ADJUSTING ENTRIES

At December 31, 2004, Sue's Boutique had 2,000 gift certificates outstanding, which had been
sold to customers during 2004 for $50 each. Sue's operates on a gross margin of 60% of its
sales. What amount of revenue pertaining to the 2,000 outstanding gift certificates should be
deferred at December 31, 2004?
2,000 × $50 = $100,000.
On March 31, 2007, Phoenix, Inc. paid Melanie Publishing Company $15,480 for a 3-year
subscription for five different magazines.  The subscriptions are starting immediately. What
amount should appear in the Prepaid Subscription account for Phoenix Company after
adjustments on December 31 each year? (D)
$15,480/36 = $430 per month
2007 = $430 x 12 = $5,160
2008 = $430 x 12 = $5,160
2009 = $430 x 3 = $1,290
2010 = $430 x 0 = $ -0-
2007, $11,610; 2008, $6,450; 2009, $1,290; 2010, $0.
Company Y earned $150,000 in 2007 and expects to receive 2/3 of the amount in 2008 and the
remainder in 2009. How much revenue should they report in 2007?
= $150,000
Meenen Company purchases equipment for $1,200 and supplies for $400 from Sanders Co. for
$1,600 cash. The entry for this transaction will include a = debit to Equipment $1,200 and a
debit to Supplies $400 for Meenen.
Which of the following statements is false regarding a proper journal entry? = Always list the
assets first.
An entry that has more than one debit and/or credit is called a: = compound entry.
A company's Office Supplies account shows a beginning balance of $600 and an ending
balance of $400.  If office supplies expense for the year is $3,100, what amount of office
supplies was purchased during the period?
$600 + Supplies Purchased - $3,100 = $400
Supplies Purchased = $2,900
If the prepaid rent account before adjustment at the end of the month has a debit balance of
$1,600, representing a payment made on the first day of the month, and if the monthly rent was
$800, the amount of prepaid rent that would appear on the balance sheet at the end of the
month, after adjustment, is = $800
A journal entry that contains more than two accounts is called = A compound journal entry
Avatar, Inc. bought a machine on January 1, 2011 for $96,000. The machine is expected to last
for 8 years, after which it will be worthless. How much depreciation expense will Avatar show on
its income statement for the year ended December 31, 2011? = $12,000

Rent a Wreck, Inc. began operations on July 1, 2012. On July 1, the company paid $9,600 cash
in advance for a one-year insurance policy beginning on that day. How much insurance
expense will appear on the company's income statement for the year ended December 31,
2012? = $4,800

Adam's Chili Bowl and Space Burgers purchases a grill for $5,000. The company expects to use
it for four years. If the company thinks that it can sell the grill at the end of the fourth year for
$500, how much is the depreciable base of the grill? = $4,500

Land is purchased by making a cash down payment of $40,000 and signing a note payable for
the balance of $130,000. The journal entry to record this transaction in the accounting records
of the purchaser includes: = A debit to Land for $170,000.
Enoch, Inc. began operations on July 1, 2011. On August 1, it received $12,000 in advance for
services to be performed evenly over the next 12 months. How much unearned revenue should
the company report on its balance sheet at December 31, 2011? = $7,000

Dorting Company purchased a computer system for $3,600 on January 1, 2008. The company
expects to use the computer system for 3 years. It has no salvage value.  Monthly depreciation
expense on the asset is = $100.