Ch 3: Homework

DO IT! 3.2 (LO 2) The ledger of Lafayette Ski School on March 31, 2025, includes
the following selected accounts before adjusting entries.
Debit Credit
Prepaid Insurance CHF 2,400
Supplies 2,500
Equipment 30,000
Unearned Service Revenue CHF9,000
An analysis of the accounts shows the following.
1. Insurance expires at the rate of CHF400 per month.
2. Supplies on hand total CHF1,600.
3. The equipment depreciates CHF480 per month.
4. During March, services were performed for two-fifths of the unearned service
revenue.
Prepare the adjusting entries for the month of March.

1. Insurance expense 400 DR

Prepaid Insurance 400 CR

2. Supplies expense 900 DR

Supplies 900 CR

3. Depreciation expense 480 DR

Accumulated depreciation – equipment 480 CR

4. Unearned Service Revenue 3,600 DR

Service Revenue 3,6000 CR

E3.6 (LO 2, 3) Hwang Ltd. has the following balances in selected accounts on
December 31, 2025.
Accounts Receivable NT$ –0–
Accumulated Depreciation—Equipment –0–
Equipment 7,000
Interest Payable –0–
Notes Payable 10,000
Prepaid Insurance 2,100
 Salaries and Wages Payable –0–
Supplies 2,450
Unearned Service Revenue 32,000
All the accounts have normal balances. The information below has been gathered at
December 31, 2025.
1. Hwang borrowed NT$10,000 by signing a 9%, one-year note on September 1,
2025.
2. A count of supplies on December 31, 2025, indicates that supplies of NT$900 are
on hand.
3. Depreciation on the equipment for 2025 is NT$1,000.
4. Hwang paid NT$2,100 for 12 months of insurance coverage on June 1, 2025.
5. On December 1, 2025, Hwang collected NT$32,000 for consulting services to be
performed from December 1, 2025, through March 31, 2026.
6. Hwang performed consulting services for a client in December 2025. The client
will be billed NT$4,200.
7. Hwang pays its employees total salaries of NT$9,000 every Monday for the
preceding 5-day week (Monday through Friday). On Monday, December 29,
employees were paid for the week ending December 26. All employees worked
the last 3 days of 2025.
Instructions
Prepare annual adjusting entries for the seven items described above.

1. Interest expense (10,000 x 9% x 4/12 = 300 DR)

Interest Payable 300 CR

2. Supplies expense 1,550 DR

Supplies 1,550 CR

3. Depreciation expense 1,000 DR

Accumulated depreciation – equipment 1,000 CR

4. Insurance expense 1,225 DR

Prepaid Insurance 1,225 CR

5. Unearned Service Revenue 8,000 DR

Service Revenue 8,000 CR
 6. Accounts Receivable 4,200 DR
Service Revenue 4,200 CR
7. Salary expense 5,400 DR
Salaries Payable 5,400 CR

E3.7 (LO 2, 3) Orwell Surf Shop accumulates the following adjustment data at
December 31.
1. Services performed but unbilled total €3,000.
2. Supplies of €300 have been used.
3. Utilities expenses of €552 are unpaid.
4. Services performed of €260 collected in advance.
5. Salaries of €800 are unpaid.
6. Prepaid insurance totaling €350 has expired.
Instructions
For each of the above items indicate the following.
a. The type of adjustment (prepaid expense, unearned revenue, accrued revenue,
or accrued expense).

1. Accrued revenue
2. Prepaid expense
3. Accrued expense
4. Unearned Revenues
5. Accrued expense
6. Prepaid Expenses
b. The status of accounts before adjustment (overstatement or understatement).

1. Assets understated; Revenues understated.

2. Assets overstated; Expenses understated.
3. Expenses understated; Liabilities understated.
4. Liabilities overstated; revenues understated.
5. Expenses understated; liabilities understated.
6. Assets overstated; expenses understated.

Understand which the accounts are affected, recognize the accounts, and flip the
equation to find out the status of accounts before adjustment.

Account receivable DR (Assets understated)

Service Revenue CR (Revenue understated)
Supplies expenses DR (Expenses understated)
Prepaid expenses CR (Assets overstated)

Accounts payable CR (Liabilities understated)

Utilities expense DR (Expenses overstated)

Unearned Service revenue DR (Liabilities overstated)

Service revenue (Revenue understated)

Accounts payable CR (Liabilities understated)

Salary expense DR (expense understated)

Insurance expense DR (expense understated)

Prepaid insurance CR (Asset overstated)

E3.15 (LO 2, 3) On December 31, 2025, Waters Electricians prepared an income

statement and statement of financial position, but failed to take into account three
adjusting entries. The statement of financial position showed total assets €150,000,
total liabilities €70,000, and equity €80,000. The incorrect income statement
showed net income of €70,000.
The data for the three adjusting entries were:
1. Salaries and wages amounting to €10,000 for the last 2 days in December were
not paid and not recorded. The next payroll will be in January.
2. Rent payments of €8,000 were received for two months in advance on December
1. The entire amount was credited to Unearned Rent Revenue when paid.
3. Depreciation expense for 2025 is €9,000.
Instructions
Complete the following table to correct the financial statement amounts shown
(indicate deductions with parentheses).
Net Total Total
Item Income Assets Liabilities Equity
Incorrect balances €70,000 €150,000 €70,000 €80,000
Effects of:
Salaries and Wages (10,000) 10,000 10,000
Rent Revenue
Depreciation (9,000) (9,000) (9,000)
Correct balances ___51,00 ____141,0 _____80,0 ___79,000
0____ 00___ 00__ ____

E3.16 (LO 2) Action Quest Games adjusts its accounts annually. The following
information is available for the year ended December 31, 2025.
1. Purchased a 1-year insurance policy on June 1 for $1,800 cash.
2. Paid $6,500 on August 31 for 5 months’ rent in advance.
3. On September 4, received $3,600 cash in advance from a company to sponsor a
game night each month for a total of 9 months for the most improved students at
a local school.
4. Signed a contract for cleaning services starting December 1 for $1,000 per
month. Paid for the first 2 months on November 30. (Hint: Use the account
Prepaid Cleaning to record prepayments.)
5. On December 5, received $1,500 in advance from a gaming club. Determined
that on December 31, $475 of these games had not yet been played.
Instructions
a. For each of the above transactions, prepare the journal entry to record the initial
transaction.

1. Prepaid insurance 1,800 DR

Cash 1,800 CR

2. Prepaid expense 6,500 DR

Cash 6,500 CR

3. Cash 3,600 DR
Unearned Service Revenue 3,600 CR

4. Prepaid Cleaning 2,000 DR

Cash 2,000 CR

5. Cash 1,500 DR
Unearned Service Revenue 1,500 CR

b. For each of the above transactions, prepare the adjusting journal entry that is
required on December 31, (Hint: Use the account Service Revenue for item 3
and Maintenance and Repair Expense for item 4.)
Date Account Titles Debit Credit
Jun 1 Prepaid Insurance 1,800
Cash 1,800
Aug 31 Prepaid Expenses 6,500
Cash 6,500
Sep 4 Cash 3,600
Unearned Service Revenue 3,600
Dec 1 Prepaid Cleaning 2,000
Cash 2,000
Dec 5 Cash 1,500
Unearned Service Revenue 1,500

c. Post the journal entries in parts (a) and (b) to T-accounts and determine the final
balance in each account balance. (Note: Posting to the Cash account is not
required.)
Prepaid Expense
Jun 1 – 1,800
Aug 31 – 6,500
Dec 1 – 2,000

Unearned Service Revenue

Sep 4 – 3,600
Dec 5 – 1,500