Full Name: Natalie Jimenez

Exercise Set A

• LO 4.2 Identify whether each of the following transactions, which are

related to revenue recognition, are accrual, deferral, or neither.
• sold goods to customers on credit
• collected cash from customer accounts 
• sold goods to customers for cash
• collected cash in advance for goods to be delivered later
Solution
A. AR
B. N
C. N
D. DR

• LO 4.2 Identify whether each of the following transactions, which are

related to expense recognition, are accrual, deferral, or neither.
• paid an expense for the current month
• prepaid an expense for future months
• made a payment to reduce accounts payable
• incurred a current-month expense, to be paid next month
Solution
A. N
B. DR
C. N
D. AR

• LO 4.2 Identify the type for each of these transactions. Choose accrued
revenue, accrued expense, deferred revenue, or deferred expense.
• rent paid in advance for use of property
• cash received in advance for future services
• bill received for utilities expense
• fees earned but not yet collected
Solution
A. DE
B. DR
C. AE
D. AR

• LO 4.2 The following accounts were used to make year-end adjustments.

Identify the related account that is associated with this account (the other account in the
adjusting entry).
• Salaries Payable
• Depreciation Expense
• Supplies
• Unearned Rent
Solution
A. Salaries Expense
B. Accumulated Depreciation
C. Supplies Expense
D. Rent Revenue
 • LO 4.3 Reviewing insurance policies revealed that a single policy was
purchased on August 1, for one year’s coverage, in the amount of $6,000. There was no
previous balance in the Prepaid Insurance account at that time. Based on the information
provided:
• Make the December 31 adjusting journal entry to bring the balances to
correct.
• Show the impact that these transactions had.
Solution
•
Insurance Expense
2,500
 
Prepaid Insurance
 
2,500
•
Prepaid Insurance Account

 
Beginning balance
$0

Premium paid
$6,000

Subtotal
$6,000

Expired

$2,500
Prepaid/unexpired
$3,500

• LO 4.3 On July 1, a client paid an advance payment (retainer) of $5,000 to

cover future legal services. During the period, the company completed $3,500 of the
agreed-on services for the client. There was no beginning balance in the Unearned
Revenue account for the period. Based on the information provided,
• Make the December 31 adjusting journal entry to bring the balances to
correct.
• Show the impact that these transactions had.
Solution
•
Unearned Fee Revenue
3,500
 
Fee Revenue
 
3,500
•
Unearned Fee Revenue

Beginning balance

$0
Advance/retainer

$5,000
Subtotal

$5,000
Earned
$3,500

Unearned

$1,500

• LO 4.3 Reviewing payroll records indicates that employee salaries that are
due to be paid on January 3 include $3,575 in salaries for the last week of December.
There was no previous balance in the Salaries Payable account at that time. Based on the
information provided, make the December 31 adjusting journal entry to bring the
balances to correct.
Solution
Salaries Expense
3,575
 
Salaries Payable
 
3,575
• LO 4.3 Supplies were purchased on January 1, to be used throughout the
year, in the amount of $8,500 in cash. On December 31, a physical count revealed that
the remaining supplies totaled $1,200. There was no beginning of the year balance in the
Supplies account. Based on the information provided:
• Create journal entries for the original transaction
• Create journal entries for the December 31 adjustment needed to bring the
balances to the correct balance
• Show the ending balance
Solution
•
Supplies
8,500
 
Cash
 
8,500
•
Supplies Expense
$7,300

Supplies
 $7,300
 

Supplies Account

 
Beginning balance
$0
 
Purchased
$8,500

Subtotal
$8,500

Used

$7,300
•
Remaining

$1,200 

• LO 4.3 Prepare journal entries to record the following business transaction

and related adjusting entry.
• January 12, purchased supplies for cash, to be used all year, $3,850
• December 31, physical count of remaining supplies, $800
Solution
•
Supplies
3,850
 
Cash
 
3,850
•
Supplies Expense
$3,050

Supplies

$3,050

• LO 4.3 Prepare journal entries to record the following adjustments.

• Insurance that expired this period, $18,000
• Depreciation on assets, $4,800
• Salaries earned by employees but unpaid, $1,200
Solution
•
Insurance Expense
 18,000
 
Prepaid Insurance
 
18,000
•
Depreciation Expense
4,800
 
Accumulated Depreciation
 
4,800
•
Salaries Expense
1,200
 
Salaries Payable
 
1,200

• LO 4.3 Prepare adjusting journal entries, as needed, considering the

account balances excerpted from the unadjusted trial balance and the adjustment data.
Unadjusted Trial Balance
Account Title
Debit
Credit
Fixed assets
120,000

Accumulated depreciation

24,000
Prepaid rent
18,000

Unearned revenue

3,500

• depreciation on fixed assets, $8,500

• unexpired prepaid rent, $12,500
• remaining balance of unearned revenue, $555
Solution
•
Depreciation Expense
8,500
 
Accumulated Depreciation: Fixed Assets
 
8,500
•
Rent Expense
 $5.500

Prepaid Rent

$5,500
•
Unearned Revenue
$2,945

Revenue

$2,945

• LO 4.4 Prepare an adjusted trial balance from the following adjusted

account balances (assume accounts have normal balances).
Accounts payable
$ 6,600
Accounts receivable
12,750
Administrative expense
49,150
Cash
28,900
Common stock
15,000
Prepaid insurance
8,800
Service revenue
78,000
Solution
Adjusted Trial Balance
 
Debit
Credit
Cash
$28,900

Accounts Receivable
$12,750

Prepaid Insurance
$8,800

Accounts Payable

$6,600
Common Stock

$15,000
Service Revenue

$78,000
Administrative Expense
$49,150

Totals 
$99,600
$99,600

• LO 4.4 Prepare an adjusted trial balance from the following account

information, considering the adjustment data provided (assume accounts have normal
balances).
Accounts payable
$ 11,700
Accounts receivable
17,100
Administrative expense
54,800
Cash
44,800
Common stock
30,000
Prepaid insurance
16,000
Service revenue
91,000
Adjustments needed:
• Salaries due to administrative employees, but unpaid at period end, $2,000
• Insurance still unexpired at end of the period, $12,000
Solution
Adjusted Trial Balance
 
Debit
Credit
Cash
$44,800

Accounts Receivable
$17,100

Prepaid Insurance
$16,000

Accounts Payable

$11,700
Salaries Payable

$2,000
Common Stock

$30,000
Service Revenue
 $91,000
Administrative Expense
$60,800

Totals
$134,700
$134,700

• LO 4.5 From the following Company A adjusted trial balance, prepare

simple financial statements, as follows:
• Income Statement
• Retained Earnings Statement
• Balance Sheet
Adjusted Trial Balance
Account Title
Debit
Credit
Cash
$ 42,000

Accounts receivable
11,300

Prepaid insurance
14,800

Accounts payable

$ 10,900
Salaries payable

14,000
Common stock

25,000
Service revenue

61,000
Administrative expenses
42,800

Totals
110,900
110,900
Solution
•
Company A
Income Statement
For the Year Ended December 31, 2019
Revenues:
 
 
Service Revenue
$61,000
 

 
Expenses:

 
Administrative Expenses
$42,800
 
 

 
Net Income
$18,200
 
•
Company A
Retained Earnings Statement
For the Year Ended December 31, 2019
Retained Earnings, balance January 1
0
 
Net Income
$18,200
 
Dividends
-$0
 
Retained Earnings, balance December 31
$18,200
 
•
Company A
Balance Sheet
December 31, 2019
Assets:
 
 
Cash
$42,000

Accounts receivable
$11,300

Prepaid insurance
$14,800

Total Assets
$68,100
 

Liabilities:

Accounts payable
$10,900

Salaries payable
$14,000

Total Liabilities
$24,900

Equity:

Common stock
$25,000

Retained Earnings
$18,200

Total Equity
$43,200

Total Liabilities and Equity

$68,100

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