MULTIPLE CHOICE QUESTIONS

The time period assumption states that

a. a transaction can only affect one period of time.
b. estimates should not be made if a transaction affects more than one time period.
c. adjustments to the enterprise's accounts can only be made in the time period when
the business terminates its operations.
d. the economic life of a business can be divided into artificial time periods.

An accounting time period that is one year in length, but does not begin on January 1, is referred
to as
a. a fiscal year.
b. an interim period.
c. the time period assumption.
d. a reporting period.

Which of the following is not a common time period chosen by businesses as their
accounting period?
a. Daily
b. Monthly
c. Quarterly
d. Annually

Which of the following time periods would not be referred to as an interim period?
a. Monthly
b. Quarterly
c. Semi-annually
d. Annually

The revenue recognition principle dictates that revenue should be recognized in the accounting
records
a. when cash is received.
b. when it is earned.
c. at the end of the month.
d. in the period that income taxes are paid.

In a service-type business, revenue is considered earned

a. at the end of the month.
b. at the end of the year.
c. when the service is performed.
d. when cash is received.

The matching principle matches

a. customers with businesses.
b. expenses with revenues.
c. assets with liabilities.
d. creditors with businesses.
Joe's Tune-up Shop follows the revenue recognition principle. Joe services a car on July 31. The
customer picks up the vehicle on August 1 and mails the payment to Joe on August 5.
Joe receives the check in the mail on August 6. When should Joe show that the revenue
was earned?
a. July 31
b. August 1
c. August 5
d. August 6

A company spends $10 million dollars for an office building. Over what period should the cost be
written off?
a. When the $10 million is expended in cash
b. All in the first year
c. Over the useful life of the building
d. After $10 million in revenue is earned

A dress shop makes a large sale for $1,000 on November 30. The customer is sent a
statement on December 5 and a check is received on December 10. The dress shop
follows GAAP and applies the revenue recognition principle. When is the $1,000
considered to be earned?
a. December 5
b. December 10
c. November 30
d. December 1

A furniture factory's employees work overtime to finish an order that is sold on February 28. The
office sends a statement to the customer in early March and payment is received by mid-
March. The overtime wages should be expensed in
a. February.
b. March.
c. the period when the workers receive their checks.
d. either in February or March depending on when the pay period ends.

Under accrual-basis accounting

a. cash must be received before revenue is recognized.
b. net income is calculated by matching cash outflows against cash inflows.
c. events that change a company's financial statements are recognized in the period they
occur rather than in the period in which cash is paid or received.
d. the ledger accounts must be adjusted to reflect a cash basis of accounting before
financial statements are prepared under generally accepted accounting principles.

An adjusting entry
a. affects two balance sheet accounts.
b. affects two income statement accounts.
c. affects a balance sheet account and an income statement account.
d. is always a compound entry.

If a resource has been consumed but a bill has not been received at the end of the accounting
period, then
a. an expense should be recorded when the bill is received.
b. an expense should be recorded when the cash is paid out.
c. an adjusting entry should be made recognizing the expense.
 d. it is optional whether to record the expense before the bill is received.

Adjusting entries are

a. not necessary if the accounting system is operating properly.
b. usually required before financial statements are prepared.
c. made whenever management desires to change an account balance.
d. made to balance sheet accounts only.

A law firm received $2,000 cash for legal services to be rendered in the future. The full amount
was credited to the liability account Unearned Legal Fees. If the legal services have been
rendered at the end of the accounting period and no adjusting entry is made, this would
cause
a. expenses to be overstated.
b. net income to be overstated.
c. liabilities to be understated.
d. revenues to be understated.

Adjusting entries can be classified as

a. postponements and advances.
b. accruals and prepayments.
c. prepayments and postponements.
d. accruals and advances.
Accrued revenues are
a. received and recorded as liabilities before they are earned.
b. earned and recorded as liabilities before they are received.
c. earned but not yet received or recorded.
d. earned and already received and recorded.

Prepaid expenses are

a. paid and recorded in an asset account before they are used or consumed.
b. paid and recorded in an asset account after they are used or consumed.
c. incurred but not yet paid or recorded.
d. incurred and already paid or recorded.

Accrued expenses are

a. paid and recorded in an asset account before they are used or consumed.
b. paid and recorded in an asset account after they are used or consumed.
c. incurred but not yet paid or recorded.
d. incurred and already paid or recorded.

Unearned revenues are

a. received and recorded as liabilities before they are earned.
b. earned and recorded as liabilities before they are received.
c. earned but not yet received or recorded.
d. earned and already received and recorded.

A liability-revenue relationship exists with

a. prepaid expense adjusting entries.
b. accrued expense adjusting entries.
c. unearned revenue adjusting entries.
d. accrued revenue adjusting entries.

Which of the following reflect the balances of prepayment accounts prior to adjustment?
 a. Balance sheet accounts are understated and income statement accounts are understated.
b. Balance sheet accounts are overstated and income statement accounts are overstated.
c. Balance sheet accounts are overstated and income statement accounts are understated.
d. Balance sheet accounts are understated and income statement accounts are overstated.

An asset—expense relationship exists with

a. liability accounts.
b. revenue accounts.
c. prepaid expense adjusting entries.
d. accrued expense adjusting entries.

Quirk Company purchased office supplies costing $3,000 and debited Office Supplies for the full
amount. At the end of the accounting period, a physical count of office supplies revealed
$1,200 still on hand. The appropriate adjusting journal entry to be made at the end of the
period would be
a. Debit Office Supplies Expense, $1,200; Credit Office Supplies, $1,200.
b. Debit Office Supplies, $1,800; Credit Office Supplies Expense, $1,800.
c. Debit Office Supplies Expense, $1,800; Credit Office Supplies, $1,800.
d. Debit Office Supplies, $1,200; Credit Office Supplies Expense, $1,200.

Accumulated Depreciation is
a. an expense account.
b. an owner's equity account.
c. a liability account.
d. a contra asset account.

Hardy Company purchased a computer for $3,000 on December 1. It is estimated that annual
depreciation on the computer will be $600. If financial statements are to be prepared on
December 31, the company should make the following adjusting entry:
a. Debit Depreciation Expense, $600; Credit Accumulated Depreciation, $600.
b. Debit Depreciation Expense, $50; Credit Accumulated Depreciation, $50.
c. Debit Depreciation Expense, $2,400; Credit Accumulated Depreciation, $2,400.
d. Debit Office Equipment, $3,000; Credit Accumulated Depreciation, $3,000.

Nance Realty Company received a check for $15,000 on July 1 which represents a 6 month
advance payment of rent on a building it rents to a client. Unearned Rent was credited for
the full $15,000. Financial statements will be prepared on July 31. Nance Realty should
make the following adjusting entry on July 31:
a. Debit Unearned Rent, $2,500; Credit Rental Revenue, $2,500.
b. Debit Rental Revenue, $2,500; Credit Unearned Rent, $2,500.
c. Debit Unearned Rent, $15,000; Credit Rental Revenue, $15,000.
d. Debit Cash, $15,000; Credit Rental Revenue, $15,000.

As prepaid expenses expire with the passage of time, the correct adjusting entry will be a
a. debit to an asset account and a credit to an expense account.
b. debit to an expense account and a credit to an asset account.
c. debit to an asset account and a credit to an asset account.
d. debit to an expense account and a credit to an expense account.

A company usually determines the amount of supplies used during a period by

a. adding the supplies on hand to the balance of the Supplies account.
b. summing the amount of supplies purchased during the period.
 c. taking the difference between the supplies purchased and the supplies paid for during
the period.
d. taking the difference between the balance of the Supplies account and the cost of
supplies on hand.

If a company fails to make an adjusting entry to record supplies expense, then

a. owner's equity will be understated.
b. expense will be understated.
c. assets will be understated.
d. net income will be understated.

If a company fails to adjust a Prepaid Rent account for rent that has expired, what effect
will this have on that month's financial statements?
a. Failure to make an adjustment does not affect the financial statements.
b. Expenses will be overstated and net income and owner's equity will be
understated.
c. Assets will be overstated and net income and owner's equity will be understated.
d. Assets will be overstated and net income and owner's equity will be overstated.

At December 31, 2002, before any year-end adjustments, Karr Company's Insurance Expense
account had a balance of $400 and its Prepaid Insurance account had a balance of
$1,900. It was determined that $1,500 of the Prepaid Insurance had expired. The adjusted
balance for Insurance Expense for the year would be
a. $1,500.
b. $400.
c. $1,900.
d. $2,300.

From an accounting standpoint, the acquisition of productive facilities can be thought of as

a long-term
a. accrual of expense.
b. accrual of revenue.
c. accrual of unearned revenue.
d. prepayment for services.

An accumulated depreciation account

a. is a contra-liability account.
b. increases on the debit side.
c. is offset against total assets on the balance sheet.
d. has a normal credit balance.

The difference between the cost of a depreciable asset and its related accumulated depreciation
is referred to as the
a. market value of the asset.
b. blue book value of the asset.
c. book value of the asset.
d. depreciated difference of the asset.

If a business has several types of long-term assets such as equipment, buildings, and
trucks,
a. there should be only one accumulated depreciation account.
b. there should be separate accumulated depreciation accounts for each type of
asset.
 c. all the long-term asset accounts will be recorded in one general ledger account.
d. there won't be a need for an accumulated depreciation account.

Which of the following would not result in unearned revenue?

a. Rent collected in advance from tenants
b. Services performed on account
c. Sale of season tickets to football games
d. Sale of two-year magazine subscriptions

If business pays rent in advance and debits a Prepaid Rent account, the company receiving the
rent payment will credit
a. cash.
b. prepaid rent.
c. unearned rent revenue.
d. accrued rent revenue.

Unearned revenue is classified as

a. an asset account.
b. a revenue account.
c. a contra-revenue account.
d. a liability.

If a business has received cash in advance of services performed and credits a liability account,
the adjusting entry needed after the services are performed will be
a. debit Unearned Revenue and credit Cash.
b. debit Unearned Revenue and credit Service Revenue.
c. debit Unearned Revenue and credit Prepaid Expense.
d. debit Unearned Revenue and credit Accounts Receivable.

White Laundry Company purchased $7,500 worth of laundry supplies on June 2 and recorded the
purchase as an asset. On June 30, an inventory of the laundry supplies indicated only
$2,000 on hand. The adjusting entry that should be made by the company on June 30 is
a. Debit Laundry Supplies Expense, $2,000; Credit Laundry Supplies, $2,000.
b. Debit Laundry Supplies Expense, $5,500; Credit Laundry Supplies, $2,000.
c. Debit Laundry Supplies, $5,500; Credit Laundry Supplies Expense, $5,500.
d. Debit Laundry Supplies Expense, $5,500; Credit Laundry Supplies, $5,500.

On July 1 the Vinson Shoe Store paid $8,000 to Ace Realty for 4 months rent beginning
July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared
on July 31, the adjusting entry to be made by the Vinson Shoe Store is
a. Debit Rent Expense, $8,000; Credit Prepaid Rent, $2,000.
b. Debit Prepaid Rent, $2,000; Credit Rent Expense, $2,000.
c. Debit Rent Expense, $2,000; Credit Prepaid Rent, $2,000.
d. Debit Rent Expense, $8,000; Credit Prepaid Rent, $8,000.

Failure to prepare an adjusting entry at the end of the period to record an accrued expense would
cause
a. net income to be understated.
b. an overstatement of assets and an overstatement of liabilities.
c. an understatement of expenses and an understatement of liabilities.
d. an overstatement of expenses and an overstatement of liabilities.
Failure to prepare an adjusting entry at the end of a period to record an accrued revenue would
cause
a. net income to be overstated.
b. an understatement of assets and an understatement of revenues.
c. an understatement of revenues and an understatement of liabilities.
d. an understatement of revenues and an overstatement of liabilities.

Kim Roberts has performed $500 of CPA services for a client but has not billed the client as of
the end of the accounting period. What adjusting entry must Kim make?
a. Debit Cash and credit Unearned Revenue
b. Debit Accounts Receivable and credit Unearned Revenue
c. Debit Accounts Receivable and credit Service Revenue
d. Debit Unearned Revenue and credit Service Revenue

Kim Roberts, CPA, has billed her clients for services performed. She subsequently
receives payments from her clients. What entry will she make upon receipt of the
payments?
a. Debit Unearned Revenue and credit Service Revenue
b. Debit Cash and credit Accounts Receivable
c. Debit Accounts Receivable and credit Service Revenue
d. Debit Cash and credit Service Revenue

Clark Real Estate signed a four-month note payable in the amount of $10,000 on September 1.
The note requires interest at an annual rate of 12%. The amount of interest to be accrued
at the end of September is
a. $400.
b. $100.
c. $1,200.
d. $300.

A gift shop signs a three-month note payable to help finance increases in inventory for the
Christmas shopping season. The note is signed on November 1 in the amount of $30,000
with annual interest of 12%. What is the adjusting entry to be made on December 31 for
the interest expense accrued to that date, if no entries have been made previously for the
interest?
a. Interest Expense
600
Interest Payable
600
b. Interest Expense 900
Interest Payable
900
c. Interest Expense 600
Cash
600
d. Interest Expense 600
Note Payable
600

Trent Tables paid employee wages on and through Friday, January 26, and the next
payroll will be paid in February. There are three more working days in January (29–31).
 Employees work 5 days a week and the company pays $1,000 a day in wages. What will
be the adjusting entry to accrue wages expense at the end of January?
a. Wages Expense 1,000
Wages Payable
1,000
b. Wages Expense 5,000
Wages Payable
5,000
c. Wages Expense 3,000
Wages Payable
3,000
d. No adjusting entry is required.

A company shows a balance in Salaries Payable of $25,000 at the end of the month. The
next payroll amounting to $40,000 is to be paid in the following month. What will be the
journal entry to record the payment of salaries?
a. Salaries Expense 40,000
Salaries Payable
40,000
b. Salaries Expense 40,000
Cash
40,000
c. Salaries Expense 15,000
Cash
15,000
d. Salaries Expense 15,000
Salaries Payable 25,000
Cash
40,000

The accounts of a business before an adjusting entry is made to record an accrued revenue
reflect an
a. understated liability and an overstated owner's capital.
b. overstated asset and an understated revenue.
c. understated expense and an overstated revenue.
d. understated asset and an understated revenue.
Carter Guitar Company borrowed $40,000 from the bank signing a 9%, 3-month note on
September 1. Principal and interest are payable to the bank on December 1. If the
company prepares monthly financial statements, the adjusting entry that the company
should make for interest on September 30, would be
a. Debit Interest Expense, $3,600; Credit Interest Payable, $3,600.
b. Debit Interest Expense, $300; Credit Interest Payable, $300.
c. Debit Note Payable, $3,600; Credit Cash, $3,600.
d. Debit Cash, $900; Credit Interest Payable, $900.

Which of the statements below is not true?

a. An adjusted trial balance should show ledger account balances.
b. An adjusted trial balance can be used to prepare financial statements.
c. An adjusted trial balance proves the mathematical equality of debits and credits in the
ledger.
d. An adjusted trial balance is prepared before all transactions have been journalized.

For prepaid expense adjusting entries

 a. an expense-liability account relationship exists.
b. prior to adjustment, expenses are overstated and assets are understated.
c. the adjusting entry results in a debit to an expense account and a credit to an asset
account.
d. none of these.

Demaet Cruise Lines purchased a five-year insurance policy for its ships on April 1, 2002 for
$100,000. Assuming that April 1 is the effective date of the policy, the adjusting entry on
December 31, 2002 is
a. Prepaid Insurance 15,000
Insurance Expense 15,000
b. Insurance Expense 15,000
Prepaid Insurance 15,000
c. Insurance Expense 20,000
Prepaid Insurance 20,000
d. Insurance Expense 5,000
Prepaid Insurance 5,000

Gardner Company purchased a truck from Kutner Co. by issuing a 6-month 10% note payable for
$30,000 on November 1. On December 31, the accrued expense adjusting entry is
a. No entry is required.
b. Interest Expense 3,000
Interest Payable 3,000
c. Interest Expense 6,000
Interest Payable 6,000
d. Interest Expense 500
Interest Payable 500

30000X10%X 2/12= 500

Cline, an employee of the Wheeler Company, will not receive her paycheck until April 2. Based
on services performed from March 15 to March 30 her salary was $800. The adjusting
entry for Wheeler Company on March 31 is
a. Salaries Expense 800
Salaries Payable 800
b. No entry is required.
c. Salaries Expense 800
Cash 800
d. Salaries Payable 800
Cash 800

Financial statements are prepared directly from the

a. general journal.
b. ledger.
c. trial balance.
d. adjusted trial balance.
 EXERCISES

Emeril Corporation encounters the following situations:

1. Emeril collects $1,000 from a customer in 2010 for services to be performed in 2011.
2. Emeril incurs utility expense which is not yet paid in cash or recorded.
3. Emeril’s employees worked 3 days in 2010, but will not be paid until 2011.
4. Emeril earned service revenue but has not yet received cash or recorded the transaction.
5. Emeril paid $2,000 rent on December 1 for the 4 months starting December 1.
6. Emeril received cash for future services and recorded a liability until the revenue was earned.
7. Emeril performed consulting services for a client in December 2010. On December 31, it billed
the client $1,200.
8. Emeril paid cash for an expense and recorded an asset until the item was used up.
9. Emeril purchased $900 of supplies in 2010; at year-end, $400 of supplies remain unused.
10. Emeril purchased equipment on January 1, 2010; the equipment will be used for 5 years.
11. Emeril borrowed $10,000 on October 1, 2010, signing an 8% one-year note payable.
Instructions
Identify what type of adjusting entry (prepaid expense, unearned revenue, accrued expense, and
accrued revenue) is needed in each situation, at December 31, 2010.

1. No adjustment required. Because the unearned revenue will be

earned in 2011.
2. Accrued expense.
3. Accrued expense.
4. Accrued revenue.
5. Prepaid expense.
6. Unearned revenue.
7. It will be recorded in general journal. Because source document has
created on 31 Dec.
8. Prepaid expense.
9. Prepaid expense.
10. Prepaid expense.
11. Accrued expense.
Ex.
Match the statements below with the appropriate terms by entering the appropriate letter code in
the spaces provided.
TERMS:
A. Prepaid Expenses
B. Unearned Revenues
C. Accrued Revenues
D. Accrued Expenses
STATEMENTS:

1. A revenue not yet earned; collected in advance.

2. Office supplies on hand that will be used in the next period.

3. Interest revenue collected; not yet earned.

4. Rent not yet collected; already earned.

5. An expense incurred; not yet paid or recorded.

6. A revenue earned; not yet collected or recorded.

7. An expense not yet incurred; paid in advance.

8. Interest expense incurred; not yet paid.

Solution
1. B 5. D
2. A 6. C
3. B 7. A
4. C 8. D
Problem

Solution:
The adjusted trial balance of the Nance Company includes the following balance sheet accounts
that frequently require adjustment. For each account, indicate (a) the type of adjusting entry
(prepaid expenses, unearned revenues, accrued revenues, or accrued expenses) and (b) the
related account in the adjusting entry.
(a) (b)
Balance Sheet Account Type of Adjusting Entry Related Account
1. Supplies
2. Accounts Receivable
3. Prepaid Insurance
4. Accumulated Depreciation—
Equipment
5. Interest Payable
6. Salaries Payable
7. Unearned Revenue

Solution
(a) (b)
Balance Sheet Account Type of Adjusting Entry Related Account
1. Supplies Prepaid Expense Supplies Expense
2. Accounts Receivable Accrued Revenue Service Revenue
3. Prepaid Insurance Prepaid Expense Insurance Expense
4. Accumulated Depreciation—
Equipment Prepaid Expense Depreciation Expense
5. Interest Payable Accrued Expense Interest Expense
6. Salaries Payable Accrued Expense Salaries Expense
7. Unearned Revenue Unearned Revenues Service Revenue
Solution:
Ex#

Andy Wright, D.D.S., opened a dental practice on January 1, 2010. During the first month of
operations the following transactions occurred.
1. Performed services for patients who had dental plan insurance. At January 31, $875 of such
services was earned but not yet recorded.
2. Utility expenses incurred but not paid prior to January 31 totaled $520.
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 $12,000.
5. Purchased $1,600 of dental supplies. On January 31, determined that $400 of supplies were
on hand.
Instructions
Prepare the adjusting entries on January 31. Account titles are: Accumulated Depreciation—
Dental Equipment, Depreciation Expense, Service Revenue, Accounts Receivable, Insurance
Expense, Interest Expense, Interest Payable, Prepaid Insurance, Supplies, Supplies Expense,
Utilities Expense, and Utilities Payable.
Ex#

Before month-end adjustments are made, the February 28 trial balance of Al's Enterprise
contains revenue of $9,000 and expenses of $4,800. Adjustments are necessary for the following
items:
 Depreciation for February is $1,300.
 Revenue earned but not yet billed is $2,800.
 Accrued interest expense is $900.
 Revenue collected in advance that is now earned is $3,500.
 Portion of prepaid insurance expired during February is $400.

Instructions
Calculate the correct net income for Al's Income Statement for February.

Solution
Net Income before Adjustments ($9,000 – 4,800) $ 4,200
Add: Unearned Revenues $3,500
Accrued Revenues 2,800 6,300
10,500
Subtract: Depreciation Expense 1,300
Interest Expense 900
Insurance Expense 400 2,600
Net Income after Adjustments $ 7,900
Pfister Co. leases an office to a tenant at the rate of $5,000 per month. The tenant contacted Pfister
and arranged to pay the rent for December on January 8 of the following year. Pfister agrees to
this arrangement.
a.) Prepare the journal entry that Pfister must make at year ended December 31 to record the
accrued rent revenue.
b.) Prepare the journal entry to record the receipt of the rent on January 8 of the following year.
Pfister Co. leases trial balance for Bella's Beauty Salon and the adjusting information given below,
prepare the adjusting journal entries for Bella's Beauty Salon.
Bella Beauty Salon's unadjusted trial balance for the current year follows:

Additional information:
a. An insurance policy examination showed $1,240 of expired insurance
b. An inventory count showed $210 of unused shop supplies still available.
c. Depreciation expense on shop equipment, $350.
d. Depreciation expense on the building, $2,220.
e. A beautician is behind on space rental payments, and this $200 of accrued revenues was
unrecorded at the time the trial balance was prepared.
f. $800 of the Unearned Rent account balance was earned by year-end.
g. The one employee, a receptionist, works a five-day workweek at $50 per day. The
employee was paid last week but has worked four days this week for which she has not
been paid.
h. Three months' property taxes, totaling $450, have accrued. This additional amount of
property taxes expense has not been recorded
i. One month's interest on the note payable, $600, has accrued but is unrecorded.
Problem:

Solution:

Problem:

Solution:
Problem:

Solution:

Problem:

Solution:
Problem:

1. Interest Expense............................................................... 400

Interest Payable............................................................ 400
($10,000 X 12% X 4/12)
2. Supplies Expense ......................................................... 1,550
Supplies ..................................................................... 1,550
($2,450 – $900)
3. Depreciation Expense.................................................... 1,000
Accumulated Depreciation—Equipment......... 1,000
4. Insurance Expense.......................................................... 1,225
Prepaid Insurance.................................................... 1,225
($2,100 X 7/12)
5. Unearned Consulting Revenue...................................... 7,500
Consulting Revenue................................................... 7,500
($30,000 X 1/4)
6. Accounts Receivable ...................................................... 4,200
Consulting Revenue................................................... 4,200
7. Salaries Expense............................................................. 5,400
Salaries Payable......................................................... 5,400
($9,000 X 3/5)
Ex#

The Comets, a semi-professional baseball team, prepare financial statements on a monthly basis.
Their season begins in April, but in March the team engaged in the following transactions:
(a) Paid $90,000 to Wichita City as advance rent for use of Wichita City Stadium for the six
month period April 1 through September 30.
(b) Collected $160,000 cash from sales of season tickets for the team's 20 home games. This
amount was credited to Unearned Ticket Revenue.

During the month of April, the Comets played four home games and five road games.

Instructions
Prepare the adjusting entries required at April 30 for the transactions above.

Solution
(a) Rent Expense 15,000
Prepaid Rent 15,000
($90,000 ÷ 6 = $15,000)

(b) Unearned Ticket Revenue 32,000

Ticket Revenue 32,000
($160,000 ÷ 20 = $8,000; $8,000 × 4 = $32,000)

Ex#
Fielder Company has an accounting fiscal year which ends on June 30. The company also has a
policy of paying the weekly payroll on Friday. Payroll records indicate the following salary costs
were incurred.
Date Amount
Monday June 28 $3,500
Tuesday June 29 3,800
Wednesday June 30 2,400
Thursday July 1 3,000
Friday July 2 3,400

Instructions
(a) Prepare any necessary adjusting journal entries that should be made at year end on June
30.
(b) Prepare the journal entry to record the payment of the weekly payroll on July 2.

Solution
(a) June 30 Salaries Expense 9,700
Salaries Payable 9,700
(To accrue salaries incurred but not yet paid)

(b) July 2 Salaries Payable 9,700

Salaries Expense 6,400
Cash 16,100
 (To record payment of July 2 payroll)

Problem:

SOLUTION:
Ex.
Clark Coat Company purchased a delivery truck on June 1 for $36,000, paying $8,000 cash and
signing a 12%, 2-month note for the remaining balance. The truck is expected to depreciate
$9,000 each year. Clark Coat Company prepares monthly financial statements.

Instructions
(a) Prepare the general journal entry to record the acquisition of the delivery truck on June lst.
(b) Prepare any adjusting journal entries that should be made on June 30th.
(c) Show how the delivery truck will be reflected on Clark Coat Company's balance sheet on
June 30th.

Solution
(a) June 1 Delivery Truck 36,000
Cash 8,000
Notes Payable 28,000
(To record acquisition of delivery truck and
signing of a 2-month, 12% note)

(b) June 30 Depreciation Expense 750

Accumulated Depreciation—Delivery Truck 750
(To record monthly depreciation)
$9,000 ÷ 12 = $750/month

30 Interest Expense 280

Interest Payable 280
(To accrue interest on notes payable)
$28,000 × 12% × 1/12 = $280

(c) Assets
Delivery Truck $36,000
Less: Accumulated Depreciation—Delivery Truck 750 $35,250
Ex.
Wyatt Company prepares monthly financial statements. Below are listed some selected accounts
and their balances in the September 30 trial balance before any adjustments have been made for
the month of September.

WYATT COMPANY
Trial Balance (Selected Accounts)
September 30, 2002

Debit Credit
Office Supplies $ 2,700
Prepaid Insurance 5,000
Office Equipment 16,200
Accumulated Depreciation—Office Equipment $ 400
Unearned Rent Revenue 1,200

(Note: Debit column does not equal credit column because this is a partial listing of selected
account balances)

An analysis of the account balances by the company's accountant provided the following
additional information:
1. A physical count of office supplies revealed $1,500 on hand on September 30.
2. A two-year life insurance policy was purchased on June 1 for $6,000.
3. Office equipment depreciated $2,400 per year.
4. The amount of rent received in advance that remains unearned at September 30 is $300.

Instructions
Using the above additional information, prepare the adjusting entries that should be made by
Wyatt Company on September 30.

Solution
1. Office Supplies Expense 1,200
Office Supplies 1,200
(To record the amount of office supplies used)

2. Insurance Expense 250

Prepaid Insurance 250
(To record insurance expired $6,000 ÷ 24)

3. Depreciation Expense 200

Accumulated Depreciation—Office Equipment 200
(To record monthly depreciation $2,400 ÷ 12)

4. Unearned Rent Revenue 900

Rent Revenue 900
(To record rent revenue earned)
Ex.
Prepare the required end-of-period adjusting entries for each independent case listed below.

Case 1
Starr Company began the year with a $3,000 balance in the Office Supplies account. During the
year, $8,500 worth of additional office supplies were purchased. A physical count of office
supplies on hand at the end of the year revealed that $7,100 worth of office supplies had been
used during the year. No adjusting entry has been made until year end.

Case 2
Eaton Company has a calendar year-end accounting period. On July 1, the company purchased
office equipment for $30,000. It is estimated that the office equipment will depreciate $400 each
month. No adjusting entry has been made until year end.

Case 3
Ward Realty is in the business of renting several apartment buildings and prepares monthly
financial statements. It has been determined that 3 tenants in $800 per month apartments and
one tenant in the $1,200 per month apartment had not paid their August rent as of August 31st.

Solution
Case 1—December 31
Office Supplies Expense 7,100
Office Supplies 7,100
(To record office supplies used during the year)

Case 2—December 31
Depreciation Expense 2,400
Accumulated Depreciation—Office Equipment 2,400
(To record depreciation expense for six months)
$400 × 6 months = $2,400 Depreciation

Case 3—August 31
Rent Receivable 3,600
Rent Revenue 3,600
(To accrue rent earned but not yet received)
Ex.
Jordan Insurance Agency prepares monthly financial statements. Presented below is an income
statement for the month of June that is correct on the basis of information considered.
JORDAN INSURANCE AGENCY
Income Statement
For the Month Ended June 30

Revenues
Premium Commission Revenue $40,000
Expenses
Salary expense $6,000
Advertising expense 800
Rent expense 4,200
Depreciation expense 2,800
Total expenses 13,800
Net income $26,200

Additional Data: When the income statement was prepared, the company accountant neglected
to take into consideration the following information:
1. A utility bill for $2,000 was received on the last day of the month for electric and gas service
for the month of June.
2. A company insurance salesman sold a life insurance policy to a client for a premium of
$20,000. The agency billed the client for the policy and is entitled to a commission of 20%.
3. Supplies on hand at the beginning of the month were $3,000. The agency purchased
additional supplies during the month for $2,500 in cash and $1,000 of supplies were on hand
at June 30.
4. The agency purchased a new car at the beginning of the month for $19,200 cash. The car
will depreciate $3,600 per year.
5. Salaries owed to employees at the end of the month total $5,300. The salaries will be paid on
July 5.

Instructions
Prepare a correct income statement.

Solution
JORDAN INSURANCE AGENCY
Income Statement
For the Month Ended June 30

Revenues
Premium Commission Revenue ($40,000 + $4,000) $44,000
Expenses
Salary expense ($6,000 + $5,300) $11,300
Advertising expense 800
Rent expense 4,200
Depreciation expense ($2,800 + $300) 3,100
Utilities expense ($0 + $2,000) 2,000
Supplies expense ($0 + $4,500) 4,500
Total expenses 25,900
Net income $18,100