Chapter 3
Adjusting Accounts and Preparing
Financial Statements
QUESTIONS
1. The cash basis of accounting reports revenues when cash is received while the
accrual basis reports revenues when they are earned. The cash basis reports
2. The accrual basis of accounting generally provides a better indication of company
5. Long-term tangible plant assets such as equipment, buildings, and machinery lead to
6. The Accumulated Depreciation contra asset account is used for depreciation. It
7. Unearned revenue refers to cash received in advance of providing products and
8. Accrued revenue is revenue that is earned but is not yet received in cash (and/or
other assets) and the customer has not been billed prior to the end of the period.
9. For Apple, all of the accounts under the category of Property, plant and equipment
(except for Land), require adjusting entries. The expense related to the Depreciation
10. Google reports $16,524 million for property and equipment. For its adjusting entry, it
QUICK STUDIES
Quick Study 3-1 (5-10 minutes)
1. h 4. c
Quick Study 3-2 (10 minutes)
Cash Accounting
Revenues (cash receipts)…………………………………………….. $37,000
Accrual Accounting
Revenues (earned) ……………………………………………………… $45,000
Quick Study 3-3 (10 minutes)
a. UR Unearned revenue
Quick Study 3-4 (15 minutes)
Adjusting entry Debit Credit
1. Accrue salaries expense e c
cash will be received the following period
Quick Study 3-5 (15 minutes)
a. Step 1: Prepaid Insurance equals $4,700
b. Step 1: Prepaid Insurance equals $5,890
c. Step 1: Prepaid Rent equals $24,000
Step 2: Prepaid Rent should equal $20,000 (the unexpired part)*
Quick Study 3-6 (15 minutes)
a. Step 1: Supplies equal $300
b. Step 1: Supplies equal $800
c. Step 1: Supplies equal $4,000
Quick Study 3-7 (10 minutes)
a. Insurance Expense……………………………………………… 1,200
b. Supplies Expense……………………………………………….. 6,200
Quick Study 3-8 (15 minutes)
a. Step 1: Accumulated Depreciation equals $13,500
Step 2: Accumulated Depreciation should equal $28,100; adding current
period depreciation of $14,600*
b. Step 1: Accumulated Depreciation equals $0
c. Step 1: Accumulated Depreciation equals $0
Quick Study 3-9 (10 minutes)
a. Depreciation Expense—Equipment……………………… 3,600
b. No depreciation adjustments are made for land as
it is expected to last indefinitely.
Quick Study 3-10 (15 minutes)
a. Step 1: Unearned Rent Revenue equals $6,000
b. Step 1: Unearned Services Revenue equals $300
c. Step 1: Unearned Rent Revenue equals $24,000
Quick Study 3-11 (15 minutes)
a. Unearned Revenue……………………………………………… 7,500
b. Unearned Subscription Revenue………………………….. 1,200
Quick Study 3-12 (15 minutes)
a. Step 1: Salaries Payable equals $0
b. Step 1: Interest Payable equals $0
c. Step 1: Interest Payable equals $0
Quick Study 3-13 (10 minutes)
Quick Study 3-14 (15 minutes)
a. Step 1: Accounts Receivable equals $0
b. Step 1: Interest Receivable equals $0
Step 2: Interest Receivable should equal $390 (not yet recorded)
c. Step 1: Accounts Receivable equals $0