Exercise 1
Micro Computer Services began operations on July 1,
2020. At the end of July 2020, management prepares
monthly financial statements. The following information
relates to July.
At July 31, the company owed its employees Rs.800
in salaries and wages that will be
paid on August 10.
On July 1, the company borrowed Rs.30000 from a
local bank on a 15-year mortgage.
The annual interest rate is 10%.
Revenue for services performed but unrecorded for
July totaled Rs.1100.
Prepare the adjusting entries needed at July 31, 2020.
Exercise 2
Edelman Corporation encounters the following situations
(consider the financial year as calendar year):
1. Edelman purchased Rs.1400 of supplies in 2019; at
year-end, Rs.500 of supplies remain
unused.
2. Edelman incurs utility expense which is not yet paid in
cash or recorded.
3. Edelman owes an outstanding salary of Rs.2000 to
employees in 2019.
4. Edelman performs services for customers but has not
yet received cash or recorded
the transaction.
5. Edelman received cash for future services to be
performed in 2020.
6. Edelman paid Rs.8000 rent on October 1 for the 4
months starting October 1.
7. Edelman performed consulting services for a client in
December 2019. On December 31,
it billed the client Rs.3300.
8. Edelman paid cash for an expense and recorded as an
asset until the item was used up.
9. Edelman collects Rs.2000 from a customer for services
to be performed next year.
10. Edelman purchased equipment on January 1, 2019;
the equipment will be used for
5 years.
11. Edelman borrowed Rs.20000 on October 1, 2019,
signing a 10% one-year note payable.
Instructions: Identify what type of adjusting entry
(prepaid expense, unearned revenue, accrued expense,
accrued revenue) is needed in each situation, at December
31, 2019.
Exercise 3
GCM Ltd. has the following balances in selected accounts
on March 31, 2020.
Accounts Titles Amount
(Rs)
Accounts Receivable 0
Accumulated 10000
Depreciation-Equipment
Interest Payable 0
Notes Payable 20000
Prepaid Insurance 2800
Salaries Payable 0
Supplies 3500
Unearned Service 50000
Revenue
All the accounts have normal balances. The information
below has been gathered at March 31, 2020.
1. GCM borrowed Rs.20000 by signing a 12%, one-
year note on October 1, 2019.
2. A count of supplies on March 31, 2020, indicates that
supplies of Rs.900 are on hand.
3. Depreciation on the equipment for the financial year
is Rs.2000.
4. GCM paid Rs.2700 for 12 months of insurance
coverage on July 1, 2019.
5. On January 1, 2020, GCM collected Rs.50000 for
consulting services to be performed from January 1,
2020, through June 30, 2020 (Half of the total
services is rendered at the end of March, 2020).
6. GCM performed consulting services for a client in
March 2020. The client will be billed Rs.6300.
7. A total salary of Rs.7800 is outstanding for the month
March, 2020.
Instructions:
Prepare adjusting entries for the financial year for the
seven items described above.
Exercise 4
The ledger of Sunrise Company, on March 31, 2020,
includes the following selected accounts before adjusting
entries are prepared.
Accounts Titles Debit Cred
it
Prepaid Insurance 3600
Supplies 2800
Equipment 2500
0
Accumulated 5000
Depreciation-
Equipment
Unearned Service 9200
Revenue
An analysis of the accounts shows the following.
Insurance expires at the rate of Rs.100 per month.
Supplies on hand total Rs.800.
The equipment depreciates Rs.200 a month.
During March, services were performed for one-half
of the unearned service revenue.
Instruction: Prepare the adjusting entries for the month of
March.
Exercise 5
Jason Elsner started his own consulting firm, Elsner
Company, on June 1, 2020. The trial balance at June 30 is
shown below.
Trial Balance, June 30, 2020
Account Titles Debit Cred
it
Cash 7,150
Accounts 6,000
Receivable
Supplies 2,000
Prepaid Insurance 3,000
Equipment 15,00
0
Accounts Payable 4,500
Unearned Service 4,000
Revenue
Owner’s Capital 21,75
0
Service Revenue 7,900
Salaries Expense 4,000
Rent Expense 1,000
Total 38150 38150
Additional Information:
1. Supplies on hand at June 30 are Rs.750.
2. A utility bill for Rs.150 has not been recorded and
will not be paid until next month.
3. The insurance policy is for a year.
4. Rs.2800 of unearned service revenue is recognized
for services performed during the
month.
5. Salaries of Rs.1900 are accrued at June 30.
6. The equipment has a 5-year life with no salvage
value. It is being depreciated at Rs.250
per month for 60 months.
7. Invoices representing Rs.1200 of services performed
during the month have not been
recorded as of June 30.
Instructions:
Prepare the adjusting entries for the month of June.
Post the adjusting entries to the ledger accounts.
Enter the totals from the trial balance as beginning
account balances.
Prepare an adjusted trial balance at June 30, 2020.
Exercise 6
Moonlit River Resort opened for business on June 1 with
eight air-conditioned units. Its trial balance before
adjustment on August 31 is as follows.
Account Titles Debit Cred
it
Cash 19,60
0
Supplies 3300
Prepaid Insurance 6,000
Land 25,00
0
Buildings 125,0
00
Equipment 26,00
0
Accounts Payable 6,500
Unearned Rent 7,400
Revenue
Mortgage Payable 80,00
0
Owner’s Capital 100,0
00
Rent Revenue 80,00
0
Owner’s Drawings 5,000
Maintenance and 3,600
Repairs Expense
Salaries and Wages 51,00
Expense 0
Utilities Expense 9,400
Total 273,9 273,9
00 00
Additional Data:
1. Insurance expires at the rate of Rs.300 per month.
2. A count on August 31 shows Rs.800 of supplies on
hand.
3. Annual depreciation is Rs.6000 on buildings and
Rs.2400 on equipment.
4. Unearned rent revenue of Rs.4800 was earned prior
to August 31.
5. Salaries of Rs.400 were unpaid at August 31.
6. Rentals of Rs.4000 were due from tenants at August
31.
7. The mortgage interest rate is 10% per year.
Instructions:
Journalize the adjusting entries on August 31 for the
3-month period June 1–August 31.
Prepare a ledger using the three-column form of
account. Enter the trial balance amounts and post the
adjusting entries.
Prepare an adjusted trial balance on August 31.
Prepare an income statement and an owner’s equity
statement for the 3 months ending August 31 and a
balance sheet as of August 31.
Exercise 7
Duran Company accumulates the following adjustment
data at December 31.
1. Supplies of Rs.620 have been used.
2. Services provided but not recorded total Rs.925.
3. Services related unearned service revenue of Rs.325
were performed.
4. Advertising expense of Rs.900 is unpaid.
5. Depreciation is Rs.3000.
6. Utility expenses of Rs.175 are unpaid.
Instructions:
For each of the above items indicate the following.
The type of adjustment (prepaid expense, unearned
revenue, accrued revenue, or
accrued expense).
The status of accounts before adjustment
(overstatement or understatement).
Exercise 8
The ledger of Hager Rental Agency on March 31 of the
current year includes the following selected accounts
before adjusting entries have been prepared.
Account Titles Debi Cred
t it
Prepaid Insurance 4200
Supplies 3400
Equipment 3000
0
Accumulated 1050
Depreciation— 0
Equipment
Notes Payable 2500
0
Unearned Rent Revenue 1080
0
Rent Revenue 6000
0
Interest Expense 0
Salaries and Wages 1400
Expense 0
An analysis of the accounts shows the following.
1. The equipment depreciates Rs.300 per month.
2. The unearned rent revenue represents Rs.10800
collected on January 1 for the period
January 1 through March 31.
3. Interest of Rs.750 is accrued on the notes payable.
4. Supplies on hand total Rs.1300.
5. The company paid Rs.4200 on January 1 for a 2-year
insurance policy.
Prepare adjusting entries based on the above information.
Exercise 9
The income statement of Ace Co. for the month of July
shows net income of Rs.3000 based on Service Revenue
Rs.7700, Salaries and Wages Expense Rs.2500, Supplies
Expense Rs.1700, and Utilities Expense Rs.500. In
reviewing the statement, you discover the following.
1. Insurance expired during July of Rs.600 was omitted.
2. Supplies expense includes Rs.250 of supplies that are
still on hand at July 31.
3. Depreciation on equipment of Rs.225 was omitted.
4. Accrued but unpaid wages at July 31 of Rs.350 were
not included.
5. Services performed but unrecorded totaled Rs.650.
Instructions: Prepare a correct income statement for July
2017.
