Chapter 03 – Adjusting Accounts for Financial Statements
3-18
Chapter 3 – Alternate Demonstration Problem #1
On July 1, 2013, Howard M. Tenant, Inc., rents office space from John Q.
Landlord for two years, starting immediately, at a rate of $100 per month,
or $2,400 in total. The full $2,400 was paid on this date.
Required:
Record the original transaction on 7/1 and the appropriate adjusting
entries in 2013, 2014, and 2015 from the point of view of Tenant and
Landlord.
Chapter 03 – Adjusting Accounts for Financial Statements
3-19
Solution: Chapter 3 – Alternate Demonstration Problem #1
Tenant
Landlord
7/1/13
Prepaid Rent …………….
2,400
Cash ………………………...
2,400
Cash
2,400
Unearned Rent
Rev. ………………...
2,400
12/31/13
Rent Expense …………..
600
Unearned Rent Rev.
600
Prepaid Rent ……..
600
Rent Revenue
600
12/31/14
Rent Expense …………..
1,200
Unearned Rent Rev.
1,200
*Prepaid Rent …….
1,200
Rent Revenue
1,200
12/31/15
*Rent Expense ………….
600
Unearned Rent Rev.
600
Prepaid Rent ……..
600
Rent Revenue
600
Alternative Solution (Reversing Entries)
7/1/13
Rent Expense …………..
2,400
Cash ………………………...
2,400
Cash………………….
2,400
Rent Rev. …………..
2,400
12/31/13
Prepaid Rent ……………
1,800
Rent Rev.
1,800
Rent Expense ……
1,800
Unearned Rent
Revenue …………..
1,800
*12/31/14
Rent Expense …………..
1,200
Unearned Rent Rev.
1,200
Prepaid Rent ……..
1,200
Rent Revenue
1,200
*12/31/15
Rent Expense …………..
600
Unearned Rent Rev.
600
Prepaid Rent ……..
600
Rent Revenue
600
* Notice the adjustment is the same in 10 and 11 under both methods.
This is because the 10 adjustment in the alternative solution (using
reversing entries) places all remaining unexpired/unearned amounts in
the asset/liability accounts to be considered for future adjustment.
Chapter 03 – Adjusting Accounts for Financial Statements
3-20
Chapter 3 – Alternate Demonstration Problem #2
The trial balance of Large Company, Inc., at the end of its annual
accounting period is as follows:
LARGE COMPANY, INC.
Trial Balance
December 31, 2013
Cash ………………………………………………………………..
$ 4,000
Prepaid Insurance ……………………………………………
1,600
Supplies …………………………………………………………
2,100
Equipment ………………………………………………………
20,000
Accumulated depreciation equipment ………………
$ 2,000
Common stock ……………………………………………….
10,000
Retained earnings ……………………………………………
7,000
Revenue ………………………………………………………….
33,000
Salaries expense …………………………..…………………
18,300
Rent expense ………………………………………………….
6,000
______
Totals ………………………………………………………………
$52,000
$52,000
Additional information:
1. Expired insurance, $600.
2. Unused supplies, per inventory, $800.
3. Estimated depreciation, $1,000.
4. Earned but unpaid salaries, $700.
Required:
Prepare adjusting entries.
Chapter 03 – Adjusting Accounts for Financial Statements
3-21
Solution: Chapter 3 – Alternate Demonstration Problem #2
Insurance Expense ……………………………………
600
Prepaid Insurance ……………………………….
600
Supplies Expense ……………………………………..
1,300
Supplies ……………………………………………..
1,300
Depreciation Expense Equip. ……………………..
1,000
Accumulated Depreciation Equip. ………..
1,000
Salaries Expense ………………………………………
700
Salaries Payable ………………………………….
700
Chapter 03 – Adjusting Accounts for Financial Statements
3-22
Chapter 3 – Alternate Demonstration Problem #3
The trial balance of Large Company, Inc. at the end of its annual
accounting period is as follows:
LARGE COMPANY, INC.
Trial Balance
December 31, 2013
Cash ………………………………………………………………..
$ 4,000
Prepaid Insurance ……………………………………………
1,600
Supplies …………………………………………………………
2,100
Equipment ………………………………………………………
20,000
Accumulated depreciation equipment ………………
$ 2,000
Common stock ……………………………………………….
10,000
Retained earnings ……………………………………………
7,000
Revenue ………………………………………………………….
33,000
Salaries expense …………………………..…………………
18,300
Rent expense ………………………………………………….
6,000
______
Totals ………………………………………………………………
$52,000
$52,000
Additional information:
▪ Expired insurance, $600.
▪ Unused supplies, per inventory, $800.
▪ Estimated depreciation, $1,000.
▪ Earned but unpaid salaries, $700.
Required:
1. Prepare adjusting entries.
2. Prepare closing entries.
3. Prepare a post-closing trial balance.
Chapter 03 – Adjusting Accounts for Financial Statements
3-23
Solution: Chapter 3 – Alternate Demonstration Problem #3
1.
Insurance Expense ………………………………………….
600
Prepaid Insurance …………………………………….
600
Supplies Expense ……………………………………………
1,300
Supplies …………………………..………………………
1,300
Depreciation Expense Equip. …………………………..
1,000
Accumulated Depreciation Equip. ………………
1,000
Salaries Expense …………………………………………….
700
Salaries Payable ……………………………………….
700
2.
Revenue …………………………………………………………
33,000
Income Summary ……………………………………..
33,000
Income Summary …………………………..……………….
27,900
Salaries Expense …………………………..………….
19,000
Rent Expense……………………………………………
6,000
Insurance Expense ……………………………………
600
Supplies Expense ……………………………………..
1,300
Depreciation Expense ……………………………….
1,000
Income Summary …………………………..……………….
5,100
Retained Earnings …………………………………….
5,100
3.
LARGE COMPANY, INC.
Post-Closing Trial Balance
December 31, 2013
Dr.
Cr.
Cash ………………………………………………………………
$4,000
Prepaid Insurance …………………………………………..
1,000
Supplies …………………………………………………………
800
Equipment………………………………………………………
20,000
Accumulated depreciation, equipment ……………..
$ 3,000
Salaries payable ……………………………………………..
700
Common stock ……………………………………………….
10,000
Retained earnings …………………………………………..
______
12,100
Totals …………………………………………………………….
$25,800
$25,800