Brief Exercises

Identify the order of the five steps in the revenue recognition process.
BE3.1 (LO 1), K Number the following steps of the revenue recognition process (from 1–5) to
place in the correct order.

1. Allocate the transaction price to the separate performance obligations. (4)

2. Identify the contract with customers. (1)

3. Identify the separate performance obligations in the contract. (2)

4. Recognize revenue when each performance obligation is satisfied. (5)
5. Determine the transaction price. (3)
Identify impact of transactions on cash and net income.
BE3.2 (LO 1), C Transactions that affect net income do not necessarily affect cash. Identify the
effect, if any, that each of the following transactions would have upon cash and net income. The
first transaction has been completed as an example.

Cash Net Income

6. Purchased $100 of supplies for cash. –$100 $0
7. Recorded an adjusting entry to record -80 0
use of $20 of the above supplies.
8. Made sales of $1,300, all on account. 500 500
9. Received $800 from customers in 1300 1300
payment of their accounts.
10. Purchased equipment for cash, $2,500. -1200 0
11. Recorded depreciation of building for -600 0
period used, $600.
Indicate why adjusting entries are needed.
BE3.3 (LO 1), C The ledger of Melmann Company includes the following accounts. Explain
why each account may require adjustment.

12. Prepaid Insurance.

If something were to happen and you were injured, you pay insurance beforehand so that you
don’t go bankrupt, and overtime, moneys actual value goes up and down, so overtime, perhaps
an entire lifetime, prepaid insurance needs to be adjusted to accordingly to equal the amount of
money originally paid.

13. Depreciation Expense.

In Depreciation expense, depression means to lessoning of value over time, so there
would need to be adjustments made, according to the fluctuation value of the dollar.

14. Unearned Service Revenue.

When revenue is “unearned” which is bad and that means there's a calculated revenue
estimated and written up, so you seem like you're spending money when really haven't, before a
contract is actually completed, such would need readjustment to clarify the difference before the
service is completed.
 15. Interest Payable.
Interest is a percentage of the original payment; however, it is paid forward, meaning since it's
not a physical exchange, it can be subject to readjustment, and probably should be, based on the
quality of the service rather than the fact of doing a service.
Identify the major types of adjusting entries.
BE3.4 (LO 1), AN Cortina Company accumulates the following adjustment data at December
31. Indicate (1) the type of adjustment (prepaid expense, accrued revenue, and so on) and (2) the
status of the accounts before adjustment (for example, “assets understated and revenues
understated”).

16. Supplies of $400 are on hand. Supplies account shows $1,600 balance.
Accrued Expenses, Assets understated

17. Services performed but unbilled total $700.

Accrued Revenues, Revenue understated

18. Interest of $300 has accumulated (and not been paid) on a note payable.
Prepaid Expenses, Revenue understated
19. Rent collected in advance totaling $1,100 has been earned.
Accrued Expenses, Assets understated
Prepare adjusting entry for supplies.
BE3.5 (LO 2), AP Lahey Advertising Company’s trial balance at December 31 shows Supplies
$8,800 and Supplies Expense $0. On December 31, there are $1,100 of supplies on hand.
Prepare the adjusting entry at December 31 and, using T-accounts, enter the balances in the
accounts, post the adjusting entry, and indicate the adjusted balance in each account.
Prepare adjusting entry for depreciation.
BE3.6 (LO 2), AP At the end of its first year, the trial balance of Rayburn Company shows
Equipment $22,000 and zero balances in Accumulated Depreciation—Equipment and
Depreciation Expense. Depreciation for the year is estimated to be $2,750. Prepare the annual
adjusting entry for depreciation at December 31, post the adjustments to T-accounts, and
indicate the balance sheet presentation of the equipment at December 31.

Date Amount Description Amount

31-Dec $22,000 Equipment expenses $2,750

Prepare adjusting entry for prepaid expense.

BE3.7 (LO 2), AP On July 1, 2022, Ling Co. pays $12,400 to Marsh Insurance Co. for a 2-year
insurance contract. Both companies have fiscal years ending December 31. For Ling Co.,
journalize and post the entry on July 1 and the annual adjusting entry on December 31.

Ling co.
Accounts title and
Date explanation Debit Credit

1-Jul Insurance $12,400

(to record the adjusting

31-Dec entry for the insurance
Prepare adjusting entry for unearned revenue.
BE3.8 (LO 2), AP On July 1, 2022, Ling Co. pays $12,400 to Marsh Insurance Co. for a 2-year
insurance contract. Both companies have fiscal years ending December 31. Journalize and post
the entry on July 1 and the annual adjusting entry on December 31 for Marsh Insurance Co.
Marsh uses the accounts Unearned Service Revenue and Service Revenue.

Marsh Insurance
Accounts title and
Date explanation debit credit
Unearned Service
Revenue and Service
1-Jul $12,400
31-Dec Revenue 12,400
12,400

Prepare adjusting entries for accruals.

BE3.9 (LO 3), AP The bookkeeper for Tran Company asks you to prepare the following accrual
adjusting entries at December 31. Use these account titles: Service Revenue, Accounts
Receivable, Interest Expense, Interest Payable, Salaries and Wages Expense, and Salaries and
Wages Payable.

20. Interest on notes payable of $300 should be accrued.

21. Services performed but unbilled totals $1,700.
22. Salaries of $780 earned by employees have not been recorded or paid.
(a) 31-Dec Interest Expense.......................................300
Interest Payable.................................300
(b) 31 Accounts Receivable................................1,700
Service Revenue................................1,700
(c) 31 Salaries and Wages Expense...................780
Salaries and Wages Payable............780
Prepare adjusting entries for accruals.
BE3.10 (LO 3), AP At December 31 of the current year, Cullen Corporation had a number of
items that were not reflected in its accounting records. Maintenance and repair costs of $770
were incurred but not paid. Utilities costing $240 were used but not paid, and use of a
warehouse space worth $1,900 was provided to a tenant who had not been billed as of the end of
the month. Record the required adjusting entries related to these events.
Analyze accounts in a trial balance.
BE3.11 (LO 2, 3), AN The trial balance of Woods Company includes the following balance
sheet accounts. Identify the accounts that might require adjustment. For each account that
requires adjustment, indicate (1) the type of adjusting entry (prepaid expense, unearned
revenue, accrued revenue, and accrued expense) and (2) the related account in the adjusting
entry.

23. Accounts Receivable.

Accrued Expenses, Assets understated

24. Prepaid Insurance.

Prepaid Expenses, Revenue understated

25. Cash.
Accrued Revenue, Assets understated

26. Accumulated Depreciation—Equipment.

Accrued Expenses, Assets understated

27. Dividends.
Accrued Expenses, Assets understated

28. Interest Payable.

Prepaid Expenses, Revenue understated

29. Unearned Service Revenue.

Unearned Revenue, Revenue overstated
Prepare an income statement from an adjusted trial balance.
BE3.12 (LO 4), AP The adjusted trial balance of Levin Corporation at December 31, 2022,
includes the following selected accounts: Retained Earnings $17,200, Dividends $6,000, Service
Revenue $32,600, Salaries and Wages Expense $14,000, Insurance Expense $1,800, Rent
Expense $3,900, Supplies Expense $1,500, and Depreciation Expense $1,000. Prepare an
income statement for the year.

Levin Corp.
12/31/2022

General Ledger
Account Balance
Account Name Debit Credit

Insuance Expense $1,800.00

Salaries and
Wages Expense $14,000.00
Dividends $6,000.00
Rent expense $3,900.00
 Supplies Expense $1,500.00
Depressiation
expense $1,000.00
Retained earnings $17,200.00
Service Revenues $32,600.00

Totals $28,200.00 $49,800.00

Difference ($21,600.00)

*BE3.136(LO 6), C The accompanying chart shows the qualitative characteristics of useful
accounting information. Fill in the blanks.

A Predictive Value

B Feedback Value

C Materiality

D Complete

E Free of Error

F Comparability
G Verifiability

H Timeliness

Identify characteristics of useful information.

*BE3.17 (LO 6), C Given the characteristics of useful accounting information, complete each of
the following statements.

30. For information to be Relevant, it should have predictive value, confirmatory value, and
be material.
31. Faithful Representation means that information accurately depicts what really
happened.
32. Consistency means using the same accounting principles and methods from year to year
within a company.
Identify characteristics of useful information.
*BE3.18 (LO 6), C Here are some qualitative characteristics of useful accounting information:

1. Predictive value
2. Neutral
3. Verifiable
4. Timely
Match each qualitative characteristic to one of the following statements.

33. Accounting information should help provide

accurate expectations about future events.
(Predicted Value)
34. Accounting information cannot be selected,
prepared, or presented to favor one set of
interested users over another. (Neutral)
35. Independent observers, using the same
methods, are able to obtain similar results.
(Verifiable)
36. Accounting information must be available to
decision-makers before it loses its capacity
to influence their decisions. (Timely)