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PROBLEM 5.2B
Glenn Brantley, Attorney-at-Law
Worksheet (Partial)
1 Cash 70 1 0 0 00
2 Accounts Receivable 17 0 0 0 00
3 Supplies 20 8 0 0 00 (a) 7 2 0 0 00
4 Prepaid Rent 88 4 0 0 00 (b) 6 8 0 0 00
18
19
Month Ended November 30, 2013
ACCOUNT NAME
TRIAL BALANCE ADJUSTMENTS
DEBIT CREDIT DEBIT CREDIT
70 1 0 0 00 1
17 0 0 0 00 2
13 6 0 0 00 3
81 6 0 0 00 4
18
19
PROBLEM 5.2B (continued)
ADJUSTED TRIAL
BALANCE INCOME STATEMENT BALANCE SHEET
DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT
PROBLEM 5.3B
6266000
3720000
JT’s Accounting Services
Income Statement
Month Ended December 31, 2013
Revenue
Fees Income
Expenses
Salaries Expense
PROBLEM 5.3B (continued)
Cash 3390000
Accounts Receivable 440000
Supplies 180000
Prepaid Advertising 640000
December 31, 2013
Assets
JT’s Accounting Services
Balance Sheet
PROBLEM 5.4B
Rojas Estate Planning and Investments
Worksheet
Month Ended June 30, 2013
1 Cash 19 7 0 0 00
2 Accounts Receivable 610000
3 Supplies 760000 (a) 4 6 0 0 00
4 Prepaid Advertising 14 4 0 0 00 (b) 3 6 0 0 00
5 Prepaid Rent 36 0 0 0 00 (c) 3 0 0 0 00
21
22
ACCOUNT NAME
TRIAL BALANCE ADJUSTMENTS
DEBIT CREDIT DEBIT CREDIT
PROBLEM 5.4B (continued)
19 7 0 0 00 19 7 0 0 00 1
610000 610000 2
300000 300000 3
10 8 0 0 00 10 8 0 0 00 4
ADJUSTED TRIAL
BALANCE INCOME STATEMENT BALANCE SHEET
DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT
PROBLEM 5.4B (continued)
7380000
760000
6010000
Rojas Estate Planning and Investments
Income Statement
Fees Income
Month Ended June 30, 2013
Revenue
Expenses
Rojas Estate Planning and Investments
Salaries Expense
Statement of Owner's Equity
Month Ended June 30, 2013
Raul Rojas, Capital, June 1, 2013
PROBLEM 5.4B (continued)
Cash 1970000
Accounts Receivable 610000
Supplies 300000
Rojas Estate Planning and Investments
Balance Sheet
June 30, 2013
Assets
PROBLEM 5.4B (continued)
ACCOUNT Supplies ACCOUNT NO.
ACCOUNT Prepaid Advertising ACCOUNT NO.
2013
ACCOUNT Prepaid Rent ACCOUNT NO.
ACCOUNT Accumulated Depreciation—Equipment ACCOUNT NO.
2013
BALANCE
DEBIT CREDIT
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT DEBIT CREDIT
GENERAL LEDGER
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
121
142
BALANCE
DEBIT CREDIT
BALANCE
DEBIT CREDIT
130
131
BALANCE
PROBLEM 5.4B (continued)
ACCOUNT Supplies Expense ACCOUNT NO.
2013
ACCOUNT Advertising Expense ACCOUNT NO.
2013
ACCOUNT Rent Expense ACCOUNT NO.
2013
ACCOUNT Depreciation Expense—Equipment ACCOUNT NO.
2013
DATE
CREDITDATE DESCRIPTION
POST.
REF. DEBIT
CREDIT
BALANCE
DEBIT CREDITDESCRIPTION
POST.
REF. DEBIT
CREDIT
CREDIT
BALANCE
DEBIT
DEBIT
CREDIT
519
DATE DESCRIPTION
POST.
REF. DEBIT
523
520
BALANCE
DEBIT CREDIT
517
GENERAL LEDGER
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
CRITICAL THINKING PROBLEM 5.1
Robert Thompson, President
Student’s Name
Current Date
Effect on Financial Statements of Omitting Adjusting Entries
2. Expense of supplies used during the year
TO:
FROM:
DATE:
SUBJEC
In addition to overstating the net income, the balances of Prepaid Rent and Supplies on the balance sheet
would be overstated and the book value of Building would also be overstated.
Preparation of the adjusting entries would permit the financial statements to present a more accurate
measure of the company’s operations for the year and its financial condition at the end of the year.
Therefore, it is important and the time is well spent to prepare adjusting entries so that the financial
statements are up-to-date and present an accurate picture of the business.
Adjusting entries are recorded to update the accounts at the end of the accounting period for previously
unrecorded items that belong to that period. If these entries are omitted, the net income will not be an
accurate measure of the operation of the company for the year and certain accounts on the balance sheet
will not report correct end-of-year balances.
In particular, Thompson Industries net income for the year will be overstated by $52,300; net income
should be $112,700 instead of $165,000. This amount represents a 32% decrease in net income over the
amount that would be reported if the adjusting entries were not made.
($52,300 ÷ $165,000 = 0.32).
This decrease in net income results from not making adjusting entries for the following unrecorded
expenses:
CRITICAL THINKING PROBLEM 5.2
Thatcher International Company
Worksheet
1 Cash 36 9 5 0 00
2 Accounts Receivable 680000
3 Supplies 430000 (a) 2 1 0 0 00
4 Prepaid Insurance 30 0 0 0 00 (b) 5 0 0 0 00
5 Equipment 48 0 0 0 00
6 (c) 4 0 0 00
7 Accounts Payable 12 0 0 0 00
22
Month Ended January 31, 2013
Accumulated Depreciation—Equip.
ACCOUNT NAME
TRIAL BALANCE ADJUSTMENTS
DEBIT CREDIT DEBIT CREDIT
CRITICAL THINKING PROBLEM 5.2 (continued)
36 9 5 0 00 36 9 5 0 00 1
680000 680000 2
500000 500000 13
500000 500000 14
13 4 0 0 00 13 4 0 0 00 15
ADJUSTED TRIAL INCOME STATEMENT BALANCE SHEET
DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT
CRITICAL THINKING PROBLEM 5.2 (continued)
6185000
300000
40000
8000000
3055000
400000
Less Withdrawals for January
Net income for January
Statement of Owner’s Equity
Month Ended January 31, 2013
Maggie Thatcher, Capital, January 1, 2013
Fees Income
Expenses
Advertising Expense
Thatcher International Company
Thatcher International Company
Income Statement
Month Ended January 31, 2013
Depreciation Expense—Equipment
Revenue
CRITICAL THINKING PROBLEM 5.2 (continued)
36 9 5 0 00
680000
220000
25 0 0 0 00
January 31, 2013
Thatcher International Company
Balance Sheet
Assets
Cash
Accounts Receivable
Supplies
Prepaid Insurance
CRITICAL THINKING PROBLEM 5.2 (continued)
ACCOUNT Supplies ACCOUNT NO.
ACCOUNT Prepaid Insurance ACCOUNT NO.
2013
ACCOUNT Accumulated Depreciation—Equipment ACCOUNT NO.
2013
ACCOUNT Depreciation Expense—Equipment ACCOUNT NO.
2013
GENERAL LEDGER
DATE DESCRIPTION
POST.
REF.
121
CREDIT
CREDIT
CREDIT
CREDIT
142
BALANCE
DEBIT DEBIT
DATE DEBITDESCRIPTION CREDIT
DATE DESCRIPTION
POST.
REF. DEBIT
POST.
REF.
514
BALANCE
CREDIT
131
DEBIT
BALANCE
DEBIT
CREDIT
BALANC
E
DEBIT CREDITDATE DESCRIPTION
POST.
REF. DEBIT
CRITICAL THINKING PROBLEM 5.2 (continued)
ACCOUNT Insurance Expense ACCOUNT NO.
2013
ACCOUNT Supplies Expense ACCOUNT NO.
2013
GENERAL LEDGER
DATE DESCRIPTION
POST.
REF.
517
DATE
DEBIT
CREDIT
BALANCE
DEBITDESCRIPTION
POST.
REF. DEBIT
CREDIT
CREDIT
BALANCE
CREDIT
520
DEBIT
SOLUTIONS TO BUSINESS CONNECTIONS
Managerial Focus:
2.
4.
Ethical Dilemma:
depreciation (not market value).
Depreciation Expense will offset income. Accumulated Depreciation will decrease the value of the
asset.
Provides end-of-period adjusting entries and contains income statement and balance sheet accounts.
Part A True-False
1. TRUE
10. FALSE
Part B Matching
1. a
SOLUTIONS TO PRACTICE TEST
