127. Which of the accounting steps in the accounting process below would be completed last?
128. When is the adjusted trial balance prepared?
129. What is the purpose of the adjusted trial balance?
130. All of the following statements regarding vertical analysis are true except
131. Two income statements for PS Enterprises are shown below:
PS Enterprises
Income Statement
For the Years Ended December 31, 2014 and
2013
2014
2013
Fees earned
$674,350
$520,600
Operating expenses
472,045
338,390
Operating income
$202,305
$182,210
Prepare a vertical analysis of PS Enterprises’ income statements. Has operating income increased or decreased as a percentage of revenue?
132. For the year ending December 31, Orion, Inc. mistakenly omitted adjusting entries for $1,500 of supplies
that were used, (2) unearned revenue of $4,200 that was earned, and (3) insurance of $5,000 that expired. For
the year ending December 31, what is the effect of these errors on revenues, expenses, and net income?
133. A business pays bi-weekly salaries of $20,000 every other Friday for a ten-day period ending on that
day. The adjusting entry necessary at the end of the fiscal period ending on the second Wednesday of the pay
period includes a:
134. A business pays bi-weekly salaries of $20,000 every other Friday for a ten-day period ending on that
day. The last pay day 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). The
entry for the payment of the payroll on Friday, January 10 includes a:
135. Explain the difference between accrual-basis accounting and cash-basis accounting.
136. Indicate with a Yes or No whether or not each of the following accounts would, under normal
circumstances, require an adjusting entry.
1. Cash
2. Prepaid Expenses
3. Depreciation Expense
4. Accounts Payable
5. Accumulated Depreciation
6. Equipment
137. Classify the following items as: (1) prepaid expense, (2) unearned revenue, (3) accrued expense, or (4)
accrued revenue.
a) Fees received but not yet earned.
b) Fees earned but not yet received.
c) Accumulated depreciation.
d) Property tax accrual
138. Protonix Corp has a payroll of $8,000 for a five-day workweek. Its employees are paid each Friday for the
five-day workweek. The adjusting entry on December 31, 2015 assuming the year ends on Thursday would be:
Date
Description
Post. Ref.
Debit
Credit
139. A one-year insurance policy was purchased on June 1, 2011 for $1,500. The adjusting entry on December
31, 2011 would be
Date
Description
Post. Ref.
Debit
Credit
Insurance Expense
Prepaid Insurance
Wages Payable
6,400
140. Depreciation on Office Equipment is $3,300. The adjusting entry on December 31, 2011 would be
Date
Description
Post.
Ref.
Debit
Credit
141. A one-year insurance policy was purchased on October 1, 2011 for $4,200. The adjusting entry on
December 31, 2011 would be
Date
Description
Post. Ref.
Debit
Credit
Insurance Expense
1,050
Prepaid Insurance
1,050
142. The Supplies account had a beginning balance of $1,750. Supplies purchased during the period totaled
$3,500. At the end of the period before adjustment, $350 of supplies were on hand. Prepare the adjusting
entry for supplies.
Accum. Depr.¾Office Equip.
3,300
143. On January 1, DogMart Company purchased a two-year liability insurance policy for $22,800 cash. The
purchase was recorded to Prepaid Insurance. Prepare the January 31 adjusting entry.
144. DogMart Company records depreciation to Office Equipment and Production Equipment. Depreciation for
the period ending December 31 is $1,400 for Office Equipment and $2,650 for Production Equipment. Prepare
two entries to record the Office Equipment and Production Equipment depreciation.
12/31
Depreciation Expense – Office Equipment
1,400
Accumulated Depreciation – Office Equipment
1,400
Accumulated Depreciation – Production Equipment
2,650
145. On March 1, a business paid $3,600 for a twelve month liability insurance policy. On April 1 the same
business entered into a two-year rental contract for equipment at a total cost of $18,000. Determine the
following amounts:
(a) insurance expense for the month of March
(b) prepaid insurance as of March 31
(c) equipment rent expense for the month of April
(d) prepaid equipment rental as of April 30
(a)
$300 ($3,600/12 = $300 )
(b)
$3,300 ($3,600 – $300 = $3,300)
(d)
$17,250 ($18,000 – $750 = $17,250)
146. On January 1, the Newman Company estimated its property tax to be $5,100 for the year.
(a)
How much should the company accrue each month for property taxes?
(b)
Calculate the balance in the Property Tax Accrual account as of August 31.
(c)
Prepare the adjusting journal entry for the month of September.
147. On January 1st, Power House Co. prepays the year’s rent, $10,140 to its landlord. Prepare the journal entry
by recording the prepayment to an asset account.
Jan 1
Prepaid Rent
10,140
Cash
10,140
148. Requirement: Make the journal entries for both of the following:
(a) On December 1, $18,000 was received for a service contract to be performed from December 1 through until
April 30.
(b) If the service work for this contract is performed evenly and on a regular basis throughout this period,
prepare the adjusting journal entry as of year-end, December 31.
12/1
Cash
18,000
Unearned Fees
18,000
12/31
Unearned Fees
3,600
Fees Earned
3,600
(18,000 / 5 months = $3,600)
Property Tax Accrual
Record Property Tax Accrual for the month of September
149. On December 31, the balance in the Office Supplies account is $1,385. A count shows $435 worth of
supplies on hand. Prepare the adjusting entry for supplies.
150. Depreciation on equipment for the year is $6,300.
(a) Record the journal entry if the company adjusts its account once a year.
(b) Record the journal entry if the company adjusts its account on a monthly basis.
Accumulated Depreciation-Equipment
6,300
Accumulated Depreciation-Equipment ($6,300/12)
151. The company determines that the interest expense on a note payable for period ending December 31st is
$775. This amount is payable on January 1st. Prepare the journal entries required on December 31st and
January 1st.
Jan. 1
Interest Payable
152. On January 2nd, Dog Mart prepaid $30,000 rent for the year and recorded the prepayment in an asset
account. Prepare the January 31st adjusting entry for rent expense.
153. The prepaid insurance account had a beginning balance of $6,600 and was debited for $2,300 of premiums
paid during the year. Journalize the adjusting entry required at the end of the year assuming the amount of
unexpired insurance related to future periods is $4,100.
154. The balance in the unearned fees account, before adjustment at the end of the year, is $10,250. Journalize
the adjusting entry required if the amount of unearned fees at the end of the year is $3,125.
155. At the end of the current year, $3,700 fees have been earned but have not been billed to
clients. Journalize the adjusting entry to record the accrued fees.
156. Ski Master Company pays weekly salaries of $18,000 on Friday for a five-day week ending on that
day. Journalize the necessary adjusting entry at the end of the accounting period, assuming that the period ends
on Wednesday.
157. The estimated amount of depreciation on equipment for the current year is $5,300. Journalize the
adjusting entry to record the depreciation.
158. On January 31, the end of the first month of the year, the usual adjusting entry transferring expired
insurance to an expense account was omitted. Which items will be incorrectly stated because of the error on (a)
the income statement for January and (b) the balance sheet as of January 31? Also indicate whether the items
in error will be overstated or understated.
159. At the end of April, the first month of the year, the usual adjusting entry transferring rent earned to a
revenue account from the unearned rent account was omitted. Indicate which items will be incorrectly stated,
because of the error, on (a) the income statement for April and (b) the balance sheet as of April 30. Also
indicate whether the items in error will be overstated or understated.
160. Salaries of $6,400 are paid for a five-day week on Friday. Prepare the adjusting journal entry that is
required if the month ends on Thursday.
161. Accrued salaries of $600 owed to employees for December 29, 30, and 31 are not taken into consideration
in preparing the financial statements for the year ended December 31. Indicate which items will be erroneously
stated, because of the error, on (a) the income statement for the year and (b) the balance sheet as of December
31. Also indicate whether the items in error will be overstated or understated.
162. On January 1st, Great Designs Company had a debit balance of $1,450 in the Office Supplies account.
During the month, Great Designs purchased $115 and $160 of office supplies and journalized them to the Office
Supplies asset account upon purchasing. On January 31st, an inspection of the office supplies cabinet shows that
only $350 of Office Supplies remains in the locker. Prepare the January 31st adjusting entry for Office
Supplies.
163. For the year ending December 31, 2010, Nathan Clinical Supplies Co. mistakenly omitted adjusting entries
for (1) $8,900 of unearned revenue that was earned, (2) earned revenue that was not billed of $10,200, and (3)
accrued wages of $7,000. Indicate the combined effect of the errors on (a) revenues, (b) expenses, and (c) net
income for 2010.
164. For each of the following errors, considered individually, indicate whether the 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.
A)
The adjustment for unearned fees of $3,260 was journalized as a debit to Accounts Payable for $3,260 and a credit to Fees Earned of
$3,260.
B)
The adjustment for supplies expense of $425 was journalized as a debit to Supplies Expense for $542 and a credit to Supplies for
$425.
A)
The trial balance totals will still be equal, but the balances of Unearned Fees and Accounts Payable will be incorrect as the debit
should have been made to Unearned Fees instead of Accounts Payable.
165. Listed below are accounts to use for transactions (a) through (j), each identified by a number. Following
this list are the transactions. You are to indicate for each transaction the accounts that should be debited and
credited by placing the account number(s) in the appropriate box.
1.
Cash
2.
Accounts Receivable
3.
Office Supplies
4.
Land
5.
Interest Receivable
6.
Building
7.
Accumulated Depreciation – Office Equipment
8.
Depreciation Expense – Office Equipment
9.
Accounts Payable
10.
Interest Payable
11.
Insurance Payable
12.
Utilities Expense
13.
Notes Payable
14.
Capital Stock
15.
Prepaid Insurance
16.
Service Revenue
17.
Retained Earnings
18.
Insurance Expense
19.
Utilities Payable
20.
Office Supplies Expense
21.
Unearned Service Revenue
22.
Dividends
23.
Interest Expense
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 (for the policy mentioned in transaction (c).)
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 months.
i. Recorded one-month’s accrued interest on the note payable in
(h).
j. Depreciation is recorded on office equipment.
Debit
Credit
12
19
b.
19
1
15
1
d.
18
15
1
21
166. Encore Consulting is completing the accounting information processing at the end of the company’s first
fiscal year, December 31, 2011. The following trial balances are available.
Accounts
Unadjusted
Trial Balance
Adjusted
Trial Balance
Debits
Credits
Debits
Credits
Cash
13,000
13,000
Accounts Receivable
1,500
1,800
Prepaid Insurance
600
200
Supplies
3,800
3,000
Machines
30,000
30,000
Accum. Depr. – Machines
12,000
17,500
Wages Payable
900
Unearned Revenue
6,700
6,500
Capital Stock
24,000
24,000
Dividends
4,800
4,800
Service Revenue
25,000
25,500
Wages Expense
14,000
14,900
Insurance Expense
400
Supplies Expense
800
Depreciation Expense
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?
Accounts Receivable
300
Service Revenue
300
Accrued fees.
Insurance Expense
400
Prepaid Insurance
400
Expired insurance.
Supplies Expense
Supplies
800
Supplies used ($3,800 – 3,000).
Depreciation Expense
5,500
Accumulated Depreciation
5,500
Wages Expense
Wages Payable
900
Unearned Revenue
Service Revenue
200
$25,500 – $14,900 – $400 – $800 – $5,500
167. Given the following account balances for Garry’s Tree Service, prepare a trial balance.
Cash
$25,000
Supplies
1,000
Accounts Payable
7,000
Capital Stock
10,000
Retained Earnings
22,910
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
Dividends
3,300
168. List the four basic types of accounts that require adjusting entries and give an example of each.
169. For the year ending June 30, Island Clinical Services mistakenly omitted adjusting entries for $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?
Accounts
Debits
Credits
Cash
25,000
Supplies
1,000
Prepaid Rent
12,200
Machinery
18,350
Accumulated Depreciation
7,340
Accounts Payable
7,000
Wages Payable
3,600
Unearned Revenue
1,500
Capital Stock
10,000
Retained Earnings
22,910
Dividends
3,300
Service Revenue
21,000
Wage Expense
2,000
Rent Expense
11,500
Totals
73,350
73,350
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.
171. 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.
172. Under the accrual basis, some accounts in the ledger require updating. Discuss the three main reasons for
this updating and give an example of each.
173. What is the purpose of an adjusted trial balance? What types of errors does it detect? What types of
errors does it not detect?
174. Two income statements for PS Enterprises are shown below:
PS Enterprises
Income Statement
For the Years Ended December 31, 2014 and
2013
2014
2013
Fees earned
$674,350
$520,600
Operating expenses
472,045
338,390
Operating income
$202,305
$182,210
(a) Prepare a vertical analysis of PS Enterprises’ income statements.
(b) Does the vertical analysis indicate a favorable or unfavorable trend?
175. Explain the difference between
(a) Accrued revenues and unearned revenues.
(b) Accrued expenses and prepaid expenses.
(c) Give an example of each.
future accounting periods.
(c)
Unearned revenues – (Rental payments received by a landlord in advance)
Amount
Percent
Amount
Percent
Fees earned
$674,350
100%
$520,600
100%
Operating expenses
472,045
70%
338,390
65%
Operating income
$202,305
30%
$182,210
35%