1. a. Under cash-basis accounting, revenues are reported in the period in which cash is received and
3. Adjusting entries are necessary at the end of an accounting period to bring the ledger up to date.
5. Four different categories of adjusting entries include prepaid expenses (deferred expenses), unearned
6. Statement (a): Increases the balance of a revenue account.
8. Yes, because every adjusting entry affects expenses or revenues.
9. a. The rights acquired represent an asset.
10. a. The portion of the cost of a fixed asset deducted from revenue of the period is debited to
Depreciation Expense. It is the expired cost for the period. The reduction in the fixed asset
account is recorded by a credit to Accumulated Depreciation rather than to the fixed asset
CHAPTER 3
THE ADJUSTING PROCESS
DISCUSSION QUESTIONS
3-1
CHAPTER 3 The Adjusting Process
PE 3–1A
PE 3–1B
PE 3–2A
PE 3–2B
PE 3–3A
Supplies Expense 6,845
Supplies 6,845
Supplies used ($3,375 + $6,450 – $2,980).
PE 3–3B
PE 3–4A
Unearned Fees 82,750
Fees Earned 82,750
Fees earned ($272,500 – $189,750).
PE 3–4B
PRACTICE EXERCISES
PE 3–5A
PE 3–5B
PE 3–6A
Salaries Expense 7,080
Salaries Payable 7,080
Accrued salaries [($11,800 ÷ 5 days) × 3 days].
PE 3–6B
PE 3–7A
Depreciation Expense 6,880
Accumulated Depreciation—Equipment 6,880
Depreciation on equipment.
PE 3–7B
3-3
CHAPTER 3 The Adjusting Process
PE 3–8A
PE 3–8B
PE 3–9A
PE 3–9B
PE 3–10A
a.
Amount Percent Amount Percent
Fees earned $725,000 100% $615,000 100%
PE 3–10B
a.
Amount Percent Amount Percent
Fees earned $1,640,000 100% $1,300,000 100%
2016 2015
Income Statements
For Years Ended December 31
HEMLOCK COMPANY
For Years Ended December 31
Income Statements
CORNEA COMPANY
20152016
3-5
CHAPTER 3 The Adjusting Process
Ex. 3–1
1. Prepaid expense 5. Unearned revenue
3. Unearned revenue 7. Accrued expense
Ex. 3–2
Accounts Receivable……………………
…
Normally requires adjustment (AR).
Cash…………………………………………
…
Does not normally require adjustment.
EXERCISES
Account Answer
3-6
CHAPTER 3 The Adjusting Process
Ex. 3–6
a. Insurance Expense 15,300
Prepaid Insurance 15,300
Insurance expired.
Ex. 3–8
Unearned Fees 22,510
Fees Earned 22,510
Fees earned ($36,950 – $14,440).
3-7
CHAPTER 3 The Adjusting Process
Ex. 3–11
a. Unearned Fees 82,220
Fees Earned 82,220
Salaries Payable 9,960
Accrued salaries [($16,600 ÷ 5 days) × 3 days].
b. Salaries Expense 13,280
Salaries Payable 13,280
Accrued salaries [($16,600 ÷ 5 days) × 4 days].
3-8
CHAPTER 3 The Adjusting Process
Ex. 3–17
a. Taxes Expense 40,500
Prepaid Taxes 40,500
Ex. 3–18
Depreciation Expense 10,650
Ex. 3–19
a. $12,220,000 ($28,650,000 – $16,430,000)
b. No. Depreciation is an allocation of the cost of the equipment to the periods
Ex. 3–21
Income: $5,657 million ($2,767 + $2,890)
Ex. 3–22
a. $598 million
3-9
CHAPTER 3 The Adjusting Process
Ex. 3–23
Over- Under- Over- Under-
stated stated stated stated
1. Revenue for the year would be………………
…
$ 0 $34,900 $ 0 $ 0
3. Net income for the year would be……………
…
0 34,900 12,770 0
…
5. Liabilities at July 31 would be…………………
…
34,900 0 0 12,770
Ex. 3–24
$218,530 ($196,400 + $34,900 – $12,770)
Ex. 3–25
a. Depreciation Expense 13,900
b. (1) Depreciation expense would be understated. Net income would be
overstated.
Error (b)Error (a)
3-10
CHAPTER 3 The Adjusting Process
Ex. 3–26
1. Accounts Receivable 6
2. Supplies Expense 2
3. Insurance Expense 12
4. Depreciation Expense 4
5. Wages Expense 2
3-11
CHAPTER 3 The Adjusting Process
Ex. 3–27
1. The accountant debited Accounts Receivable for $5,000 but did not credit
Laundry Revenue. This adjusting entry represents accrued laundry revenue.
3. The accountant credited the prepaid insurance account for $3,600, but debited
the insurance expense account for only $600.
5. The accountant did not debit Wages Expense for $1,000.
The corrected adjusted trial balance is shown below.
Debit Credit
Balances Balances
Cash 7,500
Accounts Receivable 23,250
Laundry Supplies 750
Prepaid Insurance 1,600
Laundry Equipment 190,000
May 31, 2016
EVA’S LAUNDRY
Adjusted Trial Balance
3-12
CHAPTER 3 The Adjusting Process
Ex. 3–28
a. $90 million increase ($2,223 – $2,133)
4.2% ($90 ÷ $2,133) increase
b. Year 2: 9.2% ($2,223 ÷ $24,128)
Year 1: 10.2% ($2,133 ÷ $20,862)
Ex. 3–29
a.
Amount Percent
Net sales $ 62,071 100.0%
Cost of goods sold (48,260) 77.8%
Dell Inc.
3-13
CHAPTER 3 The Adjusting Process
Prob. 3–1A
1. a. Supplies Expense 4,330
Supplies 4,330
Supplies used ($5,620 – $1,290).
b. Unearned Rent 1,250
2. Adjusting entries are a planned part of the accounting process to update the
PROBLEMS
3-14
CHAPTER 3 The Adjusting Process
Prob. 3–2A
1. a. Accounts Receivable 11,150
Fees Earned 11,150
Accrued fees earned.
b. Supplies Expense 2,450
2. Fees Earned would be understated by $11,150; Wages Expense would be
3. Accounts Receivable would be understated by $11,150; total assets would be
understated by $11,150; Wages Payable would be understated by $4,840;
4. There is no effect on the “Net increase or decrease in cash” on the statement
of cash flows because adjusting entries do not affect cash.
3-15
CHAPTER 3 The Adjusting Process
Prob. 3–3A
1. a. Accounts Receivable 9,850
Fees Earned 9,850
Accrued fees earned.
b. Supplies Expense 11,540
2. Revenues…………………
…
$294,750
…
s
3-16
CHAPTER 3 The Adjusting Process
Prob. 3–4A
2016
Nov. 30 Supplies Expense 8,850
Supplies 8,850
Supplies used ($11,250 – $2,400).
30 Insurance Expense 10,400
Prepaid Insurance 10,400
Insurance expired ($14,250 – $3,850).
3-17
CHAPTER 3 The Adjusting Process
Prob. 3–5A
1. a. Insurance Expense 1,200
Prepaid Insurance 1,200
Insurance expired ($7,200 – $6,000).
b. Supplies Expense 1,500
Supplies 1,500
3-18