Lecture # 10

Fundamentals of Financial Accounting

Question :
Internet Consulting Services adjusts its accounts every month. On the following page is the
company’s year end unadjusted trial balance dated December 31, 2009.
Unadjusted Trial balance
Dec, 31 2009
Debit Credit
Cash .................................................................. 49100
Consulting fees receivable ............................... 23400
Prepaid office rent ........................................... 6300
Prepaid dues & subscriptions .......................... 300
Supplies ........................................................... 600
Equipment ....................................................... 36000
Accumulated depreciation: Equipment .......................................... 10200
Notes payable ................................................................................. 5000
Income taxes payable ..................................................................... 12000
Unearned consulting fees .............................................................. 5950
Capital stock ................................................................................... 30000
Retained earnings .......................................................................... 32700
Dividends ........................................................ 60000
Consulting fees earned ................................................................... 257180
 Debit Credit
Salaries expense ........................................... 88820
Telephone expense ....................................... 2550
Rent expense ............................................... 22000
Income taxes expense................................... 51000
Dues & subscriptions .................................... 560
Supplies expense .......................................... 1600
Depreciation expense: equipment ................ 6600
Miscellaneous Expenses ................................ 4200

353030 353030
Other Data:
• 1: On December 1, the company signed a new rental agreement and paid three
months rent in advance at rate of Rs. 2100 per month. This advance payment
was debited to prepaid office rent account.
• 2: Dues & subscriptions expiring during December amounted to Rs. 50.
• 3: An estimate of supplies on hand was made at December 31; the estimated
cost of unused supplies was Rs. 450.
• 4: The useful life of the equipment has been estimated at 5 years(60 months)
from date of acquisition.
• 5: Accrued interest on note payable amounted to Rs. 100 at year end ( Set up
accounts for interest expense and interest payable).
• 6: Consulting services valued at Rs. 2850 were rendered during December to
clients who had made payments in advance.
• 7: It is the custom of the firm to bill clients only when consulting work is
completed or, in the case of prolonged engagements, at monthly intervals. At
December 31, consulting services valued at Rs. 11000 had been rendered to
clients but not yet billed. No advance payments had been received from the
clients.
• 8: Salaries earned by employees but not paid as of December 31 amount to Rs.
1700.
• 9: Income taxes expense for the year is estimated at Rs. 56000. Of this amount Rs.
51000 has been recognized in previous months and Rs. 39000 has been paid to
tax authorities. Company plans to pay the Rs. 17000 remainder of its income tax
liability on January 15.

Required: Prepare adjusting entries and adjusted trial balance. Also determine net
income.
 Adjusted trial Balance
Debit Credit
Cash 49100
Consulting fees receivable 34400
Pre-paid office rent 4200
Pre-paid dues & subscriptions 250
Supplies 450
Equipment 36000
Accumulated depreciation: Equipment 10800
Note payable 5000
Income tax payable 17000
Interest payable 100
Salaries payable 1700

Unearned consulting fees 3100

Capital Stock 30000
Retained Earnings 32700
Dividends 60000
Consulting fees earned 271030
Salaries expense 90520
Telephone expense 2550
Rent Expense 24100
Income tax expense 56000
Dues & subscriptions expense 610
Supplies Expense 1750
Depreciation expense: equipment 7200
Miscellaneous expense 4200

371430 371430
Question:
Un-adjusted Trial Balance
Debit Credit
Cash........................................................................ 20000
Pre-paid film rental................................................. 31200
Land.........................................................................120000
Building....................................................................168000
Accumulated Depreciation: Building......................................................... 14000
Fixtures & Equipment.............................................. 36000
Accumulated Depreciation: Fixtures & Equipment................................... 12000
Notes payable............................................................................................ 180000
Account Payable......................................................................................... 4400
Unearned admissions revenue(YMCA)...................................................... 1000
Income tax payable.................................................................................... 4740
Capital stock............................................................................................... 40000
Retained Earnings...................................................................................... 46610
Dividends............................................................... 15000
Admissions Revenue................................................................................. 305200
Concessions Revenue................................................................................ 14350
Salaries Expense ................................................... 68500
Film rental Expense............................................... 94500
 Debit Credit
Utilities Expense................................................................... 9500
Depreciation expense: Building........................................... 4900
Depreciation Expense: Fixtures & Equipment..................... 4200
Interest Expense ................................................................. 10500
Income tax Expense ........................................................... 40000

622300 622300

Campus Theater adjusts its accounts every month. Below the company’s unadjusted trial
balance dated August 31, 2009. Additional information is provided for use in preparing the
company’s adjusting entries for the month of August. (Bear in mind that adjusting entries
have already been made for the first seven months of 2009, but not for August).
Other Data:
• 1: Film rental expense for the month is Rs. 15200. However, the film rental expense for
several months has been paid in advance.
• 2: The building is being depreciated over a period of 20 years (240 months).
• 3: The fixtures and equipment are being depreciated over a period of 5 years( 60
months)
• 4: On the first day of each month, the theater pays the interest that is accrued in the
prior month on its note payable. At august 31, interest payable on this note amounts to
Rs. 1500.
• 5: The theater allows the local YMCA to bring children attending summer camp to
the movies on any weekday afternoon for a fixed fee of Rs. 500 per month. On
June 28, the YMCA made a Rs. 1500 advance payment covering the month of July,
August and September.
• 6: The theater receives a percentage of the revenue earned by Testie Corporation,
the concessionaire operating the snack bar. For snack bar sales in August, Testie
owes campus theater Rs. 2250 payable on September 10. No entry has yet been
made to record the revenue. ( Credit concessionaire revenue).
• 7: Salaries earned by employees, but not recorded or paid as of August 31, amount
to Rs. 1700. No entry has yet been made to record this liability and expense.
• 8: Income tax expense for August is estimated at Rs. 4200. This amount will be paid
in the September 15 installment payment.
• 9: Utilities Expense is recorded as monthly bills are received. No adjusting entries
for utilities expense are made at month-end.

Required: Prepare adjusting entries.

Important Question:
Following is the trial balance of ABC traders. As on 31 December 2016,
Rupees
Debit Credit
Cash 50000
Accounts Receivable 80000
Allowance for doubtful Debts 400
Inventory 45000
Building 250000
Pre-paid insurance 6400
Capital 256000
Accumulated Depreciation: Building 50000
Accounts payable 40000
Drawings 30000
Sales Revenue 495000
Commission income 40000
Salaries expenses 40000
Cost of goods sold 300000
Supplies expense 30000
Rent expense 50000 . .
881400 881400
Data for adjustments on December 31, 2016 is given below:
• Prepaid insurance expired by Rs. 4400.
• The allowance of bad debts was estimated @ 5% of the year end accounts
receivable balance.
• Depreciation expense for the year is estimated at 20% of the cost of building.
• Commission income is unearned to the extent of Rs. 4000.
• Salaries expense for the year amounted to Rs. 48000.
• Rent expense was pre-paid by 5000.
• Supplies used during the year were Rs. 27000.

Required: Pass necessary journal entries.

Question 2: The following are the unadjusted balances taken from the books of XYZ Traders Dec 31,
2016.
Rupees.

Debit Credit
Cash 26000
Supplies 14000
Account Receivable 24000
Equipment 36000
Accumulated Depreciation: Equipment 6000
Salaries Expense 20000
Advertisement Expense 16000
Accounts payable 5000
Capital 56000
Commission Income 69000 .
Additional Information:

 Unearned Commission Rs. 5000.

 Depreciation expense was estimated at Rs. 6000.
 Unrecorded utilities expense for the period Rs. 7000.
 Supplies Expense Rs. 8000.
 Salaries accrued Rs. 9000.
 Advertising expense for the current period is Rs. 3200.

Required:
Prepare adjusting/correcting entries.