Chapter 3: The Adjusting Process
Transactions
Account(s) Debited
Account(s) Credited
a. Utility bill is received; payment will
be
made in 10 days.
b. Paid the utility bill previously recorded
in
transaction (a).
c. Bought a three-year insurance policy and
paid in full.
d. Made an entry to adjust for the expired
portion of the insurance premium.
e. Received $7,000 from a contract to
perform accounting services over the
next two years.
f. Made an entry to adjust for half of the
services performed in (e).
g. Purchased office supplies, paying part
cash and charging the balance on
account.
h. Borrowed money from a bank and
signed a note payable due in six
i. Recorded onemonth’s accrued interest
on the note payable.
j. Depreciation is recorded on office
equipment.
Chapter 3: The Adjusting Process
165.
REM Consulting is completing the accounting information processing at the end of the fiscal year, December
31. The following trial balances are available.
Unadjusted
Trial
Adjusted
Trial
Debit
Credit
Debit
Credit
13,000
13,000
1,500
1,800
600
200
3,800
3,000
30,000
30,000
12,000
17,500
900
6,700
6,500
24,000
24,000
4,800
4,800
25,000
25,500
14,000
14,900
400
800
5,500
67,700
67,700
74,400
74,400
a.
Reconstruct the adjusting entries and give a brief explanation of each.
b.
What is the amount of net income?
Chapter 3: The Adjusting Process
Chapter 3: The Adjusting Process
166.
Given the following account balances for Garry’s Tree Service, prepare a trial balance.
Cash
$25,000
Supplies
1,000
Accounts Payable
7,000
Garry Ryan, Capital
32,910
Wage Expense
2,000
Machinery
18,350
Wages Payable
3,600
Service Revenue
21,000
Rent Expense
11,500
Unearned Revenue
1,500
Accumulated Depreciation – Machinery
7,340
Prepaid Rent
12,200
Garry Ryan, Drawing
3,300
Cash
Supplies
Prepaid Rent
Machinery
Accumulated Depreciation – Machinery
Accounts Payable
Unearned Revenue
Garry Ryan, Capital
Garry Ryan, Drawing
Service Revenue
Wage Expense
Rent Expense
Chapter 3: The Adjusting Process
167.
List the four basic types of accounts that require adjusting entries and give an example of each.
168.
For the year ending June 30, Island Clinical Services mistakenly omitted adjusting entries for (1) $1,500 of
supplies
that were used, (2) unearned revenue of $4,200 that was earned, and (3) insurance of $5,000 that
expired. What is
the combined effect of these errors on (a) revenues, (b) expenses, and (c) net income for the
year ending June 30?
169.
Indicate whether the following error would cause the adjusted trial balance totals to be unequal. If the error
would
cause the adjusted trial balance totals to be unequal, indicate whether the debit or credit total is higher
and by how
much.
The entry for $975 of supplies used during the period was journalized as a debit to Supplies Expense of $795
and
credit to Supplies of $975.
Chapter 3: The Adjusting Process
170.
Indicate whether the following error would cause the adjusted trial balance totals to be unequal. If the error
would
cause the adjusted trial balance totals to be unequal, indicate whether the debit or credit total is higher
and by how
much.
The adjustment for accrued fees of $1,170 was journalized as a debit to Accounts Receivable for $1,170 and a
credit to Fees Earned for $1,107.
171.
Under the accrual basis, some accounts in the ledger require updating at the end of the period. Discuss the
three
main reasons for this updating and give an example of each.
Chapter 3: The Adjusting Process
172.
What is the purpose of an adjusted trial balance? What type(s) of error does it detect? What type(s) of error does
it not detect?
173.
Two income statements for Midnight Enterprises are shown below:
Midnight Enterprises
Income Statement
For Year 1 and Year 2, Ended December 31
Year 2
Year 1
Fees earned
$674,350
$520,600
Operating expenses
472,045
338,390
Operating income
$202,305
$182,210
(a) Prepare a vertical analysis of Midnight Enterprises’ income statements.
(b) Does the vertical analysis indicate a favorable or unfavorable trend?
Operating income
$202,305
$182,210
Chapter 3: The Adjusting Process
174.
Explain the differences between
a)
Accrued revenues and unearned revenues.
b)
Accrued expenses and prepaid expenses.
c)
Give an example of each.
Chapter 3: The Adjusting Process
175.
For each of the following, journalize the necessary adjusting entry:
(a)
A business pays weekly salaries of $22,000 on Friday for a five-day week ending
on
that day. Journalize the necessary adjusting entry at the end of the fiscal period,
assuming that the fiscal period ends (1) on Tuesday, (2) on Wednesday.
(b)
The balance in the prepaid insurance account before adjustment at the end of the
year
is $18,000. Journalize the adjusting entry required under each of the following
alternatives: (1) the amount of insurance expired during the year is $5,300, (2) the
amount of unexpired insurance applicable to a future period is $2,700.
(c)
On July 1 of the current year, a business pays $54,000 to the city for license taxes
for
the coming fiscal year. The same business is also required to pay an annual
property
tax at the end of the year. The estimated amount of the current year’s
property tax
allocable to July is $4,800. (1) Journalize the two adjusting entries
required to bring the
accounts affected by the taxes up to date as of July 31. (2)
What is the amount of tax
expense for July?
(d)
The estimated depreciation on equipment for the year is $32,000.
Chapter 3: The Adjusting Process
176.
On November 1st, clients of Great Designs Company prepaid $4,250 for services to be provided in the future at
a
rate of $85 per hour.
(a)
Journalize the receipt of this cash.
(b)
As of November 30th, Great Designs shows that 15 hours of services have been provided on this
agreement.
Prepare the necessary journal entry to record this.
(c)
Determine the total unearned fees in hours and dollars at November 30th.
Chapter 3: The Adjusting Process
177.
Prepare the required entries for the following transactions:
(a)
Austin Company pays daily wages of $645 (Monday – Friday). Paydays are every
other
Friday. Prepare the Monday, January 31 adjusting entry assuming that the last
payday
was Friday, January 21.
(b)
Prepare the journal entry to record the Austin Company’s payroll on Friday, February 4.
(c)
Annual depreciation expense on the company’s fixed assets is $39,600. Prepare the
adjusting entry to recognize depreciation for the month of January.
(d)
The company’s Office Supplies account shows a debit balance of $3,755. A count
of
office supplies on hand on January 31 shows $635 worth of supplies on hand.
Prepare
the January 31 adjusting entry for Office Supplies.
Chapter 3: The Adjusting Process
178.
On December 15th, Great Designs Company hired an independent contractor for a project. The contractor
completed the project on December 29th and submitted an invoice for $2,425 which was due on January 15th.
The
amount was duly paid on January 15th.
(a)
Prepare the journal entries necessary to record these transactions.
(b)
Explain why you prepared this/these journal entries.
Chapter 3: The Adjusting Process
179.
On November 15th, Great Designs Company purchased an advertising campaign for the month of
December.
Great Designs paid cash of $2,700 in advance. The advertising campaign ran in December.
(a)
Prepare all necessary journal entries for the advertising campaign for November and December .
(b)
Explain why you prepared this/these journal entries.
180.
On January 2, Safe Motorcycling Monthly received a check for $72from a subscriber for a 12-month
subscription. The January issue was mailed on January 15th. Prepare the necessary entries for the month
of
January.
Chapter 3: The Adjusting Process
181.
Prepare the December 31 adjusting entries for the following transactions. Omit explanations.
1.
Fees accrued but unbilled total $6,300.
2.
The supplies account balance on December 31 is $4,750. Supplies on hand are $960.
3.
Wages accrued but not paid are $2,700.
4.
Depreciation of office equipment is $1,650.
5.
Rent expired during year, $10,800.
Date
Description
Post Ref
Debit
Credit