Mastering Adjusting Entries Homework

MASTERING ADJUSTING ENTRIES
HOMEWORK EXERCISES AND PROBLEMS
A. EXERCISES
Section 1 WHY WE USE ACCRUALS, DEFERRALS AND OTHER ADJUSTMENTS
1. On October 1, 20X0, Espree Co. takes out a P10,000 loan and agrees to pay interest
twice each year for the life of the loan: P300 on April 1 and P300 on October 1. How
much interest expense will Espree report on its income statement for the year ended
December 31, 20X0 if:
a. it is on a cash basis?
$0
b. it is on the accrual basis?
P150 interest accrued for October, November and December
2. Near the end of 20X0, JNT Enterprises completes services for a customer and sends an
invoice for P500. As of JNT’s year end, no payment has been received. If JNT reports 20X0
revenue of P500, it must be using accrual basis accounting.
3. On December 2, 20X1, P&T pays P1,000 to an exterminator for work that will start in
January. If P&T reports on its income statement P1,000 for exterminating expense for
20X1, it must be using cash
basis accounting.
4. For each of the following unrelated scenarios, show how much revenue is reported on
the income statement for 20X0 under the cash basis v. accrual basis.
Cash Basis Accrual Basis
On November 1, 20X0, Alexi Inc. receives P1,800
in rental payments for November, December, $1,800 $1,200
and January (P600 per month).
MNM caters six lunches in December 20X0.
Each of the six customers is invoiced P100, but $100 $600
as of December 31, 20X0, only one has paid.
A musician accepts P200 for 8 upcoming
weddings. As of December 31, 20X0, the $1,600 $400
musician has performed at 2 of the 8.
5. For each of the following unrelated scenarios, show total expenses reported on the
income statement for 20X0 under the cash basis v. accrual basis.
Cash Basis Accrual Basis
In December 20X0, ByCo runs ads costing
P30,000. ByCo receives the invoice but does not $0 $30,000
pay it until January 20X1.
On December 1, 20X0, KPT pays P2,400 for the
next 12 months’ property insurance. $2,400 $200
In December 20X0, Andre’s pays P400 to Pest
Homework 1
Mastering Adjusting Entries
Control for 4 months’ service. The first treatment $400 $0
will be in January 20X1.
Homework 2
Section 2 ACCRUED REVENUE
1. Select the term on the right that best completes the statement on the left. Terms may be
used once, more than once, or not at all.
Failing to make the entry to accrue revenue _d___ net income. a. increases
The entry to record accrued revenue a__ __ assets. b. decreases
Accrued revenue is revenue that is _f_ __ but not collected c. overstates
Failing to make the entry to accrue revenue _d_ __ assets. d. understates
The entry to record accrued revenue __a __ net income. e. earned
f. unearned
2. Kurtz Rentals rents equipment to Ditka on February 1. Lease terms require Ditka to
make payments to Kurtz of P2,000 each quarter: April 30, July 31, October 31, and
January 31. Kurtz receives payments for April, July, and October.
a. What journal entry should Kurtz record on December 31?
Accrued Rent Receivable 1333.33
Rent Income 1333.33
b. If this entry is not recorded, how will it affect Kurtz’s financial statements?
Assets will be Understated
Revenue will be Understated
Net Income will be Understated
3. Intell licenses technologies to a manufacturer. The agreement calls for Intell to receive
P3 for each unit manufactured with licensing fees remitted quarterly. As of December
31, Intell has received the following payments:
Period Units Licensing Fees
Manufactured
1/1 to 3/31 475 P1,425
4/1 to 6/30 350 P1,050
7/1 to 9/30 525 P1,575
10/1 to 12/31 600 P1,800
Intell has received checks for the first two quarters, but not the third; the fourth
quarter check is not due until January.
a. If Intell is on the accrual basis, what adjusting entry should it record at year end to
recognize revenue earned from this manufacturer?
3rd Quarter
Account Receivable 3150
Sales 1575
Licensing Fee Revenue 1575
Homework 3
12/31 Accrued Receivable 3600
Sales 1800
Licensing Fee Revenue 1800
b. If this entry is not recorded, how will it affect Intell’s financial statements?
Net income is understated
Asset is Understatement
4. Your firm holds a P15,000, 8% note receivable issued on August 1, 20X0. Interest is
paid once a year on July 31. On July 31, 20X6, you receive the normal interest payment.
a. What adjusting entry must you record December 31, 20X6?
Accrued Interest Receivable 500
Interest Income 500
b. If this entry is not recorded, how will it affect your company’s financial statements?
Assets will be Understated by P3,600 on the income statement
Net Profit will be Understated by P3,600 on the balance sheet
5. Your company, which has a fiscal year ending October 31, sells scented bars of soap for
a 12% commission. As of October 31, total sales are P400,000. Your company has
received P30,000, which you credited to Revenue.
a. How much additional revenue must you record for the fiscal year?
Accrued Commission Receivable 18000
Revenue 18000
b. What is the journal entry to record the additional revenue?
Accrued Commission Receivable P18000
Commission Revenue P18000
Section 3 ACCRUED EXPENSES (ACCRUED LIABILITIES)
Homework 4
1. DillCo borrows P200,000 on September 1, 20X0, from First Bancorp. Monthly interest is
P1,200. The loan agreement requires DillCo to pay the interest every 6 months. The
first interest payment is due February 28, 20X1.
a. What adjusting entry must DillCo make on December 31, 20X0 to recognize the
accrued interest?
Interest Expense 4800
Accrued Interest Payable 4800
c. Explain the impact on the financial statements if this entry is not recorded.
Net income will be overstated on the income statement
Liabilities will understated on the balance sheet
2. Salary expense at QuickDinner Inc. is P7,500 per week for a Monday–Friday workweek.
Employees are paid each Friday.
a. If the company’s year ends on a Wednesday, what adjusting entry must it record?
Salaries Expense 4500

Salaries Payable 4500
b. Explain the impact on the financial statements if this entry is not recorded.
Liabilities will be understated on the balance sheet
3. Salary expense at SlowCooker is P6,000 per week for a Tuesday–Sunday workweek.
Employees are paid on Sunday.
a. If the company’s year ends on a Tuesday, what adjusting entry must it make?
Salaries Expense 1,000
Salaries Payable 1,000
d. Explain the impact on the financial statements if this entry is not recorded.
Liabilities will be understated on the balance sheet
Homework 5
4. Rojo Equipment, which has an October 31 fiscal year, reports income of P200,000 for the
year ended 10/31/20X7. On October 31, Rojo discovers the following:
 A P2,000 utility bill booked on October 30, 20X7, was not paid.
 Rojo has a P10,000 note payable with a 12% annual interest rate. Payments are
due every six months. The last interest payment was made on June 30, 20X7.
 Rojo’s has 4 salaried employees, each paid P800 a week for a Monday–Friday
workweek. Paychecks are distributed on Fridays. October 31 is a Thursday.
a. Prepare the adjusting entries required for the year ended October 31, 20X7.
Utilities Expense 2000
Accrued Utilities Payable 2000
Accrued Interest Payable 400
Salaries Expense 2560
Accrued Salaries Payable 2560
b. What Rojo’s net income for 20X7?
Net income 200,000
Interest expense (400)
Salaries (2560)
Total – P195,040
Section 4 REVENUE COLLECTED IN ADVANCE (UNEARNED REVENUE)
1. At year end, Bijou records an adjusting entry for unearned revenue.
a. If the adjusting entry increases liabilities, what journal entry was recorded when the
cash was received?
Adjusting Entry:
Homework 6
Revenue xxxx
Unearned Revenue xxxx
Journal Entry:
Cash xxxx
Revenue xxxx
b. If the adjusting entry increases revenues, show the journal entry that was recorded
when the cash was received.
Adjusting Entry:
Revenue xxxx
Journal Entry:
Cash xxxx
2. WyCo’s fiscal year ends September 30. On September 10, it collects P30,000 for a painting
job and credits Unearned Painting Revenue. As of September 30, 60% of the work has
been done. What adjusting entry must WyCo record on September 30?
Unearned Painting Revenue 18,000
Painting Revenue 18,000
3. On August 1, InsureCo writes a 2year policy for a total of P12,000 and receives the entire
payment in advance. If InsureCo credits Revenue, what adjusting entry must it record on
December 31?
Adjusting Entry:
Revenue 9,500
Unearned Revenue 9,500
Homework 7
4. On November 1 ATD enters a 1year contract to provide security for CorpCo’s warehouses
for P12,000 a year and receives the first 3 months’ payment at signing.
a. If ATD books the payment as revenue, what adjusting entry must it record at year
end? How will its financial statements be misstated if the entry is not recorded?
Cash 3,000
Revenue 3,000
Adjusting Entry:
Revenue 1000
Unearned Revenue 1000
b. If ATD books the payment as a liability, what adjusting entry must it record at year
end? How will its financial statements be misstated if the entry is not recorded?
Original Entry:
Cash 3000
Adjusting Journal Entry:
Revenue 2000

5. The following table shows subscription revenue for three unrelated companies:
Company
I II III
Beginning balance in Unearned Subscription Revenue P 2,400 P 3,000 P 4,500
Payments received during the year 40,000 25,000 P22,500
Ending balance in Unearned Subscription Revenue P3,400 4,000 2,000
Subscription revenue earned during the year 39,000 P24,000 25,000
Homework 8
a. Fill in the missing amounts.
I. Beginning balance in Unearned Subscription Revenue $ 2,400
+ Payments received during the year 40,000
___________________________________________________ __________
= Ending balance in Unearned Subscription Revenue $42,400
Subscription revenue earned during the year (39,000)
____________________________________________________ ____________
= Ending balance in Unearned subscription revenue $3,400
II. $3,000 + $25,000 = $28,000 $24,000 = $4,000
III. $4,500 + $22,500 = $27,000 $25,000 = $2,000
b. Ignoring dollar amounts, what journal entries may have recorded the payments?
As a liability:
Cash xxxx
As revenue:
Cash xxxx
Revenue xxxx
6. On February 1, Alta’s collects P60,000 for a job and credits Revenue. As of April 30, Alta’s
year end, 45% of the work is completed. What adjusting entry does Alta record on April 30?
Revenue 33,000
Section 5—PREPAID (DEFERRED) EXPENSES
Homework 9
1. On December 1, 20X7, your company pays an annual insurance premium of P3,600 that
covers December 1, 20X7, to November 30, 20X8.
a. Show the adjusting entry on December 31, 20X7, if the P3,600 payment was
recorded in Prepaid Insurance.
Insurance Expense 300
Prepaid Insurance 300
c. Show the adjusting entry on December 31, 20X7, if the P3,600 payment was
recorded in Insurance Expense.
Prepaid Insurance 3,300
Insurance Expense 3,300
2. GilCo pays P900 for office supplies in April and debits Office Supplies. On May 31,
GilCo’s year end, a physical count, finds P200 in supplies.
a. What is the adjusting entry?

Supplies Expense 700
Supplies 700

b. If this entry is not recorded, how will it affect GilCo’s financial statements?
Net Income and total assets will be overstated
3. The following table shows insurance premiums paid by three unrelated companies:
Case
I II III
Beginning balance in Prepaid Insurance P 500 P 300 P4,500
Premiums paid during the Year 4,000 2,500 P1,200
Ending balance in Prepaid Insurance P1,500 400 200
Insurance used up during the year 3,000 P2,400 5,500
a. Fill in the missing information.
I. $1,500
II. $2,400
III. $1,200
b. Ignoring dollar amounts, give all possible journal entries to record the premium payments.
If recorded as an asset:
Homework 10
Prepaid Insurance xxxx
Cash xxxx
As an expense:
Insurance Expense xxxx
Cash xxxx
4. On September 1, BarCo signs a 2year rental agreement paying P6,000 rent in advance.
a. If the prepayment was booked as prepaid rent, what is the yearend adjusting entry?
Rent Expense 5,000
Prepaid Rent 5,000
c. If the prepayment was booked as rent expense, what is the yearend adjusting entry?
Prepaid Rent 5,000
Rent Expense 5,000
5. In August, JemCo, which has an October 31 year end, pays P1,200 for office supplies and
records it in Supplies Expense. On October 31, a physical count reveals P440 of supplies
unused.
a. What adjusting entry must JemCo record on October 31?
Supplies 440
Supplies Expense 440

b. If this entry is not recorded, how will it affect JemCo’s financial statements?
Supplies expense will be overstated by $440 and net income will be
understated
by the same amount. Total Assets will be understated by the same $440
Section 6 OTHER ENDOFPERIOD ENTRIES
1. GoCo purchases a building for P350,000. If the building has an estimated life of 30
years and a residual value of P50,000, what is the adjusting entry in the year of
purchase?
Depreciation ExpenseBuilding 10,000
Homework 11
Accumulated DepreciationBuilding 10, 000
2. For 20X9, PyCo has credit sales of P200,000. Based on past experience, Pylo estimates
that 3% of credit sales will be uncollectible. At year end, the balance in Allowance for
Doubtful Accounts is P4,000. What is the adjusting entry to record 20X9 bad debt
expense?
Bad Debt Expense 6,000
Allowance for Doubtful Accounts 6,000
3. At the end of 20X9, Spend Co has accounts receivable of P70,000, of which it estimates
10% will be bad debt. Allowance for Doubtful Accounts has a debit balance of P4,000.
a. What does the debit balance in Allowance for Doubtful Accounts imply about 20X8?
Bad debt expense was recorded in 20X9
b. What is the 20X9 adjusting entry for bad debt?

c. What is the term for the difference between the closing balances in Accounts
Receivable and Allowance for Doubtful Accounts?
4. Match the terms in the lefthand column below with the descriptions on the right.
1. Percentage of credit a. Required to recognize bad debt under GAAP
sales method
2. Direct writeoff method b. Estimate of bad debt expense based on the age
of outstanding receivables
3. Allowance method c. Estimate of bad debt based on credit sales
4. Percentage of accounts d. Required to recognize bad debt under tax law
receivable method
1. C. 2. D. 3. A. 4. B.
5. Below are PruCo’s entries to two accounts for the year.
Homework 12
a. What do the debits to the Allowance account represent? Show the three journal entries
that led to the three debits in the Allowance account.
Allowance for Doubtful Accounts 200
Accounts Receivable 200
b. Pruco uses the percentage of credit sales method. If it estimates that 2% of its P250,000
in credit sales will not be collected, what adjusting entry does PruCo record to recognize
bad debt expense for the year?
c. Now assume that Pruco uses the percentage of accounts receivable method. If it
estimates that P4,000 of its receivables will not be collectable, what adjusting entry
does PruCo record to recognize bad debt expense for the year?
Homework 13
Section 7 FROM UNADJUSTED TRIAL BALANCE TO FINANCIAL
STATEMENTS
1. For each account listed below, fill in the normal balance as “debit” or “credit.”
Account Normal balance
Accounts Payable Credit
Accounts Receivable Debit
Accumulated Depreciation—Equipment Credit
Advertising Expense Debit
Cash Debit
Depreciation Expense—Automobiles Debit
Depreciation Expense—Equipment Debit
Equipment Debit
Fees Earned Credit
Interest Earned Credit
Interest Expense Debit
Interest Payable Credit
Interest Receivable Debit
B. Anders, Capital Credit
B. Anders, Withdrawals Debit
Land Debit
Longterm Notes Payable Credit
Notes Receivable Debit
Office Supplies Debit
Office Supplies Expense Debit
Repairs Expense Debit
Salaries Expense Debit
Salaries Payable Credit
Unearned Fees Credit
Wages Expense Debit
Homework 14
2. Shown below, in alphabetical order, are the accounts of APlus, Inc. Use the worksheet
on the following page to set up a trial balance for the fiscal year ending June 30, 20X7.
Accounts Payable P 49,000
Accumulated Depreciation—Building 75,000
Accumulated Depreciation—Equipment 33,000
Building 110,000
Cash 155,000
Depreciation Expense—Building 4,000
Depreciation Expense—Equipment 5,000
Equipment 72,000
Interest Expense 1,100
Interest Payable 9,000
Land 75,000
Longterm Notes Payable 107,000
Postage Expense 200
Professional Fees 142,000
Property Taxes Payable 9,000
J. Crow, Capital 193,900
J. Crow, Withdrawals 49,000
Rent Expense 35,000
Rent Payable 3,400
Repairs Expense 18,900
Shortterm Investments 27,000
Supplies 2,700
Supplies Expense 3,400
Telephone Expense 900
Unearned Professional Fees 500
Utilities Expense 1,300
Wage Expense 68,000
Wages Payable 11,700
Homework 15
APlus, Inc.
Trial balance
June 30, 20X7
Debit Credit
Cash 155,000
Shortterm Investments 27,000
Supplies 2,700
Equipment 72,000
Accum. DepreciationEquipment 33,000
Building 110,000
Accum. DepreciationBuilding 75,000
Land 75,000
Accounts Payable 49,000
Rent Payable 3,400
Property Taxes Payable 9,000
Unearned Professional Fees 500
J. Crow, Capital 193,900
J. Crow, Withdrawals 49,000
Professional Fees 142,000
Depreciation ExpenseBuilding 4,000
Depreciation ExpenseEquipment 5,000
Wages Expense 68,000
Homework 16
Rent Expense 35,000
Postage Expense 200
Repairs Expense 18,900
Telephone Expense 900
Total 633,500 633,500
Important—the following question is optional: Neither certification nor the
certification exam requires presentation of the financial statements, but only through the
adjusted trial balance. Recommended: Focus on the adjustments and adjusted trial
balance.
3. Below is the adjusted trial balance for Shady’s Illusions. Use this information to
prepare Shady’s income statement and balance sheet for the year.
No. Account title Debit Credit
101 Cash 158,000

109 Office Supplies 25,000
111 Equipment 80,000
112 Accumulated Depreciation—Equipment 44,000
200 Accounts Payable 33,000
201 Wages Payable 12,000
300 S. Shady, Capital 129,700
301 S. Shady, Withdrawals 25,000
400 Entertainment Revenue 228,000
510 Rent Expense 26,800
511 Gas and Oil Expense 3,000
512 Wages Expense 105,000
513 Depreciation Expense—Equipment 12,500
Homework 17
514 Legal Expense 11,400

Totals 446,700 446,700
Homework 18
Shady’s Illusions
Income Statement
For the year ended December 31, 20X4
Entertainment revenue $228,000
Less:
Rent expense $ 26,800
Gas and oil expense 3,000
Wage expense 105,000
Depreciation expense 12,500
Legal expense 11,400 158,700
__________
Net income $ 69,300
Shady’s Illusions
Balance Sheet
December 31, 20X4
Assets
Cash $158,000
Office supplies 25,000
Equipment 36,000
Total assets $219,000
Liabilities and Capital
Accounts Payable $33,000
S. Shady, Capital 174,000
Total liabilities and Capital $219,000
Homework 19
Section 8 APPLYING YOUR KNOWLEDGE TO THE TRIAL BALANCE
balance.
1. Using Thorne’s unadjusted trial balance below and facts ah, complete the following
worksheet by filling in the adjustments, adjusted trial balance and financial statements.
Thorne Construction
Unadjusted trial balance
For the year ended July 31, 20X8
Debit Credit
Cash 12,500
Accounts Receivable 40,000
Office Supplies 1,850
Prepaid insurance 6,500
Prepaid Rent
Equipment 154,000
Accum. Depreciation  Equipment 38,500
Accounts Payable 23,000
Interest Payable
Wages Payable
W. Thorne, Capital 82,300
W. Thorne, Drawing 25,000
Constuction Revenues 112,000
Bad Debt Expense
Depreciation Expense–Equipment
Wage Expense 29,400
Insurance Expense
Rent Expense 10,800
Office Supplies Expense
Repairs Expense 100
Totals 287,800 287,800
a. A physical count of office supplies as of July 31, 20X8 shows P800 in supplies on hand.
Homework 20
b. On March 1, 20X7, Thorne Construction prepaid P9,000 for an 18month insurance
policy of which 5 months (P2,500) was used up during fiscal year 20X7.
c. The equipment has a 28year life and no salvage value. Thorne uses straightline depreciation.
d. July’s eletric bill for P420 is not included because it arrived after the worksheet was prepared.
e. There are P1,800 of accrued wages as of the fiscal year end.
f. Thorne’s rent of P800 a month is payable quarterly, in advance. Its most recent payment
was P2,400 on June 30, 20X8 to cover July, August, and September 20X8.
g. Thorne estimates bad debt at 2% of credit sales.
h. The longterm note payable bears interest at 1% a month payable by the 10 th of the
following month. The interest for July has neither been paid nor recorded.
Homework 21
a. Supplies Expense 1,050
b. Insurance Expense 6,000
c . Depreciation Expense – Equipment 5,500
Accumulated Depreciation – Equipment 5,500
d. Utilities Expense 420
Utilities Payable 420
e. Wages Expense 1,800
Wages Payable 1,800
f. Prepaid Rent 1,600
Rent Expense 1,600
g. Bad Debt Expense 2,240
h. Interest Expense 300
Interest Payable 300
Homework 22
Homework 23
Thorne Construction Worksheet
July 31, 20X8
Unadjusted Adjusted Income Balance
trial balance Adjustments trial balance statement sheet
Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr
Cash 12,500 12,500 12,500
Accounts Receivable 40,000 40,000 40,000
Allow. for Doubtful Accts 2,000 2,240 4,240 4,240
Office Supplies 1,850 1,050 800 800
Prepaid Insurance 6,500 6,000 500 500
Prepaid Rent 1,600 1,600 1,600
Equipment 154,000 154,00 154,000
Accum. Depr.– Equip. 38,500 5,500 44,000 44,000
Accounts Payable 23,000 23,000 23,000
Interest Payable 300 300 300
Utilities Payable 420 420 420
Wages Payable 1,800 1,800 1,800
Longterm Notes Payable 30,000 30,000 30,000
W. Worthington, Capital 82,300 82,300 82,300
W. Worthington, Drawings 25,000 25,000
Constuction Revenues 112,000 112,000 112,000
Bad Debt Expense 2,240 2,240 2,240
Depr. Exp.– Equipment 5,500 5,500 5,500
Wage Expense 29,400 1,800 31,200 31,200
Interest Expense 900 300 1,200 1,200
Insurance Expense 6,000 6,000 6,000
Rent Expense 10,800 1,600 9,200 9,200
Homework 24
Supplies Expense 1,050 1,050 1,050

Repairs Expense 100 100 100
Utilities Expense
6,750 420 7,170 7,170
Totals 287,800 287,800 18,910 18,910 298,060 298,060 63,660 112,000 234,400 186,060
48,340 48,340
112,000 112,000 234,400 234,400
Homework 25
B. PROBLEMS FOR SECTIONS 1–8
1. Danza Inc. reported income of P440,000 for the year ended June 30, 20X8. However, the
records show that at year end, the following items had not been recorded:
 On May 1, 20X8, Danza received a P12,000 advance for a sixmonth job and credited
Revenue for P12,000.
 Interest on a P12,000 note payable bearing a 10% interest rate is paid quarterly. The
last payment was made at the end of May 20X8.
 Danza’s payroll is 14 salaried employees, each earning P900 a week for a 5day
workweek. Friday is payday. June 30 was a Tuesday.
a. Prepare the adjusting entries necessary for the year ended June 30, 20X8.
Revenue 8,000
Interest Payable 100
b. What is Danza’s net income for 20X8?
$426,860
2. Mikado Co. reported income of P224,000 for the year ended December 31, 20X9. However, a
review of the books shows the following items unaccounted for at year end:
 On August 1, 20X9, Mikado received a P27,000 advance for a 9month job, recording
the payment in Unearned Revenue.
 Interest on a P20,000 note payable with a 12% interest rate is paid every 3 months,
the last interest payment having been at the end of June 20X9.
 Mikado’s payroll is 7 salaried employees, each earning P1,000 a week for a
Monday–Friday workweek. Payday is Friday. December 31 was a Thursday.
Homework 26
a. Prepare the adjusting entries for the year ended June 30, 20X8.
Revenue 15,000
b. What is Mikado’s net income for 20X9?
$232,20
3. You are handed the following unadjusted trial balance:
Champion Professional Services
Unadjusted trial balance
December 31, 20X7
Debit Credit
Cash 25,000
Accounts receivable 0
Supplies 3,800
Prepaid insurance 9,800
Prepaid rent 500
Equipment 60,000
Accumulated depreciation—Equipment 22,900
Accounts payable 6,000
Salaries payable 0
Unearned Fees 4,000
F. Mercury, Capital 51,000
F. Mercury, Withdrawals 14,000
Fees Earned 71,900
Depreciation Expense—Equipment 0
Insurance Expense 0
Rent Expense 5,500
Supplies Expense 0
Advertising Expense 6,000
Utilities Expense 6,400 _______
Totals 155,800 155,800
Homework 27
Using the data below, complete the worksheet on the following page by filling in the
adjustments and adjusted trial balance for Champion for the year ended December 31, 20X7.
a. 8 employees are paid weekly. At year end, 3 days’ wages have accrued at P120 a day for
each employee.
b. A physical count shows P600 of office supplies on hand at year end.
Supplies 3,200
c. P2,600 of prepaid insurance coverage has expired.
d. Annual depreciation on the equipment is P8,450.
Depreciation Expense Equipment 8,450
Accumulated Depreciation Equipment 8,450
e. On November 1, Champion contracted for a new job for which it is paid P1,000 a month. It
received a 4month advance and booked it as unearned fees.
Unearned Fees 2,000
Fees Earned 2,000
f. A client renewed its contract for 3 months at P1,300 a month, starting on November 1.
The first payment is due on February 28th.
Fees Earned 2,600
g. The balance in Prepaid Rent is December’s rent.
Rent Expense 500
Prepaid Rent 500
Homework 28
Homework 29
trial balance
December 31, 20X7
Unadjusted trial Adjusted trial
balance Adjustments balance
Dr Cr Dr Cr Dr Cr
Cash 25,000 25,000
Accounts Receivable 0 P 2,600 2,600
Supplies 3,800 P3,200 600
Prepaid Insurance 9,800 2,600 7,200
Prepaid Rent 500 500 0
Equipment 60,000 60,000
Acc. Depreciation— 8,450 31,350
Equipment 22,900
Accounts Payable 6,000 6,000
Salaries Payable 0 2,800 2,880
Unearned Fees 4,000 2,000 2,000
F. Mercury, Capital 51,000 51,000
F. Mercury, 14,000
Withdrawals 14,000
Fees Earned 71,900 2,000 76,500
2,600
Depreciation Exp.— 0 8,450 8,450
Equipment
Salaries Expense 24,800 2,880 27,680
Insurance Expense 0 2,600 2,600
Rent Expense 5,500 500 6,000
Supplies Expense 0 3,200 3,200
Advertising Expense 6,000 6,000
_______ ________ 6,400 ________
Total 155,800 155,800 22,230 22,230 169,730 169,730
Homework 30
balance.
4. Using the adjusted trial balance from Problem 3, complete the Income Statement and Balance
Sheet columns of the worksheet for Champion. When the worksheet is complete, prepare
Champion’s financial statements.
Champion Professional Services.Worksheet
December 31, 20X7
Adjusted trial Income Balance
balance statement sheet
Dr Cr Dr Cr Dr Cr
Cash P25,000 P25,00
0
Accounts Receivable 2,600 2,600
Supplies 600 600
Prepaid Insurance 7,200 7,200
Prepaid Rent 0 0
Equipment 60,000 60,000
Acc. Depreciation–Equipment P31,350 31,350
Salaries Payable 2,880 2,880
Unearned Fees 2,000 2,000
F. Mercury, Capital 51,000 51,000
F. Mercury, Withdrawals 14,000 14,000
Fees Earned P76,500
76,500
Depreciation Expense– Equipment 8,450 P 8,450
Rent Expense 6,000
Homework 31
Utilities Expense 6,400 ______ ______ _______ ______ ______
_ _
Totals 169,730 169,730 60,330 76,500 109,40 93,230
0
Net Income 16,170 16,170
76,500 76,500 109,40 109,400
0
Homework 32
Income Statement
For the year ended December 31, 20X7
Revenue:
Fees Earned P 76,500
Less:
Salaries Expense P 27,680
Rental Expense 6,000
Depreciation Expense Eqipment 8,450
Total Expense: P 60,330
Net Income: P16,170
Balance Sheet
December 31, 20X7
Assets
Cash P 25,000
Supplies 600
Equipment 28,650
Total Assets: P64,050
Liabilities
Accounts Payable P 6,000
Unearned Fees 2,000
Homework 33
Equity
F. Mercury, Capital* P 53,170
Total Liabilities and Equity: P 64,050
Homework 34
5. Below are the 20X8 unadjusted and adjusted trial balances for Olympic Consulting.
Analyze the differences between the unadjusted and adjusted trial balances,
determine each adjustment that Olympic must have made at year end and insert it in
the Adjustments column. Label each adjustment “(a)”, “ (b),” etc., then put the same
letter in the corresponding worksheet cell with a brief explanation of the adjustment.
Olympic Consulting
Trial balance
December 31, 20X8
Unadjusted Adjusted trial
trial balance Adjustments balance
Dr Cr Dr Cr Dr Cr
Cash 2,500 2,500
Accounts Receivable 10,000 (a)1,000 11,000
Office Supplies 4,000 (b)1,800 2,200
Prepaid Rent 1,800 (c)700 1,100
Office Equipment 15,900 15,900
Accum. Depreciation— (d) 500
Office Equipment 4,100 4,600
Salaries Payable 0 (e)600 600
Utilities Payable 0 (f )400 400
Unearned Consulting (a)1,400
Fees 2,200 800
Texiera, Capital 30,500 30,500
Texiera, Withdrawals 2,100 2,100
Consulting Fees 42,000 44,400
Earned (a)2,400
Depreciation Expense 0 (d) 500 500
—Office Equipment
Salaries Expense 32,000 (e)600 32,600
Supplies Expense 0 (b)1,800 1,800
Rent Expense 6,700 (c)700 7,400
Utilities Expense 7,800 (f )400 ______
8,200
Total 82,800 82,800 6,400 6,400 85,300 85,300
Homework 35
Accounts Receivable P1,000
Unearned Consulting Fees 1,400
Consulting Fees Earned P 2,400
The firm recorded the adjustment because during the year P1,400 was received for
services not yet performed. The initial entry is Cash debited and Unearned Consulting
Fees credited. So, at the end of the year, P2,400 of consulting services had been completed,
but not recorded. And P1,000 was not yet paid.
a. Supplies Expense 1,800
When the office supplies were purchased, the initial entry was Office Supplies debited and
Cash credited. So, at end of the year, P2,200 of supplies were on hand,so Olympic should
record an AJE to account for supplies used up during the year.
b. Rent Expense 700
Prepaid Rent 700
Based on the trial balance,Olympic recorded Prepaid Rent debited and Cash credited. So, at
end of the year, P700 of rent had been used up, so Olympic have to recorded an AJE to reduce
the balance in Prepaid Rent by crediting it P700 and transferring this amount to Rent
Expense,which it debited forP700.
c. Depreciation Expense –Office Equipment 500
Accumulated Depreciation – Office Equipment 500
Olympic should debit Depreciation Expense equipment for P500 and credit Accumulated
Depreciation equipment for P 500 in order to record depreciation expense on the
equipment for the year.
d. Salaries Expense 600
Salaries Payable 600
Olympic should debit Salary Expense for P 600 and credit Salaries Payable for P 600 to
accrue salaries owed but not paid as of the end of the year.
e. Utilities Expense 400
Utilities Payable 400
The firm apparently debited Utilities Expense for P400 and credited Utilities Payable for
P 400 to accrue utilities expense incurred, but not paid as of the end of the year.
Homework 36
Homework 37

Mastering Adjusting Entries Homework

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What are the main differences between cash basis and accrual basis accounting?

What is accrued revenue and how is it recorded?

MASTERING ADJUSTING ENTRIES

No. Account title Debit Credit

101 Cash 158,000

Supplies Expense 1,050 1,050 1,050

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