WEEK 3 – ADJUSTING ENTRIES

PRACTICE SET A
Exericise 3.1A

The income statement of Peter’s Pest Control for the month of December 2020 shows a profit of $6,800
based on:

Services revenue $15,200

Wages expense 6,400

Supplies expense 1,100

Electricity expense 900

In reviewing the statement, you discover the following:

1. Depreciation on equipment of $460 was omitted.

2. Supplies expense includes $320 of supplies that are still on hand at 31 December.

3. Insurance expired during December of $400 was omitted.

4. Accrued wages at 31 December amounting to $260 were not included.

5. Services provided but unrecorded totalled $1,600.

Required

Prepare a corrected income statement for the month of December 2020.

Exercise 3.2A

Danny’s Kitchens purchased a 1-year insurance policy on 1 September 2020. The entire premium of
$9,000 was recorded by debiting Prepaid Insurance.

Required

(a) Prepare the adjusting entry at 31 December for year ending 31 December 2020.

(b) What amount should be reported in the 31 December 2020 Balance Sheet for Prepaid
Insurance?

(c) If no adjusting entry was made on 31 December, by how much would profit be overstated or
understated? Would assets be overstated or understated? Explain.

(d) What would your adjusting entry in requirement (a) be if the premium of $9,000 was
recorded by debiting Insurance Expense?
Exercise 3.3A

Sunny, lawyer, had the following transactions related to the business during December

Dec 1 Purchased office furniture for $36,000. The furniture will be depreciated for $3,120

annually.

1 Purchased a 12-month fire insurance policy for $3,000.

2 Borrowed $42,000 by signing an 8%, one-year note.

11 Purchased supplies for $450. On 31 December, supplies worth $230 remained on hand.

15 Paid $1,200 for 1 month’s rent for the period 15 December to 15 January 2021.

18 Received an electronic bank transfer from a client for $840 as an advance payment for
services to be performed. Only 20% of the work was completed by 31 December.

28 Received an invoice for $410 for telephone and internet charges for the month.

Required

Prepare the journal entries to record each transaction and prepare any adjusting entries as at 31
December.