BX2011 – Foundation of Accounting Principles.

Topic 6 – Workshop Solutions, 2022

Topic 6 – Adjusting the accounts and completing the accounting cycle

Workshop Solutions
Exercise 4.5
Kushnitsky’s Kleaning has employed you to investigate whether any accrual entries are needed in the
business. On completion of your investigation on 30 June, you have discovered that the following items
need attention.
1. Unearned cleaning services revenue now earned, $4 800.
2. Depreciation not recorded, $15 000.
3. Employee salaries owed but not recorded, $8 300.
4. Prepaid insurance expired, $600
5. Interest revenue accrued but not recorded, $2 400.
Required
(a) Prepare the adjusting entries for items 1 to 5 at 30 June, the end of the accounting period.
(b) Suppose the adjusting entries in requirement A were not made. Calculate the total overstatement or
understatement of profit as a result of the omission of these adjustments.
KUSHNITSKY’S KLEANING - General Journal
Date Particulars Dr Cr
30 June
1. Unearned Cleaning Services Revenue 4 800
Cleaning Services Revenue 4 800
Pre-collected revenue now earned.
2. Depreciation Expense 15 000
Accumulated Depreciation 15 000
Depreciation expense for the period.
3. Salary Expense 8 300
Salaries Payable 8 300
Salaries incurred but not yet paid.
4. Insurance Expense 600
Prepaid Insurance 600
Prepaid insurance expired.
5. Interest Receivable 2 400
Interest Revenue 2 400
Interest revenue accrued.

Impact on net profit if entries were NOT recorded:

Unearned cleaning services revenue now earned Profit understated $4,800 ($4,800)
Expenses understated $15,000, $15,000
Depreciation not recorded
therefore profit overstated
Expenses understated $8,300 (not $8,300
Employee salaries owed but not recorded
recorded) therefore profit overstated
No adjustment to insurance expense, $600
Prepaid insurance expired $600 expenses understated, therefore
profit overstated
Interest revenue not recorded, ($2,400)
Interest revenue accrued but not recorded, $2,400 revenue understated, therefore profit
understated
Total impact on net profit Profit overstated 16,700

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BX2011 – Foundation of Accounting Principles. Topic 6 – Workshop Solutions, 2022

Exercise 4.12
Selected accounts of Arabella’s Art Supplies are shown below at 30 June of the current year before
any adjusting entries have been made.

Additional information
1. Prepaid insurance represents premiums for 1 year paid on 1 April.
2. Supplies of $430 were on hand at 30 June.
3. Shop shelving, which had been purchased on 1 January, is expected to last 10 years and have a
residual value of $2,000.
4. Arabella collected 4 months’ rent in advance on 1 June from a number of tenants.
5. Accrued salaries not recorded as at 30 June are $2,400.
Required
(a) Record in the general journal the necessary adjusting entries on 30 June.

ARABELLA’S ART SUPPLIES

General Journal
Date Particulars Debit Credit
June 30 Insurance Expense 1 125
Prepaid Insurance 1 125
Insurance expired. ($4500 × 3/12)
Supplies Expense 290
Supplies 290
Supplies used. ($720 – $430)
Depreciation Expense – Shop Shelving 1 100
Accumulated Depreciation – Shop Shelving 1 100
Depreciation on office equipment.
($24 000 – $2000)/10 × 6/12 = $1100)
Unearned Rental Fees 1 200
Rental Fees Revenue 1 200
Rental fees earned for one month. ($4800 ÷ 4)
Salaries Expense 2 400
Salaries Payable 2 400
Accrued salaries.

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BX2011 – Foundation of Accounting Principles. Topic 6 – Workshop Solutions, 2022

Problem 5.19
The ledger of Chester Franks, Financial Consultant, contains the following account balances on 30 June 2023.

The following additional account titles are included in the chart of accounts (Ignore GST).
• Prepaid Insurance
• Telecommunications Expense Payable
• Office Supplies Expense
• Depreciation Expense – Buildings
• Depreciation Expense – Office Equipment
• Interest Payable
• Salaries Payable
The following information is also available.
1. A physical count of office supplies reveals that supplies totalling $420 are on hand at 30 June.
2. The balance in the Unearned Consulting Fees account includes $1200 earned for services rendered in the
last week of June.
3. Estimated depreciation on the office equipment is $2,140. Depreciation on the building is $8,760.
4. A 12-month insurance policy was purchased on 1 April for $780.
5. The June monthly mortgage payment of $900 has not been paid or recorded. In each payment, $220 is
attributable to interest.
6. The June telecommunications costs for $320 are unrecorded. No tax invoice has been received.
7. Salaries of $980 were owing to employees at 30 June 2023.
Required
(a) Prepare a 10-column worksheet for the year ended 30 June 2023.
(b) Prepare the income statement, balance sheet and statement of changes in equity.
(c) Journalise the closing entries.

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BX2011 – Foundation of Accounting Principles. Topic 6 – Workshop Solutions

(a)CHESTER FRANKS, FINANCIAL CONSULTANT – Worksheet for the year ended 30 June 2023
Unadjust. Trial Balance Adjustments Adjusted Trial Balance Statemt P & L Statmt Fin Position
Account title Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Cash at Bank 5 200 5 200 5 200
Accounts Receivable 9 260 9 260 9 260
Office Supplies 1 140 (1) 720 420 420
Land 60 000 60 000 60 000
Building 152 000 152 000 152 000
Acc. Depr. Building 64 000 (3) 8 760 72 760 72 760
Office Equipment 23 400 23 400 23 400
Acc. Depr. Office Equip. 6 420 (3) 2 140 8 560 8 560
Accounts Payable 7 960 7 960 7 960
Unearned Consulting Fees 2 000 (2) 1 200 800 800
Mortgage Payable 88 600 88 600 88 600
C. Franks, Capital 72 130 72 130 72 130
C. Franks, Drawings 52 780 52 780 52 780
Consulting Fees Revenue 156 860 (2) 1 200 158 060 158 060
Insurance Expense 1 660 (4) 585 1075 1075
Salaries Expense 87 940 (7) 980 88 920 88 920
Electricity Expense 760 760 760
Interest Expense 2 090 (5) 220 2 310 2 310
Telecommunications Exp 1 740 (6) 320 2 060 2 060
$397 970 $397 970
Office Supplies Expense (1) 720 720 720
Depr. Exp. Building (3) 8 760 8 760 8 760
Depr. Exp. – Office Equip. (3) 2 140 2 140 2 140
Prepaid Insurance (4) 585 585 585
Interest Payable (5) 220 220 220
Telecomm. Expense Payable (6) 320 320 320
Salaries Payable (7) 980 980 980
14925 14 925 410 390 410 390 106 745 158 060 303 645 252 330
Profit for the year 51 315 51 315
158 060 158 060 303 645 303 645

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 BX2011 – Foundation of Accounting Principles. Topic 6 – Workshop Solutions

(c) General journal - Closing entries

Date Account
June 30 Consulting Fees Revenue 158 060
Profit or Loss Summary 158 060
Close revenue accounts
Profit or Loss Summary 106 745
Office Supplies Expense 720
Depreciation Expense – Building 8 760
Depreciation Expense – Office Equipment 2 140
Insurance Expense 1075
Salaries Expense 88 920
Electricity Expense 760
Interest Expense 2 310
Telecommunications Expense 2 060
Close expense accounts
Profit or Loss Summary 51 315
C. Franks, Capital 51 315
Transfer profit to capital
C. Franks, Capital 52 780
C. Franks, Drawings 52 780
Close drawings to capital

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BX2011 – Foundation of Accounting Principles. Topic 6 – Workshop Solutions

Problem 5.17
Jacinta Taylor owns Employment Solutions, which provides employment placement services. The unadjusted
trial balance on 30 June 2022 below was prepared by her accountant.

The following additional information is available at 30 June.

1. Unused supplies on hand on 30 June totalled $360.

2. The Unearned Fees account includes $1650 received for fees earned during June.
3. Estimated depreciation on the office equipment is $4000.
4. Advertising costing $1500 was consumed during the year.

Required
(a) Prepare a 10-column worksheet for the year ended 30 June 2022.
(b) Prepare an income statement , a statement of changes in equity and a balance sheet.
(c) Journalise the closing entries.

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BX2011 – Foundation of Accounting Principles. Topic 6 – Workshop Solutions

EMPLOYMENT SOLUTIONS – Worksheet for the year ended 30 June 2022

Unadjust. Trial Bal Adjustments Adjusted Trial Bal. Statemt P & L Statemt Fin Position
Account title Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Cash at Bank 4 560 4 560 4 560
Accounts Receivable 14 230 14 230 14 230
Prepaid Advertising 2 120 (4) 1 500 620 620
Office Supplies 750 (1) 390 360 360
Office Equipment 18 620 18 620 18 620
Acc. Depr. Office Equipment 2 280 (3) 4 000 6 280 6 280
Accounts Payable 11 670 11 670 11 670
Unearned Fees 2 580 (2) 1 650 930 930
J. Taylor, Capital 15 990 15 990 15 990
J. Taylor, Drawings 16 000 16 000 16 000
Placement Fees Revenue 100 620 (2) 1 650 102 270 102 270
Rent Expense 12 240 12 240 12 240
Salaries Expense 62 500 62 500 62 500
Telephone Expense 2 120 2 120 2 120
$133 140 $133 140
Office Supplies Expense (1) 390 390 390
Depreciation Expense (3) 4 000 4 000 4 000
Advertising Expense (4) 1 500 1 500 1 500
7 540 7 540 137 140 137 140 82 750 102 270 54 390 34 870
Profit for the year 19 520 19 520
102 270 102 270 54 390 54 390

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BX2011 – Foundation of Accounting Principles Topic 6 - Workshop Solutions

(d) Closing entries

Date Account Debit Credit
June 30 Placement Fees Revenue $102 270
Profit or Loss Summary $102 270
Close revenue accounts

June 30 Profit or Loss Summary 82 750

Rent Expense 12 240
Salaries Expense 62 500
Telephone Expense 2 120
Office Supplies Expense 390
Depreciation Expense 4 000
Advertising Expense 1 500
Close expense accounts.

June 30 Profit or Loss Summary 19 520

J. Taylor, Capital 19 520
Transfer profit to capital.

June 30 J. Taylor, Capital 16 000

J. Taylor, Drawings 16 000
Close drawings to capital.

Exercise 5.15
During 2022, Mount Remarkable Golf Club received $180 000 for membership fees. The accountant credits
Unearned Membership Fees, a liability account, for the full amount when cash is received. At 30 June 2022,
it is determined that $36 420 of the membership fees are fees for the following financial year. Ignore GST.
Required
(a) What amount should be reported in the 2022 income statement for membership fees?
(b) What amount should be reported in the 30 June 2022 balance sheet for unearned membership fees?
(c) Prepare the adjusting entry needed at 30 June 2022.
(d) What reversing entry, if any, would you make on 1 July 2022?
(e) The record keeper could have recorded the receipt of cash initially in a revenue account. Prepare the
adjusting entry, assuming that the Membership Fees Revenue account contains a credit balance of $180
000 at 30 June 2022.
(f) Compare the balances in the Unearned Membership Fees account and the Membership Fees Revenue
account derived in requirement E with those calculated in requirements A and B.
(g) What reversing entry, if any, would you make on 1 July 2022 to reverse the adjusting entry made in
requirement E? Explain your answer.
Suggested Solution
(a) $180 000 – $36 420 = $143 580

(b) $36 420

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BX2011 – Foundation of Accounting Principles Topic 6 - Workshop Solutions

Account Debit Credit

(c) Unearned Membership Fees 143 580
Membership Fees Revenue 143 580
Fees revenue earned
(d) No entry necessary.

(e) Membership Fees Revenue 36 420

Unearned Membership Fees 36 420
Fees revenue adjusted

(f) Unearned Membership Fees (B) $36,420 (E) $36 420

Membership Fees Revenue (A) $143 580 (E) $143 580

(g) No reversing entry as all the revenue has been received. Reversing entries are required for
accruals and not normally for deferrals. However, since the entity has chosen to record pre-
collected revenues in a revenue account, it may also choose to reverse the adjusting entry as
follows:

Unearned Membership Fees 36 420

Membership Fees Revenue 36 420

Exercise 5.14
Clean Sweep Services runs a professional office cleaning service. Its clients are charged $600 a month plus
$60 GST for the service and tax invoices are prepared four times a year on 31 January, 30 April, 31 July and
31 October. Quarterly payments are due by the fifteenth of the month following the end of a quarter. The
balance in the Cleaning Fees Revenue account was $132 000 on 31 December, the end of the period. Service
fees for November and December not yet recorded were $22 000.
Required
(a) Prepare the adjusting entry in the general journal to record the fees revenue.
(b) Assuming that reversing entries are not made, record the receipt of a $1,980 quarterly payment from a
client on 12 February 2021 and the receipt of $1,320 on 13 February 2021 from a new client who had
contracted for the service to start on 1 December 2020.
(c) Assuming that reversing entries are made to facilitate the record-keeping process, prepare the
appropriate reversing entry, if any, and the receipt of cash on 12 and 13 February 2021.
Please note: No GST is recorded until tax invoice issued.

General journal
(a) Dec. 31 Accrued Cleaning Fees $22 000
Cleaning Fees Revenue $22 000
Accruals of revenue. No tax invoice issued.
(b) Feb. 12 Cash at Bank 1 980
Accrued Cleaning Fees 1 200
Cleaning Fees Revenue 600
GST Payable 180
Receipt of service fees and GST following tax invoice

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BX2011 – Foundation of Accounting Principles Topic 6 - Workshop Solutions

Feb. 13 Cash at Bank 1 320

Accrued Cleaning Fee 600
Cleaning Fees Revenue 600
GST Payable 120
Receipt of service fees and GST following tax invoice
(c) Jan. 1 Cleaning Fees Revenue 22 000
Accrued Cleaning Fees 22 000
Reversing entry for the accrual
Feb. 12 Cash at Bank 1 980
Cleaning Fees Revenue 1 800
GST Payable 180
Receipt of service fees and GST
Feb. 13 Cash at Bank 1 320
Cleaning Fees Revenue 1 200
GST Payable 120
Receipt of service fees and GST

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