Handout 4-1: Transaction analysis

Record the appropriate adjusting journal entry for each situation. See the next page for unadjusted
account balances shown in T-accounts.

(a) Suppose Deana’s had received a $1,800 shipment of supplies in September 15th 2009.

When counting the supplies, Deana’s found only $800 worth of supplies still present.

Debit and credit the accounts affected.

Dec. 31
2009

(b) Suppose Deana’s had paid $12,000 for six months’ rent on November 1, 2009. As of today, two months’
(November & December) prepaid rent has expired.

Debit and credit the accounts affected.

Dec. 31
2009

(c) Suppose Deana’s had paid $6,000 for one year’s insurance on June 1, 2009.

Debit and credit the accounts affected.

Dec. 31
2009

(d) The company had acquired Property, Plant & Equipment costing $40,000 on January 1, 2009. Suppose
that this Equipment carried $2,000 worth of amortization for 2009.

Debit and credit the accounts affected.

Dec. 31
2009

(e) On December 1, the company had sold $500 in gift certificates to a customer. On December 31, the
accountant received an envelope containing $400 worth of redeemed gift certificates, not yet recorded in the
company’s books.

Debit and credit the accounts affected.

Dec. 31
2009

(f) On June 30, the company invested $20,000 in a certificate of deposit that will yield 12% interest at the end
of one year.

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Debit and credit the accounts affected.
Dec. 31
2009

(g) Company borrowed a note payable from the bank for $30,000 on January 1, 2009, due with all interest on
June 30, 2010. The note payable requires 10% interest.

Debit and credit the accounts affected.

Dec. 31
2009

(h) Company pays a 35% income tax rate on income. Suppose that, before recording any adjustments, the
company reported $120,000 in revenue and 33,500 in expenses.

Debit and credit the accounts affected.

Dec. 31
2009

(i) On December 15, the company declared a $750 dividend, payable January 15, 2010.

Debit and credit the accounts affected.

Dec. 31
2009

T-Accounts
+ Cash – - Accounts Payable + -Contributed Capital +
Unadj. 43,450 250 Unadj. 10,000 Unadj.

- Retained Earnings +
+ Supplies – - Dividend Payable + 0 Unadj.
Unadj. 1,800 0 Unadj.

+ Dividends Declared –
Unadj. 0

+ Accounts Receivable – - Unearned Revenue +

Unadj. 4,000 500 Unadj.
- Revenue +
120,000 Unadj.

+ Prepaid Rent – - Notes Payable +

Unadj. 12,000 30,000 Unadj. - Interest Revenue +

+ Wage Expense –
+ Prepaid Insurance – - Interest Payable + Unadj. 32,000

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 Unadj. 6,000 0 Unadj.

+ Utilities Expense –
Unadj. 1,000

+ Certificate of Deposit – - Income Taxes Payable +

Unadj. 20,000 0 Unadj. + Telephone Expense –
Unadj. 500

+ Supplies Expense –
+ Interest Receivable –
Unadj. 0
+ Rent Expense –

+ Property, Plant & Equipment – + Insurance Expense –

Unadj. 40,000

+ Amortization Expense –

+ Interest Expense –
- Accumulated Amort. +
0 Unadj.
+ Income Tax Expense –

Handout 4-2: Adjusted Trial Balance

Deana’s Decorators
Adjusted Trial Balance
December 31, 2009
Debit Credit
Cash
Supplies
Accounts Receivable
Prepaid Rent
Prepaid Insurance
Certificate of Deposit
Interest Receivable
Property, Plant & Equipment
PPE – Accumulated Amortization
Accounts Payable
Dividend Payable
Unearned Revenue
Notes Payable
Interest Payable
Income Taxes Payable
Contributed Capital
Retained Earnings

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Dividends Declared
Revenue
Interest Revenue
Wage Expense
Utilities Expense
Telephone Expense
Supplies Expense
Rent Expense
Insurance Expense
Amortization Expense
Interest Expense
Income Tax Expense
Total

Handout 4-3: Financial Statements

Deana’s Decorators
Income Statement
For the year ended December 31, 2009
$120,400
Revenue
Operating Expenses:
Wage Expense
Utilities Expense
Telephone Expense
Supplies Expense
Rent Expense
Insurance Expense
Interest expense
Amortization Expense
Total Operating Expenses
Operating Income 73,400
Other revenues:
Interest revenue
Income before income tax expense

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Income tax expense ( )
Net income $

Deana’s Decorators
Statement of Retained Earnings
For the year ended December 31, 2009

Retained earnings, January 1 $0

Net income
Dividends declared
(750)
Retained earnings, December 31 $

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 Deana’s Decorators
Balance Sheet
As of December 31, 2009
Assets
Current Assets
Cash $43,450
Supplies
Accounts Receivables
Interests receivable
Prepaid rent
Prepaid insurance

Certificate of Deposit
Total Current Assets
Property, Plant & Equipment, gross $
Accumulated Amortization (2,000)
Property, Plant & Equipment, net
Total Assets $

Liabilities
Current Liabilities:
Accounts Payable $250
Dividend payable
Interest payable
Income tax payable
Unearned Revenue
Total Current Liabilities
Noncurrent Liabilities
Notes Payable
Total Liabilities

Shareholders’ Equity
Contributed Capital 10,000
Retained Earnings
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity $

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Handout 4-4: Closing Entries
Make closing entries for Deana’s Decorators.

Date Accounts

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 Summary of Different Journal Entries
Transactional journal entries Adjusting journal entries Closing journal entries

Two effects on B/S, accounting Effects on B/S and I/S No effect

equation remains in balance
Most likely affect B/S accounts
Most of them are related to cash
Anytime as transactions occur
Most likely affect I/S
accounts
Never involve cash
At the end of period when
preparing F/S
Affect SRE accounts and I/S
account
Never involve cash
At the end of period after
preparing F/S

Handout 4-5
For each of the following independent journal entries indicate whether it is most likely i)
a transactional entry, ii) an adjusting entry, or iii) a closing entry.

Transactional Adjusting Closing

A) Dr. Interest expense
Cr. Cash _________ _______ ______
B) Dr Retained earnings
Cr. Interest expense _________ _______ ______
C) Dr. Wage expense
Cr. Wages payable _________ _______ ______
D) Dr. Amortization expense
Cr. Accumulate amortization _________ _______ ______
E) Dr. Prepaid rent
Cr. Cash _________ _______ ______
F) Dr. Sales
Cr. Retained earnings _________ _______ ______
G) Dr. Unearned revenue
Cr. Revenue _________ _______ ______
H) Dr. Inventory
Cr. Accounts payable _________ _______ ______
I) Dr. Interest receivable
Cr. Interest revenue _________ _______ ______
J) Dr. Dividend declared
Cr. Dividend payable _________ _______ ______