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Accrual Accounting Concepts
FOR INSTRUCTOR USE ONLY
4-81
Ex. 271
The adjusted trial balance of Masters Company includes the following balance sheet accounts that
frequently require adjustment. For each account, indicate (a) the type of adjusting entry (prepaid ex-
penses, unearned revenues, accrued revenues, or accrued expenses) and (b) the related account in
the adjusting entry.
(a) (b)
Balance Sheet Account Type of Adjusting Entry Related Account
1. Supplies
2. Accounts Receivable
3. Prepaid Insurance
4. Accumulated Depreciation—
Equipment
5. Interest Payable
6. Salaries and Wages Payable
7. Unearned Service Revenue
Solution 271 (10 min)(cont.)
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
4-82
Ex. 272
Match the statements below with the appropriate terms by entering the appropriate letter code in the
spaces provided.
TERMS:
A. Prepaid Expenses
B. Unearned Revenues
C. Accrued Revenues
D. Accrued Expenses
STATEMENTS:
___ 1. A revenue not yet recognized; collected in advance.
___ 2. Office supplies on hand that will be used in the next period.
___ 3. Subscription revenue collected; not yet recognized.
___ 4. Rent not yet collected; already recognized.
___ 5. An expense incurred; not yet paid or recorded.
___ 6. A revenue recognized; not yet collected or recorded.
___ 7. An expense not yet incurred; paid in advance.
___ 8. Interest expense incurred; not yet paid.
Accrual Accounting Concepts
FOR INSTRUCTOR USE ONLY
4-83
Ex. 273
A review of the ledger of Wilde Co. at December 31, 2017, produces the following data pertaining to
the preparation of annual adjusting entries:
(a) Salaries and Wages Payable $0: Salaries are paid every Friday for the current week. Five em-
ployees receive a weekly salary of $800, and three employees earn a weekly salary of $700.
December 31 is a Tuesday. Employees do not work weekends. All employees worked the last 2
days of December.
(b) Unearned Rent Revenue $60,000: The company had several lease contracts during the year as
shown below:
Rent
Term per Number of
Date (in months) lease leases
Oct. 1 12 $ 8,000 3
Dec. 1 12 18,000 2
(c) Notes Receivable $90,000: This is a 6-month note, dated November 1, 2017, with a 6% interest
rate.
Instructions:
Prepare the adjusting entries at December 31, 2017. Show all computations.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
4-84
Ex. 274
A review of the ledger of Weakly Service Co. at December 31, 2017, produces the following data
pertaining to the preparation of annual adjusting entries:
(a) Notes Payable $80,000: This is a 9-month note, dated September 1, 2017, with a 9% inter-
est rate.
(b) Prepaid Rent $648,000. The company rents offices throughout the Midwest. During 2017 it
signed 10 leases as shown below:
Term Monthly Number of
Date (in months) Rent Leases
Sept. 1 8 $ 4,500 4
Nov. 1 12 7,000 6
(c) Unearned Service Revenue $175,800. During 2017 the company entered into 13 monthly
service contracts with clients. The clients prepaid for the services to be provided over the
contract period in an even manner.
Service Period Amount Number of
Date (in months) Per Contract Contracts
Aug. 1 9 $12,600 8
Oct. 1 6 15,000 5
Instructions:
Prepare the adjusting entries at December 31, 2017. Show all computations.
Accrual Accounting Concepts
FOR INSTRUCTOR USE ONLY
4-85
Ex. 275
The Scarlet Pages, a semi-professional hockey team, prepare financial statements on a monthly ba-
sis. Their season begins in October, but in September the team engaged in the following
transactions:
(a) Paid $150,000 to Oklahoma City as advance rent for use of Oklahoma City Arena for the six-
month period October 1 through March 31.
(b) Collected $450,000 cash from sales of season tickets for the team's 30 home games. This
amount was credited to Unearned Ticket Revenue.
(c) During the month of October, the Scarlet Pages played five home games.
Instructions:
Prepare the adjusting entries required at October 31 for the transactions above.
Ex. 276
The Jacquers, a semi-professional baseball team, prepare financial statements on a monthly basis.
Their season begins in April, but in March the team engaged in the following transactions:
(a) Paid $120,000 to Lawrence City as advance rent for use of Lawrence City Stadium for the six-
month period April 1 through September 30.
(b) Collected $600,000 cash from sales of season tickets for the team's 20 home games. This
amount was credited to Unearned Ticket Revenue.
(c) During the month of April, the Jacquers played four home games and five road games.
Instructions:
Prepare the adjusting entries required at April 30 for the transactions above.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
4-86
Ex. 277
Prepare adjusting entries for the following transactions. Omit explanations.
1. Depreciation on equipment is $1,340 for the accounting period.
2. Interest owed on a loan but not paid or recorded is $275.
3. There was no beginning balance of supplies and $550 of office supplies were purchased dur-
ing the period. At the end of the period $100 of supplies were on hand.
4. Prepaid rent had a $1,000 normal balance prior to adjustment. By year end $700 had ex-
pired.
5. Accrued salaries at the end of the period amounted to $900.
Accrual Accounting Concepts
FOR INSTRUCTOR USE ONLY
4-87
Ex. 278
Prepare adjusting entries for the following transactions. Omit explanations.
1. Unrecorded interest accrued on savings bonds is $410.
2. Property taxes incurred but not paid or recorded amount to $800.
3. Unearned service revenue of $4,000 was collected in advance. By year end $700 was still
unearned.
4. Prepaid insurance had a $750 debit balance prior to adjustment. By year end, 60 percent
was still unexpired.
5. Salaries incurred by year end but not yet paid or recorded amounted to $650.
Ex. 279
Prepare year-end adjustments for the following transactions. Omit explanations.
1. Accrued interest on notes receivable is $30.
2. $1,000 of unearned service revenue has been recognized.
3. Three years’ rent, totaling $45,000, was paid in advance at the beginning of the year.
4. Services totaling $2,900 had been performed but not yet billed at the end of the year.
5. Depreciation on equipment totaled $6,500 for the year.
6. Supplies purchased totaled $850. By year end, only $250 of supplies remained.
7. Salaries owed to employees at the end of the year total $960
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
4-88
IMA: Business Economics
Ex. 280
Janus Coat Company purchased a delivery truck on June 1 for $30,000, paying $10,000 cash and
signing a 6%, 2-month note for the remaining balance. The truck is expected to depreciate $6,000
each year. Janus Coat Company prepares monthly financial statements.
Instructions:
(a) Prepare the general journal entry to record the acquisition of the delivery truck on June 1st.
(b) Prepare any adjusting journal entries that should be made on June 30th.
(c) Show how the delivery truck will be reflected on Janus Coat Company's balance sheet on June
30th.
Accrual Accounting Concepts
FOR INSTRUCTOR USE ONLY
4-89
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
4-90
Ex. 281
Sunkan Company prepares monthly financial statements. Below are listed some selected accounts
and their balances on the September 30 trial balance before any adjustments have been made for
the month of September.
SUNKAN COMPANY
Trial Balance (Selected Accounts)
September 30, 2017
__________________________________________________________________________
Debit Credit
Supplies .............................................................................................. $ 2,700
Prepaid Insurance ............................................................................... 4,800
Equipment ........................................................................................... 16,200
Accumulated Depreciation—Equipment .............................................. $ 1,000
Unearned Rent Revenue .................................................................... 1,200
(Note: Debit column does not equal credit column because this is a partial listing of selected ac-
count balances.)
An analysis of the account balances by the company's accountant provided the following additional
information:
1. A physical count of office supplies revealed $1,000 on hand on September 30.
2. A two-year life insurance policy was purchased on September 1 for $4,800.
3. Office equipment depreciates $3,000 per year.
4. The amount of rent received in advance that remains unearned at September 30 is $300.
Instructions:
Using the information given, prepare the adjusting entries that should be made by Sunkan Company
on September 30.
Accrual Accounting Concepts
FOR INSTRUCTOR USE ONLY
4-91
Ex. 282
Prepare the required end-of-period adjusting entries for each independent case listed below.
Case 1
The Thoma Company began the year with a $3,000 balance in the Supplies account. During the
year, $8,500 of additional supplies were purchased. A physical count of supplies on hand at the end
of the year revealed that $8,300 worth of supplies had been used during the year. No adjusting entry
has been made until year end.
Case 2
The Leno Company has a calendar year-end accounting period. On July 1, the company purchased
office equipment for $30,000. It is estimated that the office equipment will depreciate $200 each
month. No adjusting entry has been made until year end.
Case 3
Yeats Realty is in the business of renting several apartment buildings and prepares monthly financial
statements. It has been determined that 2 tenants in $900 per month apartments and one tenant in
the $1,000 per month apartment had not paid their December rent as of December 31st.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
4-92
Accrual Accounting Concepts
FOR INSTRUCTOR USE ONLY
4-93
Ex. 283
Greenstream Insurance Agency prepares monthly financial statements. Presented below is an in-
come statement for the month of June that is correct on the basis of information considered.
GREENSTREAM INSURANCE AGENCY
Income Statement
For the Month Ended June 30
___________________________________________________________________________
Revenues
Service Revenue ........................................................................ $40,000
Expenses
Salaries and Wages Expense ..................................................... $12,000
Advertising Expense ................................................................... 800
Rent Expense ............................................................................. 4,200
Depreciation Expense ................................................................ 2,800
Total Expenses ........................................................................... 19,800
Net Income ......................................................................................... $20,200
Additional Data: When the income statement was prepared, the company accountant neglected to
take into consideration the following information:
1. A utility bill for $1,200 was received on the last day of the month for electric and gas service for
the month of June.
2. A company insurance salesman sold a life insurance policy to a client for a premium of $10,000.
The agency billed the client for the policy and is entitled to a commission of 20%.
3. Supplies on hand at the beginning of the month were $2,500. The agency purchased additional
supplies during the month for $1,500 in cash and $1,200 of supplies were on hand at June 30.
4. The agency purchased a new car at the beginning of the month for $24,000 cash. The car will
depreciate $6,000 per year.
5. Salaries owed to employees at the end of the month total $5,300. The salaries will be paid on
July 5.
Instructions:
Prepare a corrected income statement.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
4-94
Ex. 284
One part of an adjusting entry is given below.
Instructions:
Indicate the account title for the other part of the entry.
1. Unearned Service Revenue is debited.
2. Prepaid Rent is credited.
3. Accounts Receivable is debited.
4. Depreciation Expense on equipment is debited.
5. Utilities Expense is debited.
6. Interest Payable is credited.
7. Service Revenue is credited (give two possible debit accounts).
8. Interest Receivable is debited.
Accrual Accounting Concepts
FOR INSTRUCTOR USE ONLY
4-95
Ex. 285
The following ledger accounts are used by the Heartland Race Track:
Accounts Receivable
Prepaid Advertising
Prepaid Rent
Unearned Sales Revenue
Sales Revenue
Advertising Expense
Rent Expense
Instructions:
For each of the following transactions below, prepare the journal entry (if one is required) to record
the initial transaction and then prepare the adjusting entry, if any, required on November 30, the end
of the fiscal year.
(a) On November 1, paid rent on the track facility for three months, $150,000.
(b) On November 1, sold season tickets for admission to the racetrack. The racing season is year-
round with 25 racing days each month. Season ticket sales totaled $960,000.
(c) On November 1, borrowed $250,000 from First National Bank by issuing a 6% note payable
due in three months.
(d) On November 5, programs for 20 racing days in November, 25 racing days in December and
15 racing days in January were printed for $3,000.
(e) The accountant for the concessions company reported that gross receipts for November were
$140,000. Ten percent is due to Heartland and will be remitted by December 10.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
4-96
Ex. 286
Dallison Company has an accounting fiscal year, which ends on June 30. The company also has a
policy of paying the weekly payroll on Friday. Payroll records indicate the following salary costs were
incurred.
Date Amount
Monday June 28 $3,200
Tuesday June 29 2,800
Wednesday June 30 2,900
Thursday July 1 3,000
Friday July 2 2,600
Instructions:
(a) Prepare any necessary adjusting journal entries that should be made at year end on June 30.
(b) Prepare the journal entry to record the payment of the weekly payroll on July 2.
Accrual Accounting Concepts
FOR INSTRUCTOR USE ONLY
4-97
Ex. 287
On Friday of each week, Prawn Company pays its personnel weekly wages amounting to $45,000
for a five-day work week.
Instructions:
(a) Prepare the necessary adjusting entry at year end, assuming December 31 falls on Wednes-
day.
(b) Prepare the journal entry for payment of the week's wages on the payday which is Friday, Jan-
uary 2 of the next year.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
4-98
Ex. 288
Presented below is the Trial Balance and Adjusted Trial Balance for Stabler Company on December
31.
STABLER COMPANY
Trial Balance
December 31
__________________________________________________________________________
Before Adjustment After Adjustment
Dr. Cr. Dr. Cr.
Cash $ 3,000 $ 3,000
Accounts Receivable 2,800 3,700
Prepaid Rent 2,100 1,500
Supplies 1,200 700
Equipment 18,000 18,000
Accumulated Depreciation—
Equipment $ 1,300 $ 1,500
Accounts Payable 2,700 3,000
Notes Payable 10,000 10,000
Interest Payable 120
Salaries and Wages Payable 800
Unearned Service Revenue 4,460 4,060
Common Stock 8,200 8,200
Dividends 3,200 3,200
Service Revenue 8,000 9,300
Salaries and Wages Expense 2,060 2,860
Utilities Expense 1,800 2,100
Rent Expense 500 1,100
Supplies Expense 500
Depreciation Expense 200
Interest Expense 120
Totals $34,660 $34,660 $36,980 $36,980
Instructions:
Prepare in journal form, with explanations, the adjusting entries that explain the changes in the
balances from the trial balance to the adjusted trial balance.
Accrual Accounting Concepts
FOR INSTRUCTOR USE ONLY
4-99
