ADJUSTING THE ACCOUNTS

BRIEF EXERCISES

EX1
Prepare adjusting entries for the following transactions. Omit explanations.
1. Depreciation on equipment is $600 for the accounting period.
2. There was no beginning balance of supplies and purchased $600 of supplies during the
period. At the end of the period $150 of supplies were on hand.
3. Prepaid rent had a $1,200 normal balance prior to adjustment. By year end $400 was
unexpired.

Solution
1. Depreciation Expense .................................................................... 600
Accumulated Depreciation—Equipment ................................ 600

2. Supplies Expense .......................................................................... 450

Supplies ................................................................................ 450
($600 – $150)

3. Rent Expense................................................................................. 800

Prepaid Rent ......................................................................... 800
($1,200 – $400)

EX2
On June 1, during its first month of operations, Crooked Rain purchased supplies for $4,500 and
debited the supplies account for that amount. At June 30, an inventory of supplies showed $1,000
of supplies on hand. What adjusting journal entry should be made for June?

Solution
Supplies Expense ...................................................................... 3,500
Supplies ......................................................................... 3,500

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EX3
Celebraty Printings sold annual subscriptions to their magazine for $33,000 in December, 2015.
The magazine is published monthly. The new subscribers received their first magazine in
January, 2016.
1. What adjusting entry should be made in January if the subscriptions were originally recorded
as a liability?
2. What amount will be reported on the January 2016 balance sheet for Unearned Subscription
Revenue?

Solution
1. Unearned Subscription Revenue .............................................. 2,750
Subscription Revenue .................................................... 2,750

$33,000 ÷ $2,750 = $2,750

2. Unearned Subscription Revenue at January 31:

$33,000 – $2,750 = $30,250

EX4
On January 1, 2016, Bottle Rockets Corp. purchased a general liability insurance policy for
$9,000 to provide coverage for the calendar year.

1. If the company recorded the policy as an asset when purchased, what is the monthly
adjusting journal entry that should be recorded at January 31, 2016?

Solution
1. Insurance Expense ................................................................... 750
Prepaid Insurance ............................................................. 750

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Ex 5
The Monks, a minor league 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 $240,000 to San Diego as advance rent for use of San Diego Stadium for the six
month period April 1 through September 30.
(b) Collected $480,000 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 Monks played five home games and four road games.

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

Solution
(a) Rent Expense ............................................................................... 40,000
Prepaid Rent....................................................................... 40,000
($240,000 ÷ 6 = $40,000)

(b) Unearned Ticket Revenue ............................................................ 120,000

Ticket Revenue ................................................................... 120,000
($480,000 ÷ 20 = $24,000; $24,000 × 5 = $120,000)

Ex. 6
On July 1, 2014, Damlen Jurado Company pays $12,000 to its insurance company for a 2-year
insurance policy.

Instructions
Prepare the necessary journal entries for Damlen Jurado on July 1 and December 31.

Solution
July 1 Prepaid Insurance 12,000
Cash 12,000

Dec. 31 Insurance Expense 3,000

Prepaid Insurance ($12,000 × 6/24) 3,000
Ex. 7
On July 1, 2016, Accident Insurance Associates received $9,000 from a client for a 3-year
insurance policy.

Instructions
Prepare the necessary journal entries for Accident Insurance Associates on July 1 and December
31.

Solution
July 1 Cash ................................................................................... 9,000
Unearned Service Revenue ........................................... 9,000

Dec. 31 Unearned Service Revenue ................................................ 1,500

Service Revenue ($9,000 × 6/36) .................................. 1,500

Ex. 8
Prepare the necessary adjusting entry for each of the following:
1. Services provided but unrecorded totaled $700.
2. Accrued salaries at year-end are $1,000.
3. Depreciation on equipment for the year is $600.

Solution
1. Accounts Receivable ...................................................................... 700
Service Revenue ................................................................... 700

2. Salaries and Wages Expense ......................................................... 1,000

Salaries and Wages Payable ................................................. 1,000

3. Depreciation Expense .................................................................... 600

Accumulated Depreciation – Equipment ................................ 600

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Ex. 9
ABC 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 $3,000
Tuesday June 29 3,800
Wednesday June 30 3,300
Thursday July 1 3,500
Friday July 2 2,400

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 and Wages Expense ....................................... 10,100
Salaries and Wages Payable ............................... 10,100
(To accrue salaries incurred but not yet paid)

(b) July 2 Salaries and Wages Payable ........................................ 10,100

Salaries and Wages Expense ....................................... 5,900
Cash .................................................................... 16,000
(To record payment of July 2 payroll)

Ex. 10
On Friday of each week, Knife Company pays its factory personnel weekly wages amounting to
$48,000 for a five-day work week.

Instructions
(a) Prepare the necessary adjusting entry at year end, assuming December 31 falls on
Thursday.
(b) Prepare the journal entry for payment of the week’s wages on the payday which is Friday,
January 1 of the next year.

Solution
(a) Dec. 31 Salaries and Wages Expense ($48,000  4/5) .............. 38,400
Salaries and Wages Payable ............................... 38,400

(b) Jan. 2 Salaries and Wages Payable ........................................ 38,400

Salaries and Wages Expense ....................................... 9,600
Cash .................................................................... 48,000