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policy that covers all of its drilling equipment around the world. The company recorded the
purchase as prepaid insurance. Complete the chart below:
Cash Paid
Insurance
Expense
Prepaid
Insurance
Year ended Dec. 31, 2009
$
$
$
Year ended Dec. 31, 2010
$
$
$
Year ended Dec. 31, 2011
$
$
$
Year ended Dec. 31, 2012
$
$
$
35) Lacy & Jacobs, Attorneys at Law, purchased office computers for $24,600 on February 1,
2009. The computers are estimated to have a $3,000 salvage value and to last for a total of 3
years. The firm has a December 31 yearend and prepares annual financial reports at that time.
Required:
1. Determine the depreciation expense that will be reported on the income statement for the year
ended December 31, 2009.
2. Determine the balance sheet carrying value (also known as book value) of the computers on
December 31, 2009, 2010 and 2011.
Answer:
36) Using the abbreviations below, indicate which financial statement(s) would report each of
the following line items. Some items may appear on more than one statement.
IS = Income statement
OE = Statement of changes in shareholders’ equity
BS = Balance sheet
CF = Statement of cash flows
NONE = the item does not appear on any of the financial statements
Cash flow from operating
activities
Sales revenue
Cash
Net income
Depreciation expense
Profit margin on sales
ratio
Prepaid rent
Rent expense
Salaries payable
Salaries expense
Accumulated depreciation
Retained earnings
Answer:
37) Selected data from Olympia, Inc.’s accounting system are provided below. All balances are
BEFORE year-end adjustments and all data relate to the year ended Dec. 31, 2011. Complete
the chart below to show the balances in each of the accounts AFTER the appropriate
adjustments have been made, using the following additional information:
a. The note was issued on October 31, 2011 at 12%. Both interest and principal are due on April
1, 2012.
b. The equipment was purchased on January 1, 2010. It has a seven-year estimated useful life
with a $5,000 estimated residual value.
c. $300 of the supplies were used during the year.
d. The prepaid insurance balance relates to a $7,200, 12-month policy purchased on April 1,
2011.
e. $20,000 of the unearned revenue is now earned.
f. The salaries expense account balance does not include $10,000 of employee salaries earned but
unpaid.
Balance
BEFORE
adjustment
Balance AFTER
adjustment
Notes payable
$50,000
$
Supplies
$500
$
Prepaid insurance
$7,200
$
Equipment
$75,000
$
Accumulated depreciation
$(20,000)
$
Unearned revenue
$30,000
$
Salaries payable
$0
$
Revenue
$200,000
$
Salaries expense
$(65,000)
$
Interest expense
$0
$
Depreciation expense
$0
$
Supplies expense
$0
$
Insurance expense
$0
$
Interest payable
$0
$
38) Selected data from RuthCo.’s accounting system are provided below. All balances are
BEFORE year-end adjustments and all data relate to the year ended December 31, 2011.
Determine the amount that will be reported for each of the items in the table below, after the
appropriate adjustments have been made using the following information. Also indicate the
financial statement where each item appears, using IS for the income statement and BS for the
balance sheet. The table does NOT include all accounts that will be adjusted.
a. A $40,000 note payable has been unpaid all year and bears interest at 9%.
b. Equipment that was owned and used all year has a historical cost of $35,000, a 6-year
estimated useful life, and a $5,000 estimated residual value.
c. $400 of the supplies were consumed during the year.
d. The prepaid insurance balance relates to a 12-month policy purchased on July 1, 2011.
e. $18,000 of the unearned revenue is now earned.
f. Salaries expense does not include $15,000 of employee salaries that have been earned but not
yet paid.
Item
Balance
BEFORE
adjustment
Balance AFTER
adjustment
Financial
statement
1.
Interest payable
$0
$
2.
Office supplies
$900
$
3.
Prepaid insurance
$6,000
$
4.
Accumulated
depreciation
$(23,000)
$
5.
Unearned revenue
$20,000
$
6.
Salaries expense
$95,000
$
39) Selected data from BabCo.’s accounting system are provided below. All account balances
are BEFORE year-end adjustments and all data relate to the year ended December 31, 2011.
Determine the amount that will be reported for each of the items in the table below, after the
appropriate adjustments have been made using the information below. The table does NOT
include all of the accounts that will be adjusted.
a. Interest accrues on a $30,000 note payable at the rate of 6.5% per year and the note has been
unpaid all year.
b. Equipment with a cost of $100,000, a 10-year estimated useful life, and salvage value of
$5,000 was owned and used all year.
c. $300 of the supplies were used during the year.
d. The prepaid rent balance relates to a 12-month policy purchased on November 1, 2011.
e. $500 of the unearned revenue is now earned.
f. The salaries expense account balance does not include $5,000 of employee salaries earned but
unpaid.
Item
Balance BEFORE
adjustment
Balance AFTER
adjustment
1
Interest expense
$0
$
2
Office supplies
$800
$
3
Prepaid rent
$1,200
$
4
Depreciation expense
$0
$
5
Unearned revenue
$2,000
$
6
Salaries expense
$143,000
$
40) Selected data from BR Co.’s accounting system are provided below. All balances are before
year-end adjustments and all data relate to the year ended December 31, 2011. Determine the
amount that will be reported for each of the items in the table below, after the appropriate
adjustments have been made using the following information below. The table does NOT
include all of the accounts that will be adjusted.
a. A note payable of $10,000 has been unpaid all year and bears interest at 8%.
b. Equipment with a cost of $20,000, a 5-year estimated useful life, and a $5,000 estimated
residual value was owned and used all year.
c. $50 of the supplies are unused at the end of the period.
d. The Prepaid rent balance relates to a $1,500, 12-month lease beginning on October 1, 2011.
e. $15,000 rent revenue has been earned but not yet collected from tenants.
f. Employees have earned an additional $25,000 in salaries, but have not yet been paid.
Item
Balance
BEFORE
adjustment
Balance
AFTER
adjustment
1.
Interest payable
$0
$
2.
Office supplies
$300
$
3.
Prepaid rent
$1,500
$
4.
Depreciation
expense
$0
$
5.
Rent revenue
$100,000
$
6.
Salaries payable
$10,000
$
41) Selected data from Babel Co.’s accounting system are provided below. All balances are
before year-end adjustments and all data relate to the year ended December 31, 2011. Determine
the amount that will be reported for each of the items in the table below, after the appropriate
adjustments have been made using the following information:
a. The note has been unpaid all year and bears interest at 5 %.
b. The equipment, which was owned and used all year, has a 3-year estimated useful life with a
$0 estimated residual value.
c. $500 of the supplies were used during the year.
d. The Prepaid insurance balance relates to a 6-month policy purchased on April 1, 2011.
e. $5,000 of the unearned revenue is now earned.
f. The Salaries expense account balance does not include $25,000 of employee salaries earned
but unpaid.
Item
Balance
BEFORE
adjustment
Balance
AFTER
adjustment
1
Notes payable
$50,000
$
2
Office supplies
$500
$
3
Prepaid insurance
$3,600
$
4
Equipment
$75,000
$
5
Unearned
revenue
$20,000
$
6
Salaries expense
$37,000
$
7
Interest payable
$0
$
42) Cruits, Inc. prepared the following income statement BEFORE adjustments:
Cruits, Inc.
Income Statement
For the Month Ended September 30, 2011
Sales revenue $30,000
Expenses
Rent $5,000
Utilities 2,000
Salaries 8,000
Depreciation 3,000
Total expenses $18,000
Net income (loss) $12,000
Required:
Determine the net income or loss AFTER adjustment given the following additional information
for the month of September:
a. Salaries earned but unrecorded and unpaid equals $1,000.
b. Depreciation for the month should be an additional $2,000.
c. Customer work completed, but not yet billed or collected equals $4,000.
43) Growing Green Care prepared the following income statement BEFORE adjustments:
Growing Green Care
Income Statement
For the Month Ended September 30, 2011
Sales revenue $50,000
Expenses
Rent $12,000
Utilities 3,000
Salaries 18,000
Depreciation 5,000
Total expenses 38,000
Net income (loss) $12,000
Required:
Determine the net income or loss AFTER adjustment given the following additional information
for the month of September:
a. Salaries earned but unrecorded and unpaid equals $5,000.
b. Depreciation for the month should be an additional $3,000.
c. Customer work completed, but not yet billed or collected equals $5,000.
44) Cal’s Lawn Care prepared the following income statement BEFORE adjustments:
Cal's Lawn Care
Income Statement
For the Month Ended September 30, 2011
Revenues
Sales $80,000
Interest 5,000
Total revenues $85,000
Expenses
Salaries 18,000
Rent 6,000
Supplies 200
Depreciation 5,000
Total expenses 29,200
Net income (loss) $55,800
Required:
Determine the profit or loss AFTER adjustment given the following additional information for
the month of September:
a. Salaries earned but unrecorded and unpaid equals $8,000.
b. Depreciation for the month should be an additional $2,000.
c. Additional supplies used up equals $100.
d. Unearned revenue earned equals $1,000.
45) An inexperienced accountant made the following adjustments to the accounting system of
Airata, Inc. The adjustments were made based on the information below the accounting equation
worksheet.
Assets
Liabilities
Shareholders’ equity
CC
Retained earnings
a.
6,000 Cash
6,000 Revenue
b.
100 Supplies
(700) Supplies expense
c.
(10,000) Equipment expense
10,000 Accumulated depreciation
d.
(4,800) Cash
(4,800) Interest expense
e.
(10,000) Cash
(10,000) Salaries expense
a. Unearned revenue has a December 31 balance of $10,000 before adjustment. Forty percent of
the unearned revenue has been earned by the end of the year.
b. Before adjustment, the supplies account equals $800. Only $100 of the supplies remain as of
the end of the year.
c. The equipment is depreciated by $10,000 per year.
d. Interest accrues on an $80,000, 12%, 6-month note payable that has been outstanding for the
past three months.
e. Salaries earned by employees but not yet paid are $10,000.
Required: Cross out any incorrect account titles or dollar amounts in the worksheet shown
above. Write in the correct account titles and dollar amounts where needed.
46) Miss Hap, the inexperienced accountant, made the following adjustments to the accounting
system of Bank, Rupp, & Baroque, Inc. The adjustments were made based on the information
below the accounting equation worksheet.
Assets
Liabilities
Shareholders’ equity
CC
Retained earnings
a.
30,000 Accounts receivable
30,000 Revenue
b.
(200) Supplies
(200) Supplies expense
c.
(20,000) Equipment
(20,000) Equipment expense
d.
(200) Interest
receivable
(200) Interest expense
e.
(4,000) Cash
(4,000) Salaries expense
a. Unearned revenue has a December 31 balance of $50,000 BEFORE adjustment. Sixty percent
of the unearned revenue has been earned by the end of the year.
b. BEFORE adjustment the office supplies account is $600. Only $200 of the supplies remain as
of the end of the year.
c. Depreciated the $100,000 equipment purchased two years ago. The estimated useful life is ten
years, and it has $0 residual value.
d. Interest accrues on a $2,000, 10% note receivable that has been outstanding the whole year.
e. Salaries and wages earned by employees but unpaid are $4,000.
Required: Cross out any incorrect account titles or dollar amounts in the worksheet shown
above. Write in the correct account titles and dollar amounts where needed.
47) The records of Adam’s Apple, Inc. revealed the following amounts at December 31, 2011
BEFORE adjustments:
1.
Accumulated
depreciation
$ 0
9.
Prepaid
advertising
$
2,000
2.
Advertising expense
0
10.
Prepaid insurance
2,400
3.
Depreciation expense
0
11.
Service revenue
60,000
4.
Equipment
10,000
12.
Unearned revenue
10,000
5.
Insurance expense
0
13.
Utilities expense
11,000
6.
Interest expense
0
14.
Salaries expense
30,000
7.
Interest payable
0
15.
Salaries payable
0
8.
Notes payable
20,000
Part A: In the worksheet below, record the effect of these six adjustments on the accounting
equation. Show the correct dollar amounts, and write in the titles of the accounts affected.
a. $400 of the advertising paid in advance remained unused.
b. The equipment, purchased on January 1, has a useful life of 5 years with no residual value.
Record the depreciation for the year.
c. Four months of the 12-month insurance policy have NOT expired.
d. Interest is owed on the 6%, 9-month note issued on November 1, 2011.
e. $6,000 was earned of the amounts collected in advance from customers.
f. $4,000 was owed to employees for work done in December.
Assets
Liabilities
Shareholders’ equity
CC
Retained earnings
a
b
c
d
e
f
Part B: Fill in the adjusted balances as of December 31, 2011:
1.
Accumulated
depreciation
$
9.
Prepaid
advertising
$
2.
Advertising expense
$
10.
Prepaid insurance
$
3.
Depreciation expense
$
11.
Service revenue
$
4.
Equipment
$
12.
Unearned revenue
$
5.
Insurance expense
$
13.
Utilities expense
$
6.
Interest expense
$
14.
Salaries expense
$
7.
Interest payable
$
15.
Salaries payable
$
8.
Notes payable
$
Part C: Calculate Adam’s Apple’s net income for the year ended December 31, 2011.
$________
48) The following is a partial list of items from Stables & Nobles, Inc.’s December 31, 2011
financial statements.
1.
Interest expense
$ 5,000
4.
Prepaid insurance
$12,000
2.
Interest payable
0
5.
Unearned service
revenue
18,000
3.
Prepaid rent
24,000
6.
Salaries payable
0
Part A: In the worksheet below, record the effect of these five adjustments on the accounting
equation for the year ended December 31, 2011. Show the correct dollar amounts, and write in
the titles of the accounts affected.
1. There are 3 months left of the 12-month, $12,000 insurance policy that began April 1, 2011.
2. Interest of $2,500 is owed and will be paid in January 2012.
3. Two-thirds of the revenue received in advance has been earned as of December 31, 2011.
4. Rent paid in advance for twelve months starting August 1, 2011 was adjusted.
5. Owed $5,000 of salaries for work done in December. The next payday is Jan. 3, 2012.
Part B: Fill in the adjusted balances as of December 31, 2012. Some of the accounts that have
been adjusted are not included in this table.
Part C:
49) The following is a partial list of items from Chewy Candy, Inc.’s June 30, 2011 financial
statements. Its fiscal year runs from July 1 to June 30.
1.
Interest
expense
$ 0
4.
Unearned subscription
revenue
$30,000
2.
Prepaid
insurance
3,600
5.
Salaries expense
12,000
3.
Prepaid rent
5,000
Part A: In the worksheet below, record the effect of these five adjustments on the accounting
equation for the year ended June 30, 2011. Show the correct dollar amounts, and write in the
titles of the accounts affected.
1. Adjusted the $3,600, 3-year insurance policy that began on July 1, 2010.
2. Accrued interest on its $100,000, 12% note issued on July 1, 2010. Interest and principal are
due January 1, 2012.
3. Earned $10,000 of the subscription revenue that had been collected in advance.
4. Adjusted the ten months of rent that was paid in advance on March 1, 2011.
5. Owed salaries of $2,000 at yearend. Payday is on July 3, 2011.
Assets
Liabilities
Shareholders’ equity
CC
Retained earnings
1
2
3
4
5
Part B: Fill in the adjusted balances as of June 30, 2011. Some of the accounts that have been
adjusted are not included in this table.
1.
Interest
expense
$
4.
Unearned subscription
revenue
$
2.
Prepaid
insurance
$
5.
Salaries expense
$
3.
Prepaid rent
$
50) Delphi Desk, Inc. has the following unadjusted balances at December 31, 2011:
1.
Accounts
payable
$4,168
4.
Rental income
$ 4,200
2.
Interest
income
2,475
5.
Salaries
expense
12,000
3.
Prepaid
insurance
5,000
Part A: In the worksheet below, record the effect of these five adjustments on the accounting
equation for the year ended December 31, 2011. Show the correct dollar amounts, and write in
the titles of the accounts affected.
1. $1,000 of the prepaid insurance has now expired
2. $3,200 of the rental income has not yet been earned.
3. The company must accrue $1,250 of salaries expense.
4. The company received a $300 bill for merchandise received in late December but not yet
recorded.
5. The company has earned $300 of interest income, not yet received or recorded.
Assets
Liabilities
Shareholders’ equity
CC
Retained earnings
1
2
3
4
5
Part B: Fill in the adjusted balances as of December 31, 2011. Some of the accounts that have
been adjusted are not included in this table.
1.
Accounts payable
$
4.
Rental income
$
2.
Interest income
$
5.
Salaries
expense
$
3.
Prepaid insurance
$
