Question 1

Prepare adjusting entries for the following transactions. Omit explanations.

1. Depreciation on equipment is $600 for the accounting period.
2. There was beginning balance of supplies $600 of supplies. At the end of the
period $150 of supplies were on hand.
3. Prepaid rent had a $1,200 normal balance prior to adjustment. By year end $400
was unexpired.

Solution
1. Depreciation Expense .................................................................... 600
Accumulated Depreciation—Equipment ................................. 600

2. Supplies Expense ........................................................................... 450

Supplies ................................................................................. 450
($600 – $150)

3. Rent Expense ................................................................................. 800

Prepaid Rent .......................................................................... 800
($1,200 – $400)

Question 2
On January 1, Hall & Oates, CPAs received a $17,400 cash retainer for accounting
services to be rendered ratably over the next 3 months. The full amount was credited
to the liability account Unearned Service Revenue. Assuming that the revenue is
recognized equally over the 3-month period, what adjusting journal entry should be
made at January 31?

Solution
Unearned Service Revenue ....................................................... 5,800
Service Revenue ............................................................... 5,800

Question 3
The adjusted trial balance of Wallowa Ranch Inc. on December 31, 2016 includes the
following accounts: Accumulated Depreciation, $8,000; Depreciation Expense,
$2,000; Notes Payable $7,800; Interest Expense $250; Utilities Expense, $370; Rent
Expense, $800; Service Revenue, $24,600; Salaries and Wages Expense, $6,800;
Supplies, $250; Supplies Expense, $1,500; Salaries and Wages Payable, $800.
Prepare an income statement for the month of December.
Solution

Wallowa Ranch Inc.

Income Statement
For the Month Ended December 31, 2016

Service Revenue $24,600

Expenses:
Salaries and wages expense $6,800
Depreciation expense 2,000
Supplies expense 1,500
Rent expense 800
Utilities expense 370
Interest expense 250 11,720
Net Income $12,880

Question 4
Rhodes National purchased software on October 1, 2016 for $14,400. The company
expects to use the software for 3 years. It has no salvage value.
1. What adjusting journal entry should the company make at the end of each
month if monthly financials are prepared? (annual depreciation is $4,800)

Solution

1. Depreciation Expense ................................................................ 400

Accumulated Depreciation ................................................. 400

Question 5
On July 1, 2014, Damlen Jurado Company pays $12,000 to its insurance company
for a 2-year insurance policy.

Instructions
Prepare the necessary journal entries for Damlen Jurado on July 1 and December
31.
Solution

July 1 Prepaid Insurance 12,000

Cash
12,000

Dec. 31 Insurance Expense 3,000

Prepaid Insurance ($12,000 × 6/24)

3,000
Question 6
The adjusted trial balance of Malt Company at December 31, 2016 includes the
following accounts: Owner’s Capital $16,200; Owner’s Drawings $7,300; Service
Revenue $37,000; Salaries and Wages Expense $12,000; Insurance Expense
$2,100; Rent Expense $3,600; Supplies Expense $2,500; and Depreciation Expense
$3,000. Prepare an owner’s equity statement for the year.

Solution

MALT COMPANY
Owner’s Equity Statement
For the Year Ended December 31, 2016
—————————————————————————————————————
——————
Owner’s Capital January 1 $16,200
Add: Net Income 13,800
30,000
Owner’s drawings 7,300
Owner’s Capital December 31 $22,700