SOLUTION

(a) – Type of adjusting entry: Prepaid expense

- Status of accounts before adjustment:
o Asset (supplies): overstated
o Expense : understated
- Entry:
DR. Supplies expense 1,200*
CR. Supplies 1,200*
(* 1,600 – 400 = 1,200)
(b) – Type of adjusting entry: Accrued Revenue
- Status of accounts before adjustment:
o Asset (Account Receivable): understated
o Revenue : understated
- Entry:
DR. Accounts Receivable 700
CR. Service Revenue 700
(c) – Type of adjusting entry: accrued expense
- Status of accounts before adjustment:
o Expense: understated
o Liabilities : understated
- Entry:
DR. Interest Expense 300
CR. Interest Payable 300
(d) – Type of adjusting entry: Unearned revenue
- Status of accounts before adjustment:
o Liabilities: Overstated
o Revenue: Understated
- Entry:

DR. Unearned service revenue 1,100

CR Service revenue (realized) 1,100

Solution

1. DR Insurance expense 450

CR Prepaid insurance 450
2. DR supplies expense (2600 – 1050) 1550
CR Supplies 1550
3. DR Depreciation expense 6,600/12 = 550
CR Accumulated Depreciation – Building 3,600/12= 300
CR Accumulated Depreciation – Equipment 3,000/12= 250
 4. DR Interest expense ( 36000 *6%/12) 180
CR Interest Payable 180
5. DR Unearned Rent revenue 2,500
CR Rent Revenue 2,500
6. DR Salaries expense 900
CR Salaries Payable 900

(a) March 2

1. DR. Cost of goods sold 540,0000

CR. Merchandise Inventory 540,000

2. DR. A/R 800,000

CR. Sales Revenue 800,000

(2/10, n/30)

(b) March 6

1. DR. Merchandise Inventory 94,000

CR. Cost of goods sold 94,000

2. DR Sales Returns 140,000

CR. Accounts Receivables 140,000

(c) March 12

DR Cash 660,000 *98%

DR Sales Discount 660,000 *2%

CR Accounts Receivables 660,000