P3-40B Journalizing adjusting entries and identifying the impact on financial statements
Learning Objectives 3, 5
Harrison Fishing Charters has collected the following data for the December 31 adjusting entries:
a. The company received its electric bill on December 31 for $375 but will not pay it until
January 5. (Use the Utilities Payable account.)
b. Harrison purchased a three-month boat insurance policy on November 1 for $3,600. Harrison
recorded a debit to Prepaid Insurance.
c. As of December 31, Harrison had earned $1,000 of charter revenue that has not been recorded
or received.
d. Harrison’s fishing boat was purchased on January 1 at a cost of $56,500. Harrison expects to
use the boat for five years and that it will have a residual value of $6,500. Determine annual
depreciation assuming the straight-line depreciation method is used.
e. On October 1, Harrison received $5,000 prepayment for a deep-sea fishing charter to take
place in December. As of December 31, Harrison has completed the charter.
Requirements
1. Journalize the adjusting entries needed on December 31 for Harrison Fishing Charters.
Assume Harrison records adjusting entries only at the end of the year.
2. If Harrison had not recorded the adjusting entries, indicate which specific category of
accounts on the financial statements would be misstated and if the misstatement is overstated
or understated. Use the following table as a guide:
SOLUTION
Requirement 1
P3-40B, cont.
Requirement 2
P3-41B Journalizing and posting adjustments to the T-accounts and preparing an adjusted
trial balance
Learning Objectives 3, 4
1. Adjusted trial balance total $69,800
The unadjusted trial balance of Avery Air Purification System at December 31, 2018, and the
data needed for the adjustments follow.
Adjustment data at December 31 follow:
a. On December 15, Avery contracted to perform services for a client receiving $2,700 in
advance. Avery recorded this receipt of cash as Unearned Revenue. As of December 31, Avery
has completed $2,100 of the services.
b. Avery prepaid two months of rent on December 1. (Assume the Prepaid Rent balance as
shown on the unadjusted trial balance represents the two months of rent prepaid on December
1.)
c. Avery used $750 of office supplies during the month.
d. Depreciation for the equipment is $800.
e. Avery received a bill for December’s online advertising, $500. Avery will not pay the bill until
January. (Use Accounts Payable.)
f. Avery pays its employees weekly on Monday for the previous week’s wages. Its employees
earn $2,000 for a five-day workweek. December 31 falls on Wednesday this year.
g. On October 1, Avery agreed to provide a four-month air system check (beginning October 1)
for a customer for $2,800. Avery has completed the system check every month, but payment
has not yet been received and no entries have been made.
Requirements
1. Journalize the adjusting entries on December 31.
2. Using the unadjusted trial balance, open the T-accounts with the unadjusted balances. Post the
adjusting entries to the T-accounts.
3. Prepare the adjusted trial balance.
4. How will Avery Air Purification System use the adjusted trial balance?
SOLUTION
Requirement 1
P3-41B, cont.
P3-41B, cont.
Requirement 2
P3-41B, cont.
Requirement 3
Requirement 4
P3-42B Journalizing and posting adjustments to the four-column accounts and preparing
an adjusted trial balance
Learning Objectives 3, 4
3. Adjusted trial balance total $557,750
The unadjusted trial balance of Midway Inn Company at December 31, 2018, and the data
needed for the adjustments follow.
Adjustment data at December 31 follow:
a. As of December 31, Midway Inn had $800 of Prepaid Insurance remaining.
b. At the end of the month, Midway Inn had $500 of office supplies remaining.
c. Depreciation on the building is $2,100.
d. Midway Inn pays its employees on Friday for the weekly salaries. Its employees earn
$1,300 for a five-day workweek. December 31 falls on Wednesday this year.
e. On November 20, Midway Inn contracted to perform services for a client receiving
$1,600 in advance. Midway Inn recorded this receipt of cash as Unearned Revenue. As of
December 31, Midway Inn has $1,400 still unearned.
Requirements
1. Journalize the adjusting entries on December 31.
2. Using the unadjusted trial balance, open the accounts (use a four-column ledger) with the
unadjusted balances. Post the adjusting entries to the ledger accounts.
3. Prepare the adjusted trial balance.
4. Assuming the adjusted trial balance has total debits equal to total credits, does this mean
that the adjusting entries have been recorded correctly? Explain.
SOLUTION
P3-42B, cont.
Requirement 2