3820221046- RAKHIMJON BAKHROMOV

Ch3 homework. Adjusting accounts for nancial statements

1.
a.
Whole season ticket sale between September 1 and January 31 were sold out for $560,000

There are 5 months, but we are asked to prepare the Financial statement for the end of year 2018.

Hence, $560,000/5*4 = $448,000 (till December 31st, 2018)

Date Account Debit Credit

Dec 31, 2018 Receivable $448,000

Service revenue $448,000

b.
Construction happens from July 1, 2018 till December 31, 2019 = 18 months

Contract value = $3,600,000

From July 1, 2018 till December 31, 2018 = 6 months

Hence, $3,600,000/18*6 = $1,200,000 (till December 31, 2018)

Date Account Debit Credit

Dec 31, 2018 Receivable $1,200,000

Contract revenue $1,200,000

2.
a. There is no requirement for an adjustment entry because the advance was received for three
months commencing September 1, namely September, October, and November. As a result,
full revenue must be recorded. Because the income has already been fully recognised, no
adjusting entry is necessary.

b. Entry of adjustments is necessary. Beginning December 1, an advance is received for three

months, namely December, January, and February. Because December comes inside the
accounting year, revenue for December must be recognised. Since the advance is recognized
as unearned income, an adjustment item will be created to re ect revenue for one month.
E ects: Liabilities will decrease, equity and revenue will increase.

c. Entry of adjustments is required. Because services were supplied in December, revenue is

expected to be recorded in December. E ects: Assets, equity and revenue will increase.

d. There is no need for adjustment. Since the insurance coverage became e ective on January
2, 2016, it applies to the next accounting period. The expenditure will only be recognised in
the next accounting period. There is no need for an adjustment because the amount paid was
correctly entered in the unexpired insurance account.

e. Adjustment entry is necessary to modify the e ect of these by debiting applicable expense
accounts and crediting asset accounts. since amounts debited to accounts should have been
recorded as costs. E ects: Assets and equity decrease, and expenses increase.

f. Entry of adjustments is required. Salary collected but unpaid within the current accounting
period must be recognised as an expense for the period from the last pay day of the year to
December 31. Because the spending is related to the speci ed accounting period. E ects:
Liabilities and expenses increase, equity decreases.

ff
ff
fi
ff
ff
fi
fl
ff
ff
3.
Journal entries

Accounts Debit Credit

Insurance expense $1,040

a.
Prepaid insurance $1,040

Supplies expenses $210

b.
Shop supplies $210

Depreciation expenses $350

c.
Depr - shop equip. $350

Dep. expense $2,020

d.
Dep - building $2,020

Accrued revenues $200

e.
Revenue earned $200

Rent $800
f.
Rent earned $800

Salaries expense $200

g.
Salaries payable $200

Property taxes $450

h.
Tax payable $450

Interest $600
i.
Interest payable $600

Highlight Styling

Income statement before Adjustment

Dec 31

Fees earned 23400

Rent earned 2400

Total revenue 25800

Less: Expenses

Wage expense 3200

 Utilities expense 690

Property taxes expense 600

Interest expense 4350 8840

Net income 16960

Highlight Styling

Trial balance after adjustment

Dec 31

Before Adjustment Adjustments Total

Debit Credit Debit Credit Debit Credit

Cash 2200 2200

Prepaid
1680 1680
insurance

Shop
790 580 210
supplies

Shop
3860 3860
equipment

Acc. Dep -
770 350 1120
shop equip.

Building 59500 59500

Acc.dep. -
3840 2020 5860
building

Land 55000 55000

Unearned
2600 1800 800
rent

Long term
notes 50000 50000
payable

Bella
Hanson, 48860 48860
Capital

Rent earned 2400 2000 4400

Fees earned 23400 23400

Wages
3200 200 3400
expense

Utility
690 690
expense

Property
taxes 600 450 1050
expense
 Interest
4350 600 4950
expense

Insurance
1040 1040
expense

Insurance
expense 1040 1040
payable

Dep - shop
350 350
equip.

Dep -
2020 2020
building

Wages
200 200
payable

Property
taxes 450 450
payable

Interest
600 600
payable

Supplies
580 580
expense

Rent
200 200
receivable

Total 131870 131870 7240 7240 136730 136730

Highlight Styling

Income statement before Adjustment

Dec 31

Fees earned 23400

Rent earned 4400

Total revenue 27800

Less: Expenses

Wage expense 3400

Utilities expense 690

Property taxes expense 450

Interest expense 4950

Depreciation 2370

Supplies expense 580 12440

Net income 15360