Exercise (1):

The trial balance of Mark Watson Repairs at March 31, 2019, before
adjustment and the data needed for the end of month adjustments follow (the
accounting period is one month):

Mark Watson Repairs

Trial Balance
March 31, 2019

Account Title Dr. Cr.

Cash $9,500
Accounts Receivable 7,500
Prepaid Insurance 1,800
Supplies 3,700
Office Equipment 20,000
Notes Payable 12,000
Accounts Payable $4,500
Unearned Service Revenue 3,000
Owner’s Capital 21,500
Owner’s, Drawings 1,500
Service Revenue 9,000
Salaries Expense 4,000
Rent Expense 2,000
$50,000 $50,000

Adjustment data:
1. The remaining supplies at March 31 are $1,200.
2. The insurance policy is for one year.
3. The office equipment is depreciated at the rate of $500 per month.
4. $2,000 of unearned service revenue has been earned at the end of
March.
Instructions: Journalize the adjusting entries at March 31, 2019. Key each adjusting
entry by the adjustment number.

Solution:
1. Supplies expense = $3,700 supplies before adjustment from the trial
balance - $1,200 the remaining supplies at end of March = $2,500

The $2,500 represents the supplies used during March. Therefore, we should
increase supplies expense by $2,500 by debiting “Supplies Expense” for this
amount. In the meantime, the asset “Supplies” should be reduced by the
amount of the supplies used by crediting “Supplies” for $2,500.

2. Insurance Expense per month = $1,800 prepaid insurance from the trial
balance ÷ 12 months = $150

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 The insurance policy is for one year, therefore, the asset “Prepaid Insurance”
expires at the rate of $150 per month. Therefore, at the end of every month,
we should increase insurance expense by $150 by debiting the “Insurance
Expense” account for $150. In the meantime, the asset “Prepaid Insurance”
should be reduced by $150 by crediting “Prepaid Insurance” for $150.

3. The “Equipment” is depreciated by $500 per month, therefore, at the end

of every month, we should increase the depreciation expense account by
$500 by debiting the “Depreciation Expense” for $500, and increase the
accumulated depreciation – equipment account by crediting the
“Accumulated Depreciation- Equipment” for $500.

4. $2,000 of unearned service revenue has been earned at the end of March.
Therefore, the service revenue account should be increased by $2,000 by
crediting the Service Revenue” account for $2,000. In the meantime, the
liability account unearned service revenue should be decreased by the
same amount by debiting the “Unearned Service Revenue” for $2,000.

Note That:

The above explanations are provided to you for your understanding in order
to know the nature of every adjustment, and the calculation needed, if any. To handle
an exercise like this, follow the procedure used in solving exercises (2) and (3)
presented later on.

Now let us record the adjusting entries for this exercise.

Date Account Title and Explanations Ref. Dr. Cr.

2019 Adjusting Entries
(1) Supplies Expense 2,500
Supplies 2,500
(2) Insurance Expense 150
Prepaid Insurance 150
(3) Depreciation Expense 500
Accumulated Depreciation-Equipment 500
(4) Unearned Service Revenue 2,000
Service Revenue 2,000

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Exercise (2):

The trial balance of Swift Advertising at December 31, 2019 before

adjustments and the data needed for the month-end adjustments follow (the
accounting period is one month):

Swift Advertising
Trial Balance
December 31, 2019

Account Title Dr. Cr.

Cash $7,100
Accounts Receivable 5,500
Supplies 4,800
Prepaid Insurance 3,600
Equipment 18,000
Accumulated Depreciation - Equipment $3,000
Accounts Payable 4,300
Notes Payable 6,000
Unearned Service Revenue 3,200
Owner’s Capital 21,000
Owner’s, Drawings 2,500
Service Revenue 10,500
Salaries Expense 5,000
Rent Expense 1,500
$48,000 $48,000

Adjustment data:
1. The remaining supplies at December 31 are $1,300.
2. The insurance policy was purchased on December 1 for one year.
3. The equipment is depreciated at the rate of $600 per month.
4. $1,700 of unearned service revenue has been earned at the end of December.

Instructions: Journalize the adjusting entries for Swift Advertising at December 31,
2019. Key each adjusting entry by the adjustment number.

Solution:

• Supplies Expense = $4,800 supplies before adjustment - $1,300 the remaining

supplies = $3,500
• Insurance Expense per month = $3,600 prepaid insurance ÷ 12 months = $300

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 Date Account Title and Explanations Ref. Dr. Cr.
2019 Adjusting Entries
(1) Supplies Expense 3,500
Supplies 3,500
(2) Insurance Expense 300
Prepaid Insurance 300
(3) Depreciation Expense 600
Accumulated Depreciation-Equipment 600
(4) Unearned Service Revenue 1,700
Service Revenue 1,700

Exercise (3):
The trial balance of Harry Repair Services at December 31, 2019 before
adjustments and the data needed for the month-end adjustments follow (the
accounting period is one month):

Harry Repair Services

Trial Balance
December 31, 2019

Account Title Dr. Cr.

Cash $9,400
Accounts Receivable 17,600
Supplies 5,500
Prepaid Insurance 3,000
Equipment 30,000
Accumulated Depreciation - Equipment $4,500
Accounts Payable 11,200
Notes Payable 12,000
Unearned Service Revenue 4,800
Owner’s, Capital 26,000
Owner’s, Drawings 2,500
Service Revenue 16,500
Salaries Expense 5,000
Rent Expense 2,000
$75,000 $75,000

Adjustment data:
1. The remaining supplies at December 31 were $1,700.
2. The insurance policy was purchased on December 1 for one year.
3. The equipment is depreciated at the rate of $450 per month.
4. $2,800 of unearned service revenue has been earned at the end of
December.

Instructions: Journalize the adjusting entries for Harry Repair Services at December
31, 2019. Key each adjusting entry by the adjustment number.

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Solution:

• Supplies Expense = $5,500 supplies before adjustment - $1,700 the remaining

supplies = $3,800
• Insurance Expense per month = $3,000 prepaid insurance ÷ 12 months = $250

Date Account Title and Explanations Ref. Dr. Cr.

2019 Adjusting Entries
(1) Supplies Expense 3,800
Supplies 3,800
(2) Insurance Expense 250
Prepaid Insurance 250
(3) Depreciation Expense 450
Accumulated Depreciation-Equipment 450
(4) Unearned Service Revenue 2,800
Service Revenue 2,800

Dr. Zakaa Khalifa