Example (1): (Chapter 3)

The ledger of Hammond Company. On March 31, 2012. Includes these selected accounts
.before adjusting entries are prepared

Debit credit

Prepaid insurance $3,600

Supplies 2,800

Equipment 25,000

Accumulated Depreciation-equipment $5,000

Unearned service revenue 9,200

.An analysis of the accounts shows the following

.Insurance expires at the rate of $100 per month -1

.Supplies on hand total $800 -2

.The Equipment depreciates $200 a month -3

.One-half the unearned service revenue was earned in Month -4

:Required

.Prepare the adjusting entries for the month for Month

The answer

Date Description Debit credit

1 March31 Insurance expense 100
Prepaid insurance 100
)to record insurance expired (
2 March31 Supplies expense (2,800-800) 2,000
Supplies 2,000
)to record supplies used(
3 March31 Depreciation expense 200
Accumulated Depreciation-equipment 200
)to record monthly depreciation (
4 March31 Unearned service revenue 4,600
Service revenue 4,600
)to record revenue earned(
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:Example (2)

Calvin and Hobbs are the new owners of microcomputer services. At the end of August
2012. Their first month of operations. Calvin and Hobbs attempted to monthly financial
.statements. The following information relates to August

At August 31. The company owned its employees $800 in salaries and wages that will be -1
.paid on September 1

On August1. The company borrowed $30,000 from a local bank on a 15-year mortgage. -2
.The annual interest rate is 10%

Revenue earned but unrecorded for August totaled $1,100. Not billed (Not recorded)(UN -3
.collect)

:Required

.Prepare the adjusting entries needed at August 31, 2012

Answer

Debit credit
1 Salaries and wages expense 800
Salaries and wages payable 800
)to record accrued salaries(
2 Interest expense($20,000x12$x1/12=$200) 250
Interest payable 250
)to record interest on notes payable(
3 Accounts Receivable 1,100
Service Revenue 1,100
)to record revenue earned(

___________________________________________________________________

:Example (3)

Terry Thomas opens the green thump lawn care company on April 1. A April 30. The trial
.balance shows the following balances for selected accounts

Prepaid insurance $3,600

Equipment 28,000

Notes payable 20,000

Unearned service revenue 4,200

Service Revenue 1,800

.Analysis reveals the following additional date

.Prepaid insurance is the cost of a 2-year insurance policy, effective April1 .1

.Depreciation on the equipment is $500 per month .2

.The note payable is dated April 1. It is a 6-month. 12% note .3

Seven customers paid for the company's6month'lawn service package of $600 beginning .4
.in April. The company performed services for these customers in April

.Lawn services provided other customers but not recorded at April 30 totaled $1,500 .5

:Required

.Prepare the adjusting entries for the month of April. Show computations

Answer

Date Description Debit credit

Apr.30 Insurance expense ($3,600÷24=$150permonth) 150
Prepaid insurance 150
)to record insurance expired (
30 Depreciation expense 500
Accumulated Depreciation-equipment 500
)to record monthly depreciation (
30 Interest expense($20,000x12$x1/12=$200) 200
Interest payable 200
)to record interest on notes payable (
30 Unearned service revenue 700
Service revenue 700
)to record revenue earned(
$100=6÷$600
$100per month x7(customers)=700
30 Accounts Receivable 1,500
Service Revenue 1,500
to record revenue earned(

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:Example (4)

The ledger of PRA firm on April 30, 2017, includes the following selected accounts before
.adjusting entries have been prepared
 Debit Credit
Prepaid insurance $3,600
Supplies 2,800
Equipment 25,000
Accumulated Depreciation-equipment $8,400
Notes payable 20,000
Unearned service revenue 9,900
Rent revenue 60,000
Interest expense 0
Wages expense 14,000

.An analysis of the accounts shows the following

.The Equipment depreciation $400 per month .1

.One-third of the unearned rent revenue was earned during the quarter .2

.Interest of $500 is accrued on the notes payable .3

.Supplies on hand total $700 .4

.Insurance expires at the rate of $200 per month .5

:Required

Prepare the adjusting entries at April 30, 2017 assuming that adjusting entries are made
quarterly. Additional accounts are: Depreciation expense, insurance expense, interest
.payable, supplies expense

Answer

Date Description Debit credit

Apr.30 Depreciation expense (400x3) 1,200
Accumulated Depreciation-equipment 1,200
30 Unearned service revenue 3,300
Rent revenue (9,900x1/3) 3,300
30 Interest expense 500
Interest payable 500
30 Supplies expense 2,100
Supplies(2,800-700) 2,100

30 Insurance expense (200x3) 600

Prepaid insurance 600
:Example (5)

:On the October 31, 2017 the unadjusted trial balance of C.R is shown as follows

C.R
Trial balance
October 31,2017
Debit Credit
Cash $15,200
Supplies 2,500
Prepaid insurance 600
Office equipment 5,000
Notes payable 5,000
Accounts payable 2,500
Unearned revenue 1,200
C.R capital 10,000
C.R Drawing 500
Service Revenue 10,000
Salaries expense 4,000
Rent expense 900
28,700 28,700

We assume that C.R uses an accounting period of one month. Thus, monthly adjusting will
.be made. The entries will be dated October 31

.An analysis of the accounts shows the following

.Supplies on hand total $1,000 .1

.Insurance expires at the rate of $50 per month .2

.The equipment depreciation $40 per month .3

.One-third of the unearned revenue was earned during the month .4

.Provided service revenue for $200 on credit during the month .5

.Salaries of $1,200 are unpaid .6

.Interest of $50 is accrued on the notes payable per month .7

:Required

Prepare the adjusting entries at October 31, 2017 assuming that adjusting entries are -1
.made quarterly

___________________________________________________________________
 Answer

Date Account titles and explanation Debit credit

Oct.31 Supplies expense 1,500
Supplies 1,500
Oct.31 Insurance expense 50
Prepaid insurance 50
Oct.31 Depreciation expense 40
Accumulated Depreciation-equipment 40
Oct.31 Unearned revenue 400
Revenue 400
Oct.31 Accounts Receivable 200
Revenue 200
Oct.31 Salaries expense 1,200
Salaries Payable 1,200
Oct.31 Interest expense 50
Interest payable 50

Adjusted trial balance )2(

Debit Credit
Cash $15,200
Accounts Receivable 200
Supplies 1,000
Prepaid insurance 550
Office equipment 5,000
Accumulated Depreciation-equipment 40
Notes payable 5,000
Accounts payable 2,500
Unearned revenue 800
Salaries Payable 1,200
Interest payable 50
C.R capital 10,000
C.R Drawing 500
10,600
Service Revenue
Salaries expense 5,200
1,500
Supplies expense
900
Rent expense
50
Insurance expense 50
Interest expense 40
Depreciation expense
30,190 30,190
:Example (6)

Melton River Resort opened for business on July 1 with eight air-conditioned units. Its trial
.balance before adjustment on August 31 is as follows

Melton River Resort

Trial balance
August 31,2012
Debit Credit
Cash $19,600
Supplies 3,300
Prepaid insurance 6,000
Land 25,000
building 125,000
equipment 26,000
Accounts payable 6,500
Unearned rent revenue 7,400
Mortgage payable 80,000
Owner' capital 100,000
Owner's Drawing 5,000
Rent Revenue 80,000
3,600
Maintenance and Repairs expense
51,000
Salaries and wages expense
9,400
utilities expense
$273,900 $273,900

:Other data

.Insurance expires at the rate of $300 per month .1

.A count on August 31 shows $800 of supplies on hand .2

.Annual depreciation is $6,000 on buildings and $2,400 on Equipment .3

.Unearned rent revenue of $4,800 was earned prior to august 31 .4

.Salaries of $400 were unpaid at august 31 .5

Rentals of $4,000 were due from tenants at august 331. (Use Account Receivable) .6

The mortgage interest rate is 9% per year. (The mortgage was taken out on august1) .7

Instructions

.Journalize the adjusting entries on august 31 for the3-month period June1-august31 )A(
 Answer

Date Account titles and explanation Debit credit

Aug.31 Insurance expense(300x3) 900
Prepaid insurance 900
Aug.31 Supplies expense 2,500
Supplies 2,500
Aug.31 Depreciation expense(6,000x3/12)+(2,400x3/12) 2,100
Accumulated Depreciation-building 1,500
Accumulated Depreciation-equipment 600
Aug.31 Unearned Rent revenue 4,800
Rent Revenue 4,800
Aug.31 Salaries and wages expense 400
Salaries and wages payable 400
Aug.31 Accounts Receivable 4,000
Rent Receivable 4,000
Aug.31 Interest expense 600
Interest payable(80,000x9%x1/12) 600

:Example (7)

Olsen Graphics company was organized on January 1, 2012, Owen Olsen, At the end of the
.first 6 months of operations, trial balance contained the accounts shown below

Debits Credit
Cash 8,600 Notes payable 20,000
Accounts Receivable 14,000 Account payable 9,000
Equipment 45,000 Owner's capital 22,000
Insurance expense 2,700 Sales revenue 52,000
Salaries and wages expense 30,000 Service revenue 6,000
Supplies expense 3,700
Advertising expense 1,900
1,500
Rent expense
1,700
Utilities expense
109,100 109,100

.Analysis reveals the following additional data

The $3,700 balance in supplies expense represents supplies purchased in January. At June .1
.30, $1,500 of supplies was on hand

.The note payable was issued on February 1. It is a 9% 6-month note .2

The balance in insurance expense is the premium on a one-year policy, dated march 1, .3
.2012
Service revenues are credited to revenue when received. At June30, service revenue of .4
.$1,300 is unearned

.Sales revenue earned but unrecorded at June 30 totals $2,000 .5

.Depreciation is $2,250 per year .6

:Instructions

.Journalize the adjusting entries at June 30. (Assume are recorded every 6 moths) )A(

Answer

Date Account titles and explanation Debit credit

June.30 Supplies expense(3,700-1,500) 2,200
Supplies 2,200
June.30 Interest expense(20,000x9%x1/12)x5 750
Interest payable 750
June.30 Insurance expense(2,700/12)x4 900
Prepaid insurance 900
June.30 Unearned service revenue 4,700
service Revenue(6,000-1,300) 7,800
June.30 Accounts Receivable 2,000
Sales revenue 2,000
June.30 Depreciation expense(2,250x6/12) 1,125
Accumulated Depreciation-equipment 1,125

)Chapter 4(

:Example (1)

.The following trial balance for fast forward company as follows on 31 may 2010

Debit Credit
Cash 4,500
Accounts Receivable 6,000
Supplies 1,900
Prepaid insurance 3,600
equipment 11,400
Accounts payable 4,500
Unearned service revenue 2,000
capital 17,700
service Revenue 7,500
Salaries and wages expense 3,400
rent expense 900
Total $31,700 $31,700
An inventory account reveals that $1,000 of supplies is still on hand (UN used) -1

.Utilities expenses incurred not paid $250 -2

.Insurance policy for 2 years -3

.balances of unearned remains UN earned at the end of month 400 -4

Salaries owed at 1,040 -5

.Office furniture equipment depreciation at 190 per month -6

.Invoice represent 1,700 of service performed have not been recorded -7

:Required

.Prepare work sheet -1

.Prepare financial statement from work sheet -2

Adjusting entries

Date Account titles and explanation Debit credit

May.31 Supplies expense 900
Supplies 900
May.31 utilities expense 250
utilities payable 250
May.31 Insurance expense 150
Prepaid insurance 150
May.31 Unearned service revenue 1,600
service Revenue 1,600
May.31 Salaries and wages expense 1,040
Salaries and wages payable 1,040
May.31 Depreciation expense-equipment 190
Accumulated Depreciation-equipment 190
May.31 Accounts Receivable 1,700
Service revenue 1,700

)B(

WILLOW TURENNE COMPANY

Post-closing trial balance

For the month ended June 30.2012

Adjusted trial balance

Account titles Debits Credits

Cash $3,712
 Accounts Receivable 3,904

Supplies 480

Accounts payable $1,556

Salaries and wages expense 448

Unearned service revenue 160

Owner's capital (800-628) +5,760 $5,932

$8,096
$8,096

:Example (2)

Presented below is an adjusted trial balance for Shawn company, at December 31,2012

Accounts Receivable $5,700 Accounts payable $10,000

Supplies 20,000 Note payable 9,000
Prepaid insurance 15,000 Accumulated Depreciation-equipment 14,000
equipment 35,000 Service revenue 27,000
Depreciation expense 7,000 Owner's capital 24,000
Owner's Drawings 1,500 Unearned service revenue 16,000
Advertising expense 1,400
Rent expense 800
Salaries and wages expense 12,000
Insurance expense 1,600
$100,000
$100,000

:Instructions

Prepare closing entries for December 31, 2012 )A(

Determine the balance in the owner's capital account after the entries have been )B(
.posted

___________________________________________________________________
________

)A(

Service revenue 27,000

Income summary 27,000
Income summary 22,800
Depreciation expense 7,000
Rent expense 1,400
Salaries and wages expense 800
Insurance expense 12,000
1,600
Income summary 4,200
Owner's capital 4,200
Owner's capital 1,500
Owner's drawings 1,500
)B(

Owner's capital
1,500 24,000
4,200
Bal 26,700

:Example (3)

:The income statement of Fezzik's shoe Repair is as follows

Melton River Resort

Income statement
For the month ended April 30, 2012
:Revenue
Service revenue $8,500
:Expense
Salaries and wages expense $4,200
Depreciation expense 350
Utilities expense 400
Rent expense 600
Supplies expense 1,050
Total expenses 6,600
Net income 1,900

On April 1. The owner's capital account had a balance of $12,900. During April, Fezzik
.withdrew $3,000 cash for personal use

:Instructions

.Prepare closing entries at April 30 )A(

.Prepare an owner's equity statement for the month of April )B(

Answer

)A(

Service revenue 8,500

Income summary 8,500
Income summary 6,600
Salaries and wages expense 4,200
Depreciation expense 1,050
Utilities expense 600
Rent expense 400
Supplies expense 350
 Income summary 1,900
Owner's capital 1,900
Owner's capital 3,000
Owner's drawings 3,000
)B(

Owner's equity statement

Owner's capital, April 1 12,900
:Add
Net income 1,900
:Total 14,800

Less
Drawings 3,000
Owner's capital, April 30 11,800

:Example (4)

.These financial statement items are for Rugen company at year-end, July 31, 2012

Salaries and wages payable 2,980 Note payable 3,000

Salaries and wages expense 45,700 Cash 7,200
Utilities expense 19,100 Accounts Receivable $9,780
equipment 38,000 Accumulated Depreciation 6,000
Accounts payable $4,100 Depreciation expense 4,000
Owner's Drawings 57,200 Owner's Drawings 4,000
Service revenue 6,500 Owner's capital 48,000
Rent expense

:Instructions

Prepare an income statement and an owner's equity statement for the year. The owner )A(
.did not make any new investments during the year

.Prepare a classified balance sheet at July 31 )B(

Answer

Rugen company
Income statement
For the month ended July 31, 2012
 :Revenue
Service revenue 57,200
Rent expense 6,500
Total revenues 63,700
:Expense
Salaries and wages expense 45,700
Depreciation expense 19,100
Utilities expense 4,000
Total expenses 68,800
Net loss 5,100

Rugen company
Income statement
For the month ended July 31, 2012
Owner's capital, august 1, 2011 48,000
Less
Net loss 5,100
Drawings 4,000
Owner's capital, July 31, 2012 38,900

Rugen company
Classified Balance sheet
For the month ended July 31, 2012
Current assets
Cash 7,200
Accounts Receivable 9,780
Total Current assets 16,980
Property, plant, and equipment
equipment 38,000
less: Accumulated Depreciation 6,000 32,000
total assets 48,980
liabilities and owner's equity
current liabilities
Accounts payable 4,100
Salaries and wages payable 2,980
Total current liabilities long- 7,080
term liabilities
Note payable 3,000
Total liabilities 10,080
Owner's equity
Owner's capital 38,900
48,980
Total liabilities and owner's equity

___________________________________________________________________

Correcting entries
:Example (1)

Peter cook, CPA, was asked by carol Kane to review the accounting records and prepare the
financial statement for her upholstering shop. Peter reviewed the records and found three
.errors

Cash paid on accounts payable for $830 was recorded as a debit to accounts payable -1
.$380 and a credit to cash $380

The purchase of supplies on account for $600 was debited to equipment $600 and -2
.credited to accounts payable $600

Carol withdraw $1,300 of cash and the bookkeeper debited accounts receivable for $130 -3
.and credited cash $130

:Instructions

Incorrect entry )A(

Correct entry )B(

Correcting entry )C(

___________________________________________________________________
________

incorrect entry )A( .1

Account payable 380

Cash 380

Correct entry )B(

Account payable 830

Cash 830

Correcting entry )C(

Account payable 450

Cash 450

incorrect entry )A( .2

Equipment 600
Account payable 600

Correct entry )B(

Supplies 600
Account payable 600

Correcting entry )C(

Supplies 600
Equipment 600

Supplies 600
Equipment 600
incorrect entry )A( .3

Correct entry )B(

Owner's drawings 130

Cash 130

Correcting entry )C(

Owner's drawings 1,300

Account receivable 130
Cash 1,170

___________________________________________________________________

:Example (2)

An examination of the accounts of savage company for the month of June revealed the
.following errors transactions were journalized and posted

a check for &800 from Rewrite, a customer on account, as debited to cash $800 and -1
.credited to service revenue $800

A payment for advertising expense costing $430 was debited to utilities expense, $340 -2
.and credited to cash $340

a bill for $850 for supplies purchased on account debited to equipment, $580 and -3
.credited to accounts payable $580

:Instructions
Prepare correcting entries for each of the above assuming the erroneous entries are not
reversed. Explain how the transaction as originally recorded affected net income for the
.month of June

___________________________________________________________________
________

.1

Service revenue 800

Account receivable 800

.2

Advertising expense 430

Utilities expense 340
Cash 90

.3

Supplies 850
Equipment 580
Account payable 270

___________________________________________________________________

:Example (2)

.Wakefield Company discovered the following errors made in January 2012

A payment of salaries of $800 was debited to equipment and credited to cash, both for -1
.$800

A collections of $2,000 from a client on account was debited to cash $200 and credited to -2
.service revenue $200

The purchase of equipment on account for $680 was debited to equipment $860 and -3
.credited to accounts payable $860

:Instructions

.Correct the errors by reversing the incorrect entry and preparing the correct entry -

.1

Cash 800
Equipment 800

Salaries 800
Cash 800

Service revenue 200

Cash 200

Cash 2,000
Account payable 2,000
.2

.3

Account payable 860

Equipment 860

Equipment 680
Account payable 680