CHAPTER 3
Adjusting the Accounts
ASSIGNMENT CLASSIFICATION TABLE
Learning Objectives
Questions
Brief
Exercises
Do It!
Exercises
A
Problems
*1. Explain the accrual basis of
accounting and the reasons
for adjusting entries.
1, 2, 3, 4, 5,
6, 7, 8, 18
1, 2, 8
1
1, 2, 3, 4, 6,
10, 11
*2. Prepare adjusting entries for
deferrals.
8, 9, 10, 11,
12, 13, 18,
19, 20
2, 3, 4, 5, 6,8
2
4, 5, 6, 7, 8,
9, 10, 11, 12,
13, 15
1A, 2A, 3A,
4A, 5A, 6A
*3. Prepare adjusting entries for
8, 14, 15, 16,
2, 7, 8
3
4, 5, 6, 7, 8,
1A, 2A, 3A,
*4. Describe the nature and
purpose of an adjusted trial
21
9, 10
4
10, 11, 13,
14
1A, 2A, 3A,
5A, 6A
*5. Prepare adjusting entries for
the alternative treatment of
deferrals.
22
11
16, 17
6A
*6. Discuss financial reporting
concepts.
23, 24, 25,
26, 27, 28
12, 13, 14,
15
18, 19, 20,
21, 22
ASSIGNMENT CHARACTERISTICS TABLE
Description
Difficulty
Level
Time
Allotted (min.)
Prepare adjusting entries, post to ledger accounts,
and prepare an adjusted trial balance.
Simple
40–50
Prepare adjusting entries, post, and prepare adjusted
trial balance, and financial statements.
Simple
50–60
Prepare adjusting entries and financial statements.
Moderate
40–50
Prepare adjusting entries.
Moderate
30–40
Prepare adjusting entries, adjusted trial balance,
40–50
WEYGANDT ACCOUNTING PRINCIPLES 12E
CHAPTER 3
ADJUSTING THE ACCOUNTS
Number
LO
BT
Difficulty
Time (min.)
BE1
1
C
Simple
4–6
BE2
1, 2
AN
Moderate
6–8
BE3
2
AN
Simple
3–5
BE4
2
AN
Simple
3–5
BE5
2
AN
Simple
2–4
BE6
2
AN
Simple
2–4
BE7
3
AN
Simple
4–6
BE8
AN
Simple
5–7
BE9
4
AP
Simple
4–6
BE10
4
AP
Simple
2–4
BE11*
5
AN
Moderate
3–5
BE12*
6
C
Simple
3–5
BE13*
6
C
Simple
2–4
BE14*
6
C
Simple
2–4
BE15*
6
C
Simple
1–2
DI1
1
K
Simple
2–4
DI2
2
AN
Simple
6–8
DI3
3
AN
Simple
4–6
DI4
4
AN
Moderate
20–30
EX1
1
C
Simple
3–5
EX2
1
E
Moderate
10–15
EX3
1
AP
Simple
6–8
EX4
AN
Simple
5–6
EX5
2, 3
AN
Moderate
10–15
EX6
AN
Moderate
10–12
EX7
2, 3
AN
Moderate
8–10
EX8
2, 3
AN
Moderate
8–10
EX9
2, 3
AN
Simple
8–10
EX10
AN
Moderate
8–10
EX11
1–4
AN
Moderate
12–15
EX12
AN
Moderate
8–10
EX13
2–4
AN
Simple
8–10
ADJUSTING THE ACCOUNTS (Continued)
Number
LO
BT
Difficulty
Time (min.)
EX15
2, 3
AN, S
Moderate
8–10
EX16*
5
AN
Moderate
6–8
EX17*
5
AN
Moderate
10–12
EX18*
Simple
EX19*
6
C
Simple
EX20*
6
C
Simple
EX21*
AN
Simple
10–20
EX22*
6
AN
Simple
10–20
P1A
2–4
AN
Simple
40–50
P2A
2–4
AN
Simple
50–60
P3A
2–4
AN
Moderate
40–50
P4A
2, 3
AN
Moderate
30–40
P5A
2–4
AN
Moderate
60–70
P6A
2–5
AN
Moderate
40–50
BYP1
AN
Simple
10–15
BYP2
—
AN
Simple
10–15
BYP3
AN
Simple
10–15
BYP4
AN
Simple
10–15
BYP5
—
AN
Moderate
15–20
BYP6
1–4
S
Moderate
15–20
BYP7
1–4
C
Simple
10–15
BYP8
1–4
Moderate
10–15
BYP9
E
Moderate
10–15
BYP10
E
Moderate
10–15
BYP11
—
Simple
10–15
BLOOM’ S TAXONOMY TABLE
Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End–of-Chapter Exercises and Problems
Learning Objective
Knowledge
Comprehension
Application
Analysis
Synthesis
Evaluation
1. Explain the accrual basis of accounting and
the reasons for adjusting entries.
DI3-1
Q3-1
Q3-2
Q3-3
Q3-4
Q3-6
Q3-7
Q3-8
BE3-1
E3-1
Q3-5
E3-3
Q3–18
BE3-2
BE3-8
E3-4
E3–10
E3–11
E3-2
*2. Prepare adjusting entries for deferrals.
Q3-8
Q3-9
Q3–18
BE3-2
E3-7
E3-8
P3–3A
P3–4A
E3–15
*3. Prepare adjusting entries for accruals.
Q3-8
Q3–14
Q3–15
Q3–19
Q3–20
Q3–17
Q3–16
Q3–18
BE3-2
BE3-7
BE3-8
DI3-3
E3-4
E3-5
E3-6
E3-7
E3-8
E3-9
E3–10
E3–11
E3–12
E3–13
E3–15
P3–1A
P3–2A
P3–3A
P3–4A
P3–5A
P3–6A
E3–15
*4. Describe the nature and purpose of an
Q3–21
BE3-9
DI3-4
P3–1A
*5. Prepare adjusting entries for the alternative
treatment of deferrals.
Q3–22
BE3-11
E3–16
E3–17
P3–6A
*6. Discuss financial reporting concepts
Q3–23
BE3-12 E3-20
BE3-13 Q3-24
BE3-14 Q3-25
BE3-15 Q3-26
E3-18 Q3–27
E3-19 Q3–28
E3–21
E3–22
ANSWERS TO QUESTIONS
1. (a) Under the time period assumption, an accountant is required to determine the relevance of
each business transaction to specific accounting periods.
(b) An accounting time period of one year in length is referred to as a fiscal year. A fiscal year
that extends from January 1 to December 31 is referred to as a calendar year. Accounting
periods of less than one year are called interim periods.
4. Information presented on an accrual basis is more useful than on a cash basis because it reveals
relationships that are likely to be important in predicting future results. To illustrate, under accrual
accounting, revenues are recognized when the performance obligation is satisfied so they can be
related to the economic environment in which they occur. Trends in revenues are thus more
meaningful.
5. Expenses of $4,500 should be deducted from the revenues in April. Under the expense
recognition principle efforts (expenses) should be matched with accomplishments (revenues).
6. No, adjusting entries are required by the revenue recognition and expense recognition principles.
7. A trial balance may not contain up-to-date information for financial statements because:
(1) Some events are not journalized daily because it is not efficient to do so.
(2) The expiration of some costs occurs with the passage of time rather than as a result of daily
transactions.
(3) Some items may be unrecorded because the transaction data are not yet known.
12. Equipment ………………………………………………………………………………….. $18,000
Less: Accumulated Depreciation—Equipment …………………………………. 6,000 $12,000
Questions Chapter 3 (Continued)
*13. In the adjusting entry for an unearned revenue, a liability is debited and a revenue is credited.
*14. Asset and revenue. An asset would be debited and a revenue would be credited.
*15. An expense is debited and a liability is credited in the adjusting entry.
*18. (a) Accrued revenues. (d) Accrued expenses or prepaid expenses.
(b) Unearned revenues. (e) Prepaid expenses.
(c) Accrued expenses. (f) Accrued revenues or unearned revenues.
*19. (a) Salaries and Wages Payable. (d) Supplies Expense.
*20. Disagree. An adjusting entry affects only one balance sheet account and one income statement
account.
*21. Financial statements can be prepared from an adjusted trial balance because the balances of
all accounts have been adjusted to show the effects of all financial events that have occurred
during the accounting period.
*22. For Supplies Expense (prepaid expense): expenses are overstated and assets are understated.
The adjusting entry is:
Assets (Supplies) …………………………………………………………………………. XX
**23. (a) The primary objective of financial reporting is to provide financial information that is useful to
investors and creditors for making decisions about providing capital.
(b) The fundamental qualitative characteristics are relevance and faithful representation. The
enhancing qualities are comparabiIity, consistency, verifiability, timeliness, and
understandability.
Questions Chapter 3 (Continued)
*25. Comparability results when different companies use the same accounting principles.
Consistency means using the same accounting principles and methods from year to year within
the same company.
*26. The constraint is the cost constraint. The cost constraint allows accounting standard setters to
weigh the cost that companies will incur to provide information against the benefit that financial
statement users will gain from having the information available.
*27. Accounting relies primarily on two measurement principles. Fair value is sometimes used when
market price information is readily available. However, in many situations reliable market price
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 3-1
(a) Prepaid Insurance—to recognize insurance expired during the period.
(b) Depreciation Expense—to account for the depreciation that has occurred
on the asset during the period.
BRIEF EXERCISE 3-2
Item
(a)
Type of Adjustment
(b)
Account Balances before Adjustment
1.
Prepaid Expenses
Assets Overstated
Expenses Understated
2.
Accrued Revenues
Assets Understated
Revenues Understated
3.
Accrued Expenses
Expenses Understated
Liabilities Understated
4.
Unearned Revenues
Liabilities Overstated
Revenues Understated
BRIEF EXERCISE 3-3
Dec. 31 Supplies Expense ………………………………………… 4,600
Supplies
Supplies Expense
6,700
12/31 4,600
12/31 4,600
12/31 Bal. 2,100
BRIEF EXERCISE 3-4
Dec. 31 Depreciation Expense …………………………………… 4,000
Accumulated Depreciation—
Equipment …………………………………………. 4,000
Depreciation Expense
Accum. Depreciation—Equipment
12/31 4,000
12/31 4,000
Balance Sheet:
BRIEF EXERCISE 3-5
July 1 Prepaid Insurance ……………………………………. 15,120
Cash ………………………………………………… 15,120
Prepaid Insurance
Insurance Expense
7/1 15,120
12/31 2,520
12/31 2,520
BRIEF EXERCISE 3-6
July 1 Cash ……………………………………………………….. 15,120
Unearned Service Revenue ……………….. 15,120
Dec. 31 Unearned Service Revenue ………………………. 2,520
Service Revenue ……………………………….. 2,520
12/31 2,520
7/1 15,120
12/31 2,520
BRIEF EXERCISE 3-7
1. Dec. 31 Interest Expense …………………………………… 400
Interest Payable ……………………………… 400
BRIEF EXERCISE 3-8
Account
(a)
Type of Adjustment
(b)
Related Account
Accounts Receivable
Accrued Revenues
Service Revenue
Prepaid Insurance
Prepaid Expenses
Insurance Expense
Prepaid Expenses
Depreciation Expense
Interest Payable
Accrued Expenses
Interest Expense
Unearned Service Revenue
Unearned Revenues
Service Revenue
BRIEF EXERCISE 3-9
WILDER COMPANY
Income Statement
For the Year Ended December 31, 2017
Revenues
Service revenue ……………………………………………. $39,000
Expenses
Salaries and wages expense …………………………. $16,000
BRIEF EXERCISE 3-10
WILDER COMPANY
Owner’s Equity Statement
For the Year Ended December 31, 2017
Owner’s capital, January 1 ……………………………………………………. $15,600
Add: Net income …………………………..……………………………………… 14,200
*BRIEF EXERCISE 3-11
(a) Apr. 30 Supplies ……………………………………………….. 400
Supplies Expense …………………………... 400
BRIEF EXERCISE 3-12
(a) Predictive value.
(b) Confirmatory value.
BRIEF EXERCISE 3-13
(a) Relevant.
BRIEF EXERCISE 3-14
(a) 1. Predictive value.
BRIEF EXERCISE 3-15
SOLUTIONS FOR DO IT! REVIEW EXERCISES
DO IT! 3-1
DO IT! 3-2
1. Insurance Expense ………………………………………………. 300
Prepaid Insurance …………………………………………. 300
(To record insurance expired)
2. Supplies Expense ($2,500 – $1,100) ………………………. 1,400
DO IT! 3-3
1. Salaries and Wages Expense ……………………………….. 1,300
Salaries and Wages Payable…………………………... 1,300
(To record accrued salaries)
DO IT! 3-4
(a) The net income is determined by adding revenues and subtracting
expenses. The net income is computed as follows:
Revenues
Service revenue………………………………………… $11,360
Rent revenue ……………………………………………. 1,100
(b) Total assets and liabilities are computed as follows:
Assets
Cash ………………………………………………………… $ 5,360
Accounts receivable …………………………………. 480
Liabilities
Notes payable …………………………………………… $ 4,000
Accounts payable …………………………………….. 790
(c) Owner’s Capital at June 30, 2017, can be computed in one of two ways.
Using the basic accounting equation (Assets = Liabilities + Owner’s
Equity), we find that total assets are $18,780 and total liabilities are
$5,530; therefore, Owner’s Equity (Owner’s Capital) is $13,250 ($18,780 –
$5,530).
Another way to compute the Owner’s Capital at June 30, 2017, is as
follows:
SOLUTIONS TO EXERCISES
EXERCISE 3-1
1. True.
2. True.
3. False. Many business transactions affect more than one of these artificial
time periods. For example, the purchase of a building affects expenses
for many years.
EXERCISE 3-2
(a) Accrual-basis accounting records the transactions that change a
company’s financial statements in the periods in which the events
occur rather than in the periods in which the company receives or pays
(b) Politicians might desire a cash-basis accounting system over an accrual-
basis system because if an accrual-accounting system is used, it could
EXERCISE 3-2 (Continued)
(c) Dear Senator,
It is my understanding, after having taken a beginning course in account-
ing principles, that the Federal government uses a cash-basis system
rather than an accrual-basis accounting system.
I am shocked at such a practice! There must be billions of dollars of
EXERCISE 3-3
(a) Cash received from revenue……………………………………. $108,000
Cash paid for expenses ………………………………………….. (72,000)
EXERCISE 3-4
1. Unearned revenue.
2. Accrued expense.
3. Accrued expense.
EXERCISE 3-5
1. Interest Expense ……………………………………………. 300
Interest Payable
($10,000 X 9% X 4/12) …………………………….. 300
2. Supplies Expense ………………………………………….. 1,550
Supplies ($2,450 – $900) …………………………... 1,550
3. Depreciation Expense …………………………………….. 1,000
Accumulated Depreciation—Equipment ……. 1,000
EXERCISE 3-6
Item
(a)
Type of Adjustment
(b)
Accounts before Adjustment
1.
Accrued Revenues
Assets Understated
Revenues Understated
2.
Assets Overstated
Expenses Understated
3.
Accrued Expenses
Expenses Understated
Liabilities Understated
4.
Unearned Revenues
Liabilities Overstated
Revenues Understated
5.
Accrued Expenses
Expenses Understated
EXERCISE 3-7
1. Mar. 31 Depreciation Expense ($400 X 3) …………….. 1,200
Accumulated Depreciation—
Equipment ………………………………….. 1,200