Adjusting the Accounts

Instructions

1. Journalize the adjusting entries that were made
2. Prepare an income statement and an owner's equity statement for the 3 months ending September 30 and a balance sheet at September 30.
3. If the note bears interest at 12%, how many months has it been outstanding?

Solution

1. Prepaid Insurance $10,440. The company has separate insurance policies on its buildings and its motor vehicles. Policy B4564 on the building was purchased on April 1, 2018 for $7,920. The policy has a term of 3 years. Policy A2958 on the vehicles was purchased on January 1, 2019, for $4,500. This policy has a term of 2 years.
   
2. Unearned Rent Revenue $429,000. The company began subleasing office space in its new building on November 1. At December 31, the company had the following rental contracts that are paid in full for the entire term of the lease
   

   Date	Term (in months)	Monthly Rent	Number of Lease
   Nov. 1	9	$5,000	5
   Dec. 1	6	$8,500	4

   
   
3. Notes Payable $120,000. This balance consists of a note for 9 months at an annual interest rate of 9%, dated November 1.
   
4. Salaries and Wages Payable $0. There are eight salaried employees. Salaries are paid every Friday for the current week. Five employees receive a salary of $700 each per week, and three employees earn $500 each per week. Assume December 31 is a Tuesday. Employees do not work weekends. All employees worked the last 2 days of December.

Solution

1. Supplies on had $1,400
2. Accrued salaries payable $350
3. Depreciation for the month is $200
4. Services related to unearned service revenue of $1,220 were performed

Instructions

1. Enter the November 1 balances in the ledger accounts
2. Journalize the November transactions.
3. Post to the ledger accounts. Use J1 for the posting reference. Use the following additional accounts: No. 407 Service Revenue, No. 615 Depreciation Expense, No. 631 Supplies Expense, No. 726 Salaries and Wages Expense, and No. 729 Rent Expense.
4. Prepare a trial balance at November 30.
5. Journalize and post adjusting entries.
6. Prepare an adjusted trial balance.
7. Prepare an income statement and an owner’s equity statement for November and a balance sheet at November 30.

Solution

1. The $3,700 balance in Supplies Expense represents supplies purchased in January. At June 30, $1,500 of supplies are on had.
2. The note payable was issued on February 1. It is a 9%, 6-month note.
3. The balance in Insurance Expense is the premium on a one-year policy, dated March 1, 2019.
4. Service revenues are credited to revenue when received. At June 30, services revenue of $1,300 are unearned.
5. Revenue for services performed but unrecorded at June 30 totals $2,000.
6. Depreciation is $2,250 per year.

Instructions

1. Journalize the adjusting entries at June 30. (Assume adjustments are recorded every 6 months.)
2. Prepare an adjusted trial balance.
3. Prepare an income statement and an owner’s equity statement for the 6 months ended June 30 and a balance sheet at June 30.

Solution

1. Hong collects $1,300 from a customer in 2019 for services to be performed in 2020.
2. Hong incurs utility expense which is not yet paid in cash or recorded.
3. Hong's employees worked 3 days in 2019 but will not be paid until 2018.
4. Hong performs services for customers but has not yet received cash or recorded the transactions.
5. Hong received cash for future services and recorded a liability until the service was performed.
6. Hong performed consulting services for a client in December 2019. On December 31, it had not billed the client for services provided of $1,200.
7. Hong paid cash for an expense and recorded an asset until the item was used up.
8. Hong purchased $900 of supplies in 2019; at year-end, $400 f supplies remain unused.
9. Hong purchased equipment on January 1, 2019; the equipment will be used for 5 years.
10. Hong borrowed $10,000 on October 1, 2019, signing an 8% one-year note payable.

Instructions

Identify what type of adjusting entry (prepaid expense, unearned revenue, accrued expense, or accrued revenue) is needed in each situation at December 31, 2019.

Solution

1. Devin Wolf company borrowed $10,000 by signing a 9%, one-year note on September 1, 2019.
2. A count of supplies on December 31, 2019, indicates that supplies of $900 are on hand.
3. Depreciation on the equipment for 2019 is $1,000.
4. Devin Wolf Company paid $2,100 for 12 months of insurance coverage on June 1, 2019.
5. On December 1, 2019, Devin Wolf collected $32,000 for consulting services to be performed from December 1, 2019, through March 31, 2020
6. Devin Wolf performed consulting services for a client in December 2019. the client will be billed $4,200.
7. Devin Wolf Company pays its employees total salaries of $9,000 every Monday for the preceding 5-day week (Monday through Friday). On Monday, December 29, employees were paid for the week ending December 26. All employees worked the last 3 days of 2019.

Instructions

Solution

1. Services performed but not recorded total $1,000.
2. Supplies of $300 have been used.
3. Utility expenses $225 are unpaid.
4. Services related to unearned service revenue of $260 were performed.
5. Salaries of $800 are unpaid.
6. Prepaid insurance totaling $350 has expired.

Instructions

1. The type of adjustment (prepaid expense, unearned revenue, accrued revenue, or accrued expense).
2. The status of accounts before adjustment (overstatement or understatement).

Solution

1. The equipment depreciates $400 per month.
2. One-third of the unearned rent revenue was earned during the quarter.
3. Interest of $500 is accrued on the notes payable.
4. Supplies on hand total $750
5. Insurance expires at the rate of $300 per month

Instructions

Solution

1. Performed services for patients who had dental plan insurance. At January 31, $875 of such services were performed but not yet recorded.
2. Utility expenses incurred but not paid prior to January 31 totaled $650.
3. Purchased dental equipment on January 1 for $80,000, paying $20,000 in cash and signing a $60,000, 3-year note payable. The equipment depreciates $400 per month. Interest is $500 per month.
4. Purchased a one-year malpractice insurance policy on January 1 for $24,000.
5. Purchased $1,600 of dental supplies. On January 31, determined that $400 of supplies were on hand.

Instructions

Solution

1. Supplies on hand at October 31, total $500.
2. Expired insurance for the month is $120
3. Depreciation for the month is $50
4. Services related to unearned service revenue in October worth $600 were performed.
5. Services performed but not recorded at October 31 are $360
6. Interest accrued at October 31 is $95.
7. Accrued salaries at October 31 are $1,625.

Instructions

Solution