per month. The tenant
contacted Pfister and arranged to pay the rent for December on January 8 of the following
year. Pfister agrees to this arrangement.
a.) Prepare the journal entry that Pfister must make at year ended December 31 to record the
accrued rent revenue.
b.) Prepare the journal entry to record the receipt of the rent on January 8 of the following
year.
185. Prior to recording adjusting entries on December 31, a company’s Store Supplies account
had an $880 debit balance. A physical count of the supplies showed $325 of unused supplies
available as of December 31. Prepare the required adjusting entry.
186. Complete the following by filling in the blanks:
(1) The Prepaid Insurance account had a $455 debit balance at the beginning of the current
year; $650 of insurance premiums were paid during the year; and the year-end balance sheet
showed $420 of prepaid insurance; consequently, the income statement for the year must have
shown $______________ of insurance expense.
(2) The Office Supplies account began the current year with a $235 debit balance; the income
statement for the year showed $475 of office supplies expense; and the year-end balance sheet
showed the current asset, office supplies, at $225; consequently, if all supplies were
accounted for, $____________ of office supplies must have been purchased during the year.
187. Topflight Company had $1,500 of store supplies at the beginning of the current year.
During this year, Topflight purchased $8,250 worth of store supplies. On December 31,
$1,125 worth of store supplies remained. Calculate the amount of Topflight Company’s store
supplies expense for the current year.
188. Prepare general journal entries on December 31 to record the following unrelated year-
end adjustments.
a. Estimated depreciation on office equipment for the year, $4,000.
b. The Prepaid Insurance account has a $3,680 debit balance before adjustment. An
examination of insurance policies shows $950 of insurance expired.
c. The Prepaid Insurance account has a $2,400 debit balance before adjustment. An
examination of insurance policies shows $600 of unexpired insurance.
d. The company has three office employees who each earn $100 per day for a five-day
workweek that ends on Friday. The employees were paid on Friday, December 26, and have
worked full days on Monday, Tuesday, and Wednesday, December 29, 30, and 31.
e. On November 1, the company received 6 months’ rent in advance from a tenant whose rent
is $700 per month. The $4,200 was credited to the Unearned Rent account.
f. The company collects rent monthly from its tenants. One tenant whose rent is $750 per
month has not paid his rent for December.
189. Barnes Company has 20 employees who are each paid $80 per day for a 5-day
workweek. The employees are paid each Friday. This year the accounting period ends on
Tuesday. Prepare the Dece
mber 31 year-end adjusting journal entry Barnes Company should make to accrue wages.
190. Show the December 31 adjusting entry to record $750 of earned but unpaid salaries of
employees at the end of the current accounting period.
191. Western Company had $500 of store supplies available at the beginning of the current
year. During the year Western Company purchased $2,750 worth of store supplies. On
December 31 of this year $375 worth of store supplies remained.
a. Calculate the amount of Western Company’s store supplies expense for the current year.
(Show your calculations.)
b. Prepare the journal entry to adjust the supplies account.
192. During the current year ended December 31, clients paid fees in advance for accounting
services amounting to $25,000. These fees were recorded in an account called Unearned
Accounting Fees. If $3,500 of these fees remain unearned on December 31 of this year
present the December 31 adjusting entry to bring the accounts up to date.
193. The following unadjusted and adjusted trial balances were taken from the current year’s
accounting system for High Point.
High Point
Trial Balances
For Year Ended December 31
Cash…………………………………….
Accounts receivable ………………..….
Office supplies …………………………
Prepaid advertising…………………….
Building……………………………….. Unadjusted
Trial Balance Adjusted
Trial Balance
Debit
11,300
16,340
1,045
1,100
26,700
Credit
Debit
11,300
17,140
645
450
26,700
Credit
Accumulated depreciation–Building … 1,300 6,300
Accounts payable ……………………… 3,320 3,500
Unearned services revenue …………… 4,410 3,010
D. Ruiz, Capital ………………………. 17,905 17,905
Services revenue ……………………. 72,400
74,600
Salaries expense ………………………. 34,500 34,500
Utilities expense ………………….. 5,450
5,630
Advertising expense …………………….. 2,900 3,550
Supplies expense ……………………….. 400
Depreciation expense– building…………. 5,000
Totals …………………. 99,335 99,335
105,315 105,315
In general journal form, present the six adjusting entries that explain the changes in the
account balances from the unadjusted to the adjusted trial balance.
194. Black Company’s unadjusted and adjusted trial balances on December 31 of the current
year are as follows:
Unadjusted
Trial Balance ………………………………. Adjusted
Trial Balance
Cash 4,000 4,000
Prepaid insurance 1,600 1,200
Equipment 9,000 9,000
Accumulated depreciation–
Equipment 900 1,800
Salaries payable 1,000
Unearned repair fees 2,500 600
Repair fees earned 10,000 11,900