ADJUSTMENTS PROBLEMS
PROBLEM-1
ADJUSTING ENTRIES – DECEMBER 31, 2009
Debit Credit
Date Account Titles Explanation
($) ($)
Dec 31 Supplies Expense 4,000 To adjust supplies used (6,000 - 2,000)
Supplies 4,000
To record depreciation on Furniture &
Dec 31 Depreciation Expense – F & F 20,000
Fixtures
Accumulated Depreciation – F
20,000
&F
Depreciation Expense –
Dec 31 10,000 To record depreciation on Building
Building
Accumulated Depreciation –
10,000
Building
Dec 31 Salary Expense 5,000 To record salaries accrued but unpaid
Salaries Payable 5,000
To recognize earned but uncollected
Dec 31 Accounts Receivable 12,000
revenue
Service Revenue 12,000
To adjust revenue earned from unearned
Dec 31 Unearned Service Revenue 32,000
revenue
Service Revenue 32,000
ADJUSTED TRIAL BALANCE
Account Title Debit ($) Credit ($)
Cash 198,000
Accounts Receivable 382,000 (370,000 + 12,000)
Supplies 2,000 (6,000 - 4,000 used)
Furniture & Fixtures 100,000
Accumulated Depreciation – F&F 60,000 (40k + 20k)
Building 250,000
Accumulated Depreciation – Building 140,000 (130k + 10k)
Unearned Service Revenue 13,000 (45k - 32k)
Capital 293,000
Drawing 65,000
330,000 (286k + 32k +
Service Revenue
12k)
Salary Expense 177,000 (172k + 5k accrued)
Salaries Payable 5,000
Depreciation Expense – F&F 20,000
Depreciation Expense – Building 10,000
Supplies Expense 4,000
Misc Expense 13,000
Total 1,221,000 1,221,000
FINANCE STATEMENTS
1. Income Statement 2. Statement of Owner’s Equity
For the Year Ended December 31, 2009 For the Year Ended December 31, 2009
Revenues Particulars Amount ($)
Service Revenue 330,000 Capital (beginning) 293,000
Total Revenues 330,000 Add: Net Income 106,000
Expenses Less: Drawing (65,000)
Salary Expense 177,000 Capital (ending) 334,000
Depreciation Expense – F&F 20,000
Depreciation Expense – Building 10,000
Supplies Expense 4,000
Misc Expense 13,000
Total Expenses 224,000
| Net Income | 106,000 |
3. Balance Sheet
As of December 31, 2009
🔹 Assets Amount ($) 🔹 Liabilities and Owner’s Equity Amount ($)
Current Assets Liabilities
Cash 198,000 Salaries Payable 5,000
Accounts Receivable 382,000 Unearned Service Revenue 13,000
Supplies 2,000 Total Liabilities 18,000
Total Current Assets 582,000
Owner’s Equity
Non-Current Assets Capital (from Statement) 714,000
Furniture & Fixtures 100,000
Less: Accum. Depreciation (F&F) (60,000)
Building 250,000
Less: Accum. Depreciation (Bldg.) (140,000)
Net Non-Current Assets 150,000 Total Liabilities + Equity 732,000
TOTAL ASSETS 732,000 TOTAL LIAB. & OWNER’S EQUITY 732,000
PROBLEM-2
a. Unearned Rent Revenue Adjustment (Rent Collected in Advance):
Collected $10,000 on July 1 for one year's rent (6 months have been earned by Dec 31).
Adjustment:
Debit Unearned Rent Revenue $5,000
Credit Rent Revenue $5,000
b. Interest Expense Accrual:
$400 interest expense incurred but unpaid.
Adjustment:
Debit Interest Expense $400
Credit Interest Payable $400
c. Accrued Interest Revenue:
$700 earned but not yet received.
Adjustment:
Debit Interest Receivable $700
Credit Interest Revenue $700
d. Accrued Salary Expense (Dec 31 is Wednesday):
$1,500/day for Mon–Fri → 3 days (Mon–Wed) unpaid.
Adjustment:
Debit Salary Expense $4,500
Credit Salaries Payable $4,500
e. Supplies Used:
Unadjusted balance = $3,100, on-hand = $1,200 → $1,900 used.
Adjustment:
Debit Supplies Expense $1,900
Credit Supplies $1,900
f. Depreciation Expense:
$10,000 equipment, 4-year life → $2,500/year.
Adjustment:
Debit Depreciation Expense $2,500
Credit Accumulated Depreciation $2,500
g. Insurance Expired:
$1,200 for 2 years prepaid on Sept 1 → 4 months expired = $1,200 × 4/24 = $200
Adjustment:
Debit Insurance Expense $200
Credit Prepaid Insurance $200
PROBLEM-3
a) Prepaid advertising covers Dec 2009–Mar 2010.
Only 1 month used out of 4 months:
Expense = 400×14=100400 \times \frac{1}{4} = 100400×41=100
→ Advertising Expense: 100
→ Prepaid Advertising: 400 – 100 = 300 (Asset)
$400 for 4 months = $100/month → 1 month used = $100
Adjustment:
o Dr. Advertising Expense $100
o Cr. Prepaid Advertising $100
b) Supplies on hand at Dec 31 = $1,300
Used = $3,000 - $1,300 = $1,700
Adjustment:
o Dr. Supplies Expense $1,700
o Cr. Supplies on Hand $1,700
c) Annual Depreciation = $1,200
Adjustment:
o Dr. Depreciation Expense $1,200
o Cr. Accumulated Depreciation $1,200
d) Service fees earned but not billed = $400
Adjustment:
o Dr. Accounts Receivable $400
o Cr. Service Fees $400
e) Rent of $500 for December not yet paid
Adjustment:
o Dr. Rent Expense $500
o Cr. Accounts Payable $500
f) Accrued wages = $150
Adjustment:
o Dr. Wages Expense $150
o Cr. Wages Payable $150
ADJUSTED TRIAL BALANCE:
Account Debit Credit
Cash 200
Accounts Receivable 1,500 + 400 = 1,900
Prepaid Advertising 400 - 100 = 300
Supplies on Hand 3,000 - 1,700 = 1,300
Equipment 9,600
Accumulated Depreciation 1,200
Accounts Payable 800 + 500 = 1,300
Wages Payable 150
Capital 10,000
Drawing 3,600
Service Fees 14,000 + 400 = 14,400
Rent Expense 5,500 + 500 = 6,000
Wages Expense 1,000 + 150 = 1,150
Advertising Expense 100
Supplies Expense 1,700
Depreciation Expense 1,200
Total 27,050 27,050 ✅
FINANCIAL STATEMENT
1. Income Statement (For the Year Ended 2 Statement of Owner’s Equity (For the
December 31, 2009) Year Ended December 31, 2009)
Revenues Amount Particulars Amount
Service Fees 14,400 Beginning Capital (assumed) 0
Total Revenues 14,400 Add: Owner Investment 10,000
Expenses Amount Add: Net Income 4,250
Rent Expense 6,000 Less: Drawings (3,600)
Wages Expense 1,150 Ending Capital 10,650
Supplies Expense 1,700
Advertising Expense 100
Depreciation Expense 1,200
Total Expenses 10,150
| Net Income | 4,250 |
3 Balance Sheet
As of December 31, 2009
Assets Amount ($) Liabilities and Owner’s Equity Amount ($)
Current Assets Current Liabilities
Cash 200 Accounts Payable 1,300
Accounts Receivable 1,900 Wages Payable 150
Supplies on Hand 1,300 Total Current Liabilities 1,450
Prepaid Advertising 300
Total Current Assets 3,700
Owner’s Equity
Non-Current Assets Capital, Dec 31 10,000
Equipment 9,600 Add: Net Income 4,250
Less: Accumulated Depreciation (1,200) Less: Drawings (3,600)
Net Equipment 8,400 Ending Capital 10,650
Total Non-Current Assets 8,400 Total Liabilities & Equity 12,100
TOTAL ASSETS 12,100 TOTAL LIABILITIES & EQUITY 12,100
PROBLEM-4
Adjusting Entries – Alta Resort (Dec 31)
(a) Salaries earned by employees not yet recorded or paid: $7,900
Salaries Expense 7,900
Salaries Payable 7,900
(b) Rental revenue earned but not yet billed: $11,075
Accounts Receivable 11,075
Rental Revenue 11,075
(c) Rental income received in advance: $19,200 for 6 months from Nov 1 → 2 months
earned
Monthly rent = $3,200
Earned for Nov & Dec = 2 × $3,200 = $6,400
Unearned Rental Revenue 6,400
Rental Revenue 6,400
(d) Limousine rental from Dec 19 to Dec 31 (13 days at $120/day)
13 × 120 = $1,560
Limousine Expense 1,560
Accounts Payable 1,560
(e) Interest on loan of $30,000 from Dec 1 at 6% annual interest
Interest = Principal × Rate × Time = 30,000 × 6% × (1/12) = $150
Interest Expense 150
Interest Payable 150
(f) Depreciation on resort building
Cost = $1,755,000
Useful life = 30 years → Annual depreciation = 1,755,000 ÷ 30 = $58,500
Depreciation Expense 58,500
Accumulated Depreciation 58,500
(g) Contract to host future symposium (next year) – No entry required
Reason: The agreement affects future income; not recognized in current period.
(h) Prepaid insurance: $7,200 for one year, policy started Sep 1 → 4 months used (Sep–
Dec)
Used = 4/12 × 7,200 = $2,400
Insurance Expense (I) 2,400
Prepaid Insurance (D) 2,400
