Chapter 3: The Adjusting Process
182.
Prepare adjusting entries for the following transactions:
(a)
The beginning balance of the Supplies account was $245. During the month the
company bought additional supplies in the amount of $735. At the end of the
month a
physical inventory showed $343 of unused supplies.
(b)
The company has a 12% Note Payable in the amount of $17,000 due in 6 months.
The
interest expense for the month has not been recorded.
(c)
The company has two employees. The manager is paid on the 15th of every month
for
work performed during the first half of the month and on the 1st of the
following month
for the work performed during the second half of the month. His
monthly salary is $5,500. The other employee is paid $650 for each 5 day work
week (Monday –
Friday). The last day of the month fell on Thursday.
(d)
The unearned revenue account shows a balance of $46,000. According to the
manager
60% of that amount has been earned.
(e)
At the end of the month $5,700 of services had been performed but not yet billed.
Chapter 3: The Adjusting Process
183.
On December 31, a business estimates depreciation on equipment used during the first year of operations to be
$2,900. (a) Journalize the adjusting entry required on December 31. (b) If the adjusting entry in (a) were
omitted,
which items would be erroneously stated on (1) the income statement for the year and (2) the balance
sheet as of
December 31?
Chapter 3: The Adjusting Process
184.
At the end of the fiscal year, the following adjusting entries were omitted:
(a)
No adjusting entry was made to transfer the $1,750 of prepaid insurance from
the
asset account to the expense account.
(b)
No adjusting entry was made to record accrued fees of $525 for services
provided
to customers.
Assuming that financial statements are prepared before the errors are discovered, indicate the effect of each
error,
considered individually, by inserting the dollar amount in the appropriate spaces. Insert “0” if the error
does not
affect the item.
Error (a)
Error (b)
Over-
stated
Under-
stated
Over-
stated
Under-
stated
(1)
Assets at December 31
would be
$
$
$
$
(2)
Liabilities at Dec. 31
would be
$
$
$
$
(3)
Net income for the year
would be
$
$
$
$
(4)
Owner’s equity at Dec.
31 would be
$
$
$
$
Over-
stated
stated
Over-
stated
Under-
(1)
Assets at December 31
would be
(2)
Liabilities at Dec. 31
would be
(3)
Net income for the year
would be
(4)
31 would be
185.
Journalize the six entries to adjust the accounts at December 31. (Hint: One of the accounts was affected by two
different adjusting entries).
Unadjusted
Trial Balance
Adjusted
Trial Balance
Debit
Balances
Credit
Balances
Debit
Balances
Credit
Balances
Cash
5,000
5,000
Accounts Receivable
32,000
32,600
Supplies
3,600
100
Prepaid Insurance
4,000
1,400
Equipment
11,000
11,000
Accumulated Depreciation
1,700
Wages Payable
2,000
Unearned Fees
8,900
3,500
Ann Cole, Capital
22,000
22,000
Fees Earned
69,000
75,000
Wages Expense
44,300
46,300
Supplies Expense
3,500
Insurance Expense
2,600
Depreciation Expense
1,700
Total
99,900
99,900
104,200
104,200
Supplies Expense
3,500
Insurance Expense
Depreciation Expense
1,700
Unearned Fees
5,400
Wages Expense
2,000
Chapter 3: The Adjusting Process
186.
Jordon James started JJJ Consulting on January 1. The following are the account balances at the end of the
first
month of business, before adjusting entries were recorded:
Accounts Payable
$300
Accounts Receivable
750
Cash
6,300
Consulting Revenue
4,925
Equipment
7,000
Jordon James, Capital
15,000
Jordon James, Drawing
1,375
Prepaid Rent
4,000
Supplies
800
Adjustment data:
Supplies on hand at the end of the month: $200
Unbilled consulting revenue: $700
Rent expense for the month: $1,000
Depreciation on equipment: $90
(a)
Prepare the required adjusting entries, adding accounts as needed.
(b)
Prepare an adjusted trial balance for JJJ Consulting as of January 31.
Chapter 3: The Adjusting Process
Chapter 3: The Adjusting Process
187.
Complete the missing items in the Summary of Adjustments chart:
Prepaid Expenses
Examples
Adjusting Entry
Financial Statement Impact
if Adjusting Entry is Omitted
Supplies,
(a)
Dr. Expense
Cr. Asset
Income Statement:
Revenues: No effect
Expenses: Understated
Net income: (b)
Balance Sheet:
Assets: (c)
Liabilities: (d)
Owner’s equity: Overstated
Unearned Revenues
Examples
Adjusting Entry
Financial Statement Impact if
Adjusting Entry is Omitted
Unearned Rent,
(e)
(f)
Income Statement:
Revenues: (g)
Expenses: No effect
Net income: (h)
Balance Sheet:
Assets: (i)
Liabilities: Overstated
Owner’s equity: (j)
Accrued Revenues
Examples
Adjusting Entry
Financial Statement Impact if
Adjusting Entry is Omitted
Interest
income
due on
a note,
(k)
Dr. Asset
Cr. Revenue
Income
Statement:
Revenues: (l)
Expenses: (m)
Net income: Understated
Balance Sheet:
Assets: (n)
Liabilities: (o)
Owner’s equity: Understated
Accrued Expenses
Examples
Adjusting Entry
Financial Statement Impact if
Adjusting Entry is Omitted
Interest due on a
note payable,
(p)
(q)
Income Statement:
Revenues: No effect
Expenses: (r)
Net income: (s)
Balance Sheet:
Assets: (t)
Liabilities: Understated
Owner’s equity: (u)
Chapter 3: The Adjusting Process
Chapter 3: The Adjusting Process
188.
Two income statements for Danielle’s Design Services are shown below:
Danielle’s Design Services
Income Statements
For Years 1 and 2 Ending December 31
Year 2
Year 1
Fees earned
$765,340
$696,520
Operating expenses:
Wages expense
$254,000
$214,600
Rent expense
120,000
108,000
Supplies expense
76,500
98,715
Miscellaneous expense
11,680
16,420
Total operating expenses
$462,180
$437,735
Net income
$303,160
$258,785
(a) Prepare a vertical analysis of Danielle’s Design Services income statements.
(b)
What types of trends are indicated: favorable or unfavorable?
(c)
What other information would enhance the analysis?
Rent expense
Supplies expense
Miscellaneous
Total operating
Net income
Chapter 3: The Adjusting Process
189.
Bloom’s Company pays bi-weekly salaries of $40,000 every other Friday for a ten-day period ending on that
day. The last payday of December is Friday, December 27. Assuming the next pay period begins on
Monday,
December 30, journalize the adjusting entry necessary at the end of the fiscal period (December 31).
Date
Description
Post
Ref
Debit
Credit
Chapter 3: The Adjusting Process
190.
A business pays bi-weekly salaries of $20,000 every other Friday for a ten-day period ending on that day. The
last
payday of December is Friday, December 27. Assuming the next pay period begins on Monday, December
30 and
the proper adjusting entry is journalized at the end of the fiscal period (December 31). Journalize the
entry for the
payment of the payroll on Friday, January 10.
Date
Description
Post
Ref
Debit
Credit
ANSWER:
Chapter 3: The Adjusting Process
Match the type of account (a – e) with the business transactions that follow.
a.
Prepaid expense
b.
Accrued expense
c.
Unearned revenue
d.
Accrued revenue
e.
None of these
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.03-02 – 03–02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.05 – Accounting Cycle
ACCT.ACBSP.APC.07 – Adjusting Entries
ACCT.ACBSP.APC.15 – Current Assets Reporting
ACCT.ACBSP.APC.16 – Current Liabilities Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
191.
Services provided that have not been recorded.
192.
Paid for one year’s insurance policy.
193.
Retainer fee received from a client for future legal representation.
194.
Annual property taxes that are paid at the end of the year.
195.
Electric bill to be paid next month.
196.
Paid for a 6-month magazine subscription.
197.
Received payment covering a 6-month magazine subscription.
Chapter 3: The Adjusting Process
198.
Provided tutoring for a student that will be invoiced next month.
199.
Received 6 months of rental payments from a tenant.
200.
Paid 6 months of rental payments to the landlord.
201.
Annual depreciation on equipment, recorded on a monthly basis.
202.
A contract to provide tutoring services beginning next month was signed.
Identify the effect (a – h) that omitting each of the following items would have on the balance sheet.
a.
Assets and owner’s equity overstated
b.
Assets and owner’s equity understated
c.
Assets overstated and owner’s equity understated
d.
Assets understated and owner’s equity overstated
e.
Liabilities and owner’s equity overstated
f.
Liabilities and owner’s equity understated
g.
Liabilities overstated and owner’s equity understated
h.
Liabilities understated and owner’s equity overstated
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.01-03 – 01–03
ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 – Adjusting Entries
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
203.
No adjustment was made for supplies used up during the month.
Chapter 3: The Adjusting Process
204.
Wages are paid every Friday for the 5-day work week. The month ended on Monday and no adjustment
was
recorded.
205.
Interest earned on a note receivable was not recorded.
206.
Services provided to customers on the last day of the month were not billed.
207.
An attorney has earned 1/2 of a retainer fee that was received and recorded last month. No adjustment was
recorded for the amount earned.
208.
Property taxes are paid annually. The estimated monthly amount for the taxes was not recorded.
209.
Depreciation on equipment was not recorded.
210.
A tenant paid 6 months’ rent in advance when he moved in on the first day of the month. No entry was made
on
the last day of the month.