Chapter 4

Adjustments, Financial Statements, and

Financial Results

PowerPoint Author:
Brandy Mackintosh, CPA, CA

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 Learning Objective 4-1

Explain why adjustments are

needed.

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 Why Adjustments Are Needed
Accounting systems are designed to record most
recurring daily transactions, particularly any
involving cash.

However, cash is not always received or paid in the

period in which the company earns the related
revenue or incurs the related expense.

Solution: Adjustments are made to the accounting

records at the end of the period to state assets, liabilities,
revenues, and expenses at appropriate amounts.
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 Why Adjustments Are Needed, continued

Income Statement Balance Sheet

Revenues are Assets are reported

recorded when at amounts
earned. representing the
economic benefits
Expenses are that remain at the end
recorded in the same of the period.
period as the
revenues to which Liabilities are
they relate. reported at amounts
owed at the end of
the period.

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 1. Deferral Adjustments
An expense or revenue has been deferred if we have
postponed reporting it on the income statement until a
later period.

Sept. 1 Use-up rent Sept. 30

benefits

Cash paid for Adjustment

rent in advance needed

Deliver
Sept. 1 subscription Sept. 30
service

Cash received Adjustment

for subscription needed
in advance

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 1. Deferral Adjustments, continued
Deferral adjustments Each deferral
are used to decrease adjustment involves
balance sheet accounts one asset and one
and increase expense account, or
corresponding income one liability and one
statement accounts. revenue account.

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 2. Accrual Adjustments
Accrual adjustments are needed when a company has
earned revenue or incurred an expense in the current
period but has not yet recorded it because the related
cash will not be received or paid until a later period.
Sept. 1 Incur income Sept. 30 Dec. 31
taxes

Adjustment Cash paid for

needed income taxes

Sept. 1 Sept. 30 Dec. 31

Earn interest

Adjustment Cash received

needed for interest

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 2. Accrual Adjustments, continued
Accrual adjustments
are used to record Each accrual
revenue or expenses adjustment involves
when they occur prior one asset and one
to receiving or paying revenue account, or
cash, and to adjust one liability and one
corresponding balance expense account.
sheet accounts.

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 Learning Objective 4-2

Prepare adjustments needed

at the end of the period.

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 Making Required Adjustments

Adjustments are not made on a daily basis

because it’s more efficient to do them all at
once at the end of each period.
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 Adjustment Analysis, Recording
and Summarizing
1 Analyze
Determine the necessary adjustments to make to
the accounting records.

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 Adjustment Analysis, Recording
and Summarizing, continued

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 Deferral Adjustments (a)
(a) Supplies Used during the Period.
Of the $600 in supplies previously received, $250 remain on hand at September 30.

1 Analyze
Assets = Liabilities + Stockholders’ Equity
(a) Supplies -$350 Supplies Expense (+E)
-$350

2 Record
(a) Supplies Expense (+E, -SE) 350
Supplies (-A) 350

3 Summarize
dr + Supplies (A) cr - dr + Supplies Expense (E, SE) cr -
Unadj. Bal. 600 Unadj. Bal. 0
350 AJE (a) AJE (a) 350
Adj. Bal. 250 Adj. Bal. 350

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 Financial Statement Effects

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 Deferral Adjustments (b)
(b) Rent Benefits Expired during the Period.
Three months of rent were prepaid on September 1 for $7,200, but one month has
now expired, leaving only two months prepaid at September 30.

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 Deferral Adjustments (b), continued
(b) Rent Benefits Expired during the Period.
Three months of rent were prepaid on September 1 for $7,200, but one month has
now expired, leaving only two months prepaid at September 30.
1 Analyze
Assets = Liabilities + Stockholders’ Equity
(b) Prepaid Rent Rent Expense (+E)
-$2,400 -$2,400

2 Record
(b) Rent Expense (+E, -SE) 2,400
Prepaid Rent (-A) 2,400

3 Summarize
dr + Prepaid Rent (A) cr - dr + Rent Expense (E, SE) cr -
Unadj. Bal. 7,200 Unadj. Bal. 0
2,400 AJE (b) AJE (b) 2,400
Adj. Bal. 4,800 Adj. Bal. 2,400

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 Deferral Adjustments (c)
(c) Depreciation Is Recorded for Use of Equipment.
The computer equipment, which was estimated to last two years, has now been
used for one month, representing an estimated expense of $400.

Depreciation is the process of allocating the cost of

buildings, vehicles, and equipment to the accounting
periods in which they are used.

A contra-account
is an account that
is an offset to, or
reduction of,
another account.

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 Deferral Adjustments (c), continued
(c) Depreciation Is Recorded for Use of Equipment.
The computer equipment, which was estimated to last two years, has now been
used for one month, representing an estimated expense of $400.
1 Analyze
Assets = Liabilities + Stockholders’ Equity
(c) Accumulated Depreciation
Depr.(+xA) -$400 Expense (+E) -$400

2 Record
(c) Depreciation Expense (+E, -SE) 400
Accumulated Depreciation (+xA, -A) 400

3 Summarize
dr - Accum. Depr. (xA) cr + dr + Depr. Expense (E, SE) cr - dr + Equipment (A) cr -
0 Unadj. Bal. Unadj. Bal. 0 Unadj. Bal. 9,600
400 AJE (c) AJE (c) 400
400 Adj. Bal. Adj. Bal. 400 Adj. Bal. 9,600

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 Depreciation
Note 1 Note 2

Accumulated Depreciation Accumulated

Equipment
Depreciation Expense Depreciation

Balance Income Total Amount

Original cost
Sheet Statement Depreciated

Note 3 Note 4

Contra- Depreciation
Account Amount

Opposes
Depends on
account it
method used
offsets

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 Deferral Adjustments (d)
(d) Amortization Is Recorded for Use of Software.
The app software developed for Noodlecake, estimated to have three years of
usefulness, has now been used for one month at an estimated expense of $250.
1 Analyze
Assets = Liabilities + Stockholders’ Equity
(d) Accumulated Amortization
Amort.(+xA) - Expense (+E) -$250
$250

2 Record
(d) Amortization Expense (+E, -SE) 250
Accumulated Amortization (+xA, -A) 250

3 Summarize
dr - Accum. Amort. (xA) cr + dr + Amort. Expense (E, SE) cr - dr + Software (A) cr -
0 Unadj. Bal. Unadj. Bal. 0 Unadj. Bal. 9,000
250 AJE (d) AJE (d) 250
250 Adj. Bal. Adj. Bal. 250 Adj. Bal. 9,000

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 Deferral Adjustments (e)
(e) Gift Cards Redeemed.
Noodlecake accepted $100 of gift cards from customers as payment for game
downloads.
1 Analyze
Assets = Liabilities + Stockholders’ Equity
(e) Deferred Sales
Revenue (-L) -$100 Revenue (+R) +$100

2 Record
(e) Deferred Revenue (-L) 100
Sales Revenue (+R, +SE) 100

3 Summarize
dr - Deferred Revenue (L) cr + dr - Sales Revenue (R, SE) cr +
300 Unadj. Bal. 12,000 Unadj. Bal.
AJE (e) 100 100 AJE (e)
200 Adj. Bal. 12,100 Adj. Bal.

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 Accrual Adjustments (f)
(f) Services Given but Revenue Not Yet Recorded.
Noodlecake provided $3,250 of consulting services to other app developers in
September, with payment to be received in October.
1 Analyze
Assets = Liabilities + Stockholders’ Equity
(f) Accounts Service
Receivable +$3,250 Revenue (+R) +$3,250

2 Record
(f) Accounts Receivable (+A) 3,250
Service Revenue (+R, +SE) 3,250

3 Summarize
dr + Accounts Receivable (A) cr - dr - Service Revenue (R, SE) cr +
Unadj. Bal. 500 0 Unadj. Bal.
AJE (f) 3,250 3,250 AJE (f)
Adj. Bal. 3,750 3,250 Adj. Bal.

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 Accrual Adjustments (g)
(g) Wages Expense Incurred but Not Yet Recorded.
Noodlecake owes $1,950 of wages to employees for work done in the last six days
of September.
1 Analyze
Assets = Liabilities + Stockholders’ Equity
(g) Salaries & Wages Salaries & Wages
Payable +$1,950 Expense (+E) -$1,950

2 Record
(g) Salaries and Wages Expense (+E, -SE) 1,950
Salaries and Wages Payable (+L) 1,950

3 Summarize
dr - Salaries & Wages Payable (L) cr + dr + Salaries & Wages Expense (E, SE) cr -
0 Unadj. Bal. Unadj. Bal. 7,800
1,950 AJE (g) AJE (g) 1,950
1,950 Adj. Bal. Adj. Bal. 9,750

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 Accrual Adjustments (h)
(h) Interest Expense Incurred but Not Yet Recorded.
Noodlecake has not paid or recorded the $100 interest that it owes for this month
on its note payable.
1 Analyze
Assets = Liabilities + Stockholders’ Equity
(h) Interest Interest
Payable +$100 Expense (+E) -$100

2 Record
(h) Interest Expense (+E, -SE) 100
Interest Payable (+L) 100

3 Summarize
dr - Interest Payable (L) cr + dr + Interest Expense (E, SE) cr -
0 Unadj. Bal. Unadj. Bal. 0
100 AJE (h) AJE (h) 100
100 Adj. Bal. Adj. Bal. 100

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 Accrual Adjustments (i)
(i) Income Taxes Incurred but Not Yet Recorded.
Noodlecake pays income tax at an average rate equal to 20 percent of the
company’s income before taxes.

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 Accrual Adjustments (i), continued
(i) Income Taxes Incurred but Not Yet Recorded.
Noodlecake pays income tax at an average rate equal to 20 percent of the
company’s income before taxes.
1 Analyze
Assets = Liabilities + Stockholders’ Equity
(i) Income Tax Income Tax
Payable +$200 Expense (+E) -$200

2 Record
(i) Income Tax Expense (+E, -SE) 200
Income Tax Payable (+L) 200

3 Summarize
dr - Income Tax Payable (L) cr + dr + Income Tax Expense (E, SE) cr -
0 Unadj. Bal. Unadj. Bal. 0
200 AJE (i) AJE (i) 200
200 Adj. Bal. Adj. Bal. 200

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 Noodlecake’s Adjusted Accounts

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 Additional Comments

Each adjusting entry

Adjusting journal entries always includes one
never involve cash. balance sheet and one
income statement account.

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 Learning Objective 4-3

Prepare an adjusted trial

balance.

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 NOODLECAKE, INC.
Adjusted Trial Balance
At September 30, 2021
Credit
Adjusted
Debit
Cash
Accounts Receivable
Supplies
$ 16,900
3,750
250
Trial Balance
Prepaid Rent 4,800
Equipment 9,600
Accumulated Depreciation $ 400
Software 9,000
Accumulated Amortization 250
Logo and Trademarks 300
Accounts Payable 10,700
Deferred Revenue 200
Partial Listing of T-accounts
Salaries and Wages Payable 1,950
Income Tax Payable 200
Interest Payable 100
Note Payable 20,000
Common Stock 10,000
Retained Earnings 0
Dividends 0
Sales Revenue 12,100
Service Revenue 3,250
Salaries and Wages Expense 9,750
Rent Expense 2,400
Utilities Expense 600
Advertising Expense 500
Depreciation Expense 400
Supplies Expense 350
Amortization Expense 250
Interest Expense 100
Income Tax Expense 200
Total $ 59,150 $ 59,150
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 Learning Objective 4-4

Prepare financial statements.

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 NOODLECAKE, INC.
Adjusted Trial Balance
Financial Statements
At September 30, 2021 NOODLECAKE, INC.
Debit Credit Income Statement
Cash $ 16,900 For the Month Ended September 30, 2021
Accounts Receivable 3,750 Revenues
Supplies 250 Sales Revenue $12,100
Prepaid Rent 4,800 Service Revenue 3,250
Equipment 9,600 Total Revenues 15,350
Accumulated Depreciation $ 400
Software 9,000 Expenses
Accumulated Amortization 250 Salaries and Wages Expense 9,750
Logo and Trademarks 300 Rent Expense 2,400
Accounts Payable 10,700 Utilities Expense 600
Deferred Revenue 200 Depreciation Expense 500
Salaries and Wages Payable 1,950 Supplies Expense 400
Income Tax Payable 200 Advertising Expense 350
Interest Payable 100 Amortization Expense 250
Note Payable 20,000 Interest Expense 100
Common Stock 10,000 Income Tax Expense 200
Retained Earnings 0 Total Expenses
Dividends 0 14,550
Sales Revenue 12,100 Net Income
Service Revenue 3,250 $ 800
Salaries and Wages Expense 9,750
Rent Expense 2,400 NOODLECAKE, INC.
Utilities Expense 600 Statement of Retained Earnings
Advertising Expense 500 For the Month Ended September 30, 2021
Depreciation Expense 400 Retained Earnings, September 1 $ 0
Supplies Expense 350 Add: Net Income 800
Amortization Expense 250 Subtract: Dividends (0)
Interest Expense 100 Retained Earnings, September 30 $ 800
Income Tax Expense 200
Total $ 59,150 $ 59,150
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 NOODLECAKE, INC.
Financial Statements, NOODLECAKE, INC.
Adjusted Trial Balance
Balance Sheet
At September 30, 2021
continued At September 30, 2021
Assets
Debit Credit
Current Assets
Cash $ 16,900 Cash $ 16,900
Accounts Receivable 3,750 Accounts Receivable 3,750
Supplies 250 Supplies 250
Prepaid Rent 4,800 Prepaid Rent 4,800
Equipment 9,600 Total Current Assets 25,700
Accumulated Depreciation $ 400 Equipment
Software 9,000 Accumulated Depreciation $9,600
Equipment, net (400)
Accumulated Amortization 250 9,200
Logo and Trademarks 300 Software
Accumulated Amortization 9,000
Accounts Payable 10,700
Software, net (250)
Deferred Revenue 200 8,750
Salaries and Wages Payable 1,950 Logo and Trademarks 300
Income Tax Payable 200 Total Assets $43,950
Interest Payable 100
Note Payable 20,000 Liabilities and Stockholders’ Equity
Common Stock 10,000 Liabilities
Current Liabilities
Retained Earnings 0
Accounts Payable $ 10,700
Dividends 0
Deferred Revenue 200
Sales Revenue 12,100
Salaries and Wages Payable 1,950
Service Revenue 3,250
Income Tax Payable 200
Salaries and Wages Expense 9,750 Interest Payable
Rent Expense 2,400 100
Total Current Liabilities 13,150
Utilities Expense 600 Note Payable 20,000
Advertising Expense 500 Total Liabilities: 33,150
Depreciation Expense 400 Stockholders’ Equity
Supplies Expense 350 Common Stock 10,000
Amortization Expense 250 Retained Earnings 800
Interest Expense 100 Total Stockholders’ Equity 10,800
Income Tax Expense 200 Total Liabilities and Stockholders’ Equity $43,950
Total $ 59,150 $ 59,150
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 Learning Objective 4-5

Explain the closing process.

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 Closing Temporary Accounts

Transfer net income (or Establish zero

loss) and dividends to balances in all income
Retained Earnings. statement and dividend
accounts.

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 Closing Temporary Accounts, continued

Revenues Assets

Liabilities
Dividends
Expenses

Equity
Temporary Permanent
Accounts Accounts

Temporary accounts Permanent accounts

track financial track financial
results for a limited results from year to
period of time. year.

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 Closing Temporary Accounts, concluded
Two closing journal entries are
needed.
 Debit Revenue accounts and
credit Expense accounts.
Debit or credit the difference to
Retained Earnings.

 Credit Dividends Declared and

debit Retained Earnings.

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 NOODLECAKE, INC.
Adjusted Trial Balance
At September 30, 2021
Credit
Closing Entries
Debit
Cash $ 16,900
Accounts Receivable 3,750
Sales Revenue (-R) 12,100
Supplies 250
Service Revenue (-R) 3,250
Prepaid Rent 4,800
Salaries and Wages Expense (-E) 9,750
Equipment 9,600
Rent Expense (-E) 2,400
Accumulated Depreciation $ 400
Utilities Expense (-E) 600
Software 9,000
Advertising Expense (-E) 500
Accumulated Amortization 250
Depreciation Expense (-E) 400
Logo and Trademarks 300
Supplies Expense (-E) 350
Accounts Payable 10,700
Amortization Expense (-E) 250
Deferred Revenue 200
Interest Expense (-E) 100
Salaries and Wages Payable 1,950
Income Tax Expense (-E) 200
Income Tax Payable 200
Retained Earnings (+SE) 800
Interest Payable 100
Note Payable 20,000
Common Stock 10,000 Retained Earnings (-SE) xx
Retained Earnings 0 Dividends (-D) xx
Dividends 0
Sales Revenue 12,100
Service Revenue 3,250
Salaries and Wages Expense 9,750
Rent Expense 2,400
Utilities Expense 600
Advertising Expense 500
Depreciation Expense 400
Supplies Expense 350
Amortization Expense 250
Interest Expense 100
Income Tax Expense 200
Total $ 59,150 $ 59,150
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 Closing Entries, continued
Sales Revenue (-R) 12,100
Service Revenue (-R) 3,250
Salaries and Wages Expense (-E) 9,750 After posting these
Rent Expense (-E)
Utilities Expense (-E)
2,400
600 closing entries, all
Advertising Expense (-E) 500
Depreciation Expense (-E)
Supplies Expense (-E)
400
350
the income
Amortization Expense (-E)
Interest Expense (-E)
250
100 statement accounts
Income Tax Expense (-E)
Retained Earnings (+SE)
200
800 and the dividend
Retained Earnings (-SE) xx
account will have a
Dividends (-D) xx
zero balance.

Partial Listing of T-accounts

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 NOODLECAKE, INC.
Adjusted Trial Balance Post-Closing
At September 30, 2021

Cash $
Debit
16,900
Credit Trial Balance
Accounts Receivable 3,750
Supplies
Prepaid Rent
250
4,800
Final check that all
Equipment
Accumulated Depreciation
9,600
$ 400
debits still equal
Software
Accumulated Amortization
9,000
250
credits and that all
Logo and Trademarks
Accounts Payable
300
10,700
temporary accounts
Deferred Revenue
Salaries and Wages Payable
200
1,950
have been closed.
Income Tax Payable 200
Interest Payable 100
Note Payable
Common Stock
20,000
10,000
Contains balances for
Retained Earnings
Dividends 0
800
only permanent
Sales Revenue
Service Revenue
0
0
accounts.
Salaries and Wages Expense 0
Rent Expense 0
Utilities Expense 0
Advertising Expense 0
Depreciation Expense 0 Is the last step in the
Supplies Expense 0
Amortization Expense 0 accounting process.
Interest Expense 0
Income Tax Expense 0
Total $ 44,600 $ 44,600

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 Learning Objective 4-6

Explain how adjustments

affect financial results.

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 Adjusted Financial Results

Adjustments help to ensure that all revenues

and expenses are reported in the period in which
they are earned and incurred.

Without adjustments, the financial statements

present an incomplete and misleading picture
of the company’s financial performance.

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 Chapter 4
Solved Exercises

M4-5, M4-6, M4-9, M4-10, M4-20,

E4-19 (Req. 1 and 2)

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 M4-5 Determine Accounting Equation Effects of Deferral
Adjustments
For each of the following transactions for the Sky Blue Corporation, give the
accounting equation effects of the adjustments required at the end of the
month on October 31:
a. Collected $2,400 rent for the period October 1 to December 31, which was credited
to Deferred Revenue on October 1.
Assets = Liabilities + Stockholders’ Equity
(a) Deferred Rent Revenue
Revenue -$800 +$800

b. Paid $1,200 for a two-year insurance premium on October 1 and debited Prepaid
Insurance for that amount.
Assets = Liabilities + Stockholders’ Equity
(b) Prepaid Insurance Insurance Expense
-$50
c. Used a machine
-$50 purchased on October 1 for $48,000. The company estimates
annual depreciation of $4,800.
Assets = Liabilities + Stockholders’ Equity
(c) Accumulated Depreciation Expense
Depreciation -$400 -$400

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 M4-6 Recording Adjusting Journal Entries
Using the information in M4-5, prepare the adjusting journal entries
required on October 31.

a. Deferred Revenue (L) 800

  Rent Revenue (+R, +SE)  800
  ($800 = 1/3 x $2,400)
 
b. Insurance Expense (+E, SE) 50
  Prepaid Insurance (A) 50
  ($50 = 1/24 x $1,200)
 
c. Depreciation Expense (+E, SE) 400 
Accumulated Depreciation (+xA, A) 400
($400 = 1/12 x $4,800)

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 M4-9 Preparing Journal Entries for Deferral Transactions and
Adjustments
For each of the following independent situations, prepare journal
entries to record the initial transaction on September 30 and the
adjustment required on October 31.
a. Hockey Helpers paid $4,000 cash on September 30 to rent an
arena for the months of October and November.

September 30:
Prepaid Rent (+A) 4,000
Cash (-A) 4,000

October 31 AJE:
Rent Expense (+E, -SE) 2,000
Prepaid Rent (-A) 2,000
($4,000/2 = $2,000 per month)

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 M4-9 Preparing Journal Entries for Deferral Transactions and
Adjustments, continued
b. Super Stage Shows received $16,000 on September 30 for
season tickets that admit patrons to a theatre event that will be
held twice (on October 31 and November 30).

September 30:
Cash (+A) 16,000
Deferred Revenue (+L) 16,000

October 31 AJE:
Deferred Revenue (-L) 8,000
Service Revenue (+R, +SE) 8,000
($16,000/2 = $8,000 per month)

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 M4-9 Preparing Journal Entries for Deferral Transactions and
Adjustments, concluded
c. Risky Ventures paid $3,000 on September 30 for insurance
coverage for the months of October, November, and December.

September 30:
Prepaid Insurance (+A) 3,000
Cash (-A) 3,000

October 31 AJE:
Insurance Expense (+E, -SE) 1,000
Prepaid Insurance (-A) 1,000
($3,000/3=$1,000 per month)

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 M4-10 Preparing Journal Entries for Deferral Transactions and
Adjustments
For each of the following independent situations, prepare journal
entries to record the initial transaction on December 31 and the
adjustment required on January 31.
a. Magnificent Magazines received $12,000 on December 31,
2021, for subscriptions to magazines that will be published and
distributed in January through December 2022.

December 30, 2021:

Cash (+A) 12,000
Deferred Revenue (+L) 12,000

January 31, 2022 AJE:

Deferred Revenue (-L) 1,000
Service Revenue (+R, +SE) 1,000
($12,000/12 = $1,000 per month)

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 M4-10 Preparing Journal Entries for Deferral Transactions and
Adjustments, continued
b. Walker Window Washing paid $1,200 cash for supplies on
December 31, 2021. As of January 31, 2022, $200 of these
supplies had been used up.

December 31, 2021

Supplies (+A) 1,200
Cash (-A) 1,200

January 31, 2022 AJE:

Supplies Expense (+E, -SE) 200
Supplies (-A) 200

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 M4-10 Preparing Journal Entries for Deferral Transactions and
Adjustments, concluded
c. Indoor Raceway received $3,000 on December 31, 2021, from
race participants for providing services for three races. One race
is held January 31, 2022, and the other two will be held in March
2022.

December 31, 2021:

Cash (+A) 3,000
Deferred Revenue (+L) 3,000

January 31, 2022 AJE:

Deferred Revenue (-L) 1,000
Service Revenue (+R, +SE) 1,000
($3,000/3=$1,000 per race)

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 M4-20 Preparing and Posting Adjusting Journal Entries
At December 31, the unadjusted trial balance of H&R Tacks reports
Prepaid Insurance of $7,200 and Insurance Expense of $0. The
insurance was purchased on July 1 and provides coverage for 24
months. Prepare the adjusting journal entry on December 31. In
separate T-accounts for each account, enter the unadjusted balances,
post the adjusting journal entry, and report the adjusted balance.

 
Insurance Expense (+E, SE) 1,800
  Prepaid Insurance (A) 1,800
($7,200 x 6/24 = $1,800 used)

+ Prepaid Insurance (A) - + Insurance Expense (E) -

Bal. 7,200 Bal. 0
1,800 AJE AJE 1,800
End 5,400 End 1,800

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 E4-19 (Req. 1 and 2) Preparing Adjusting Entries and Adjusted Trial
Balance

Daily Driver, Inc. (DDI), operates a driving service through a popular ride-sharing
app. DDI has prepared a list of unadjusted account balances at its December
31 year-end. You have reviewed the balances and made notes shown in the
right column.

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 E4-19 (Req. 1 and 2) Preparing Adjusting Entries and Adjusted
Trial Balance Continued

Daily Driver, Inc. (DDI), operates a driving service through a popular ride-
sharing app. DDI has prepared a list of unadjusted account balances at its
December 31 year-end. You have reviewed the balances and made notes
shown in the right column.

Required:
1. Use the notes to determine and record adjusting entries needed on
December 31 for (a) supplies used up, (b) insurance costs, (c) using up
the car’s benefit, (d) salaries not yet accounted for, and (e) income taxes
for the year.
2. Post the adjusting entries from requirement 1 to T-accounts to determine
new adjusted balances, and prepare an adjusted trial balance.

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 E4-19 (Req. 1 and 2) Preparing Adjusting Entries and Adjusted Trial
Balance Continued

Item (a): supplies used up

 Supplies Expense (+E, SE) 20

  Supplies (A) 20

+ Supplies (A) - + Supplies Expense (E) -

Bal. 50 Bal. 100
20 AJE AJE 20
End 30 End 120

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 E4-19 (Req. 1 and 2) Preparing Adjusting Entries and Adjusted Trial
Balance Continued

Item (b): insurance costs

Insurance Expense (+E, SE) 1,200

  Prepaid Insurance (A) 1,200

+ Prepaid Insurance (A) - + Insurance Expense (E) -

Bal. 1,200 Bal. 0
1,200 AJE AJE 1,200
End 0 End 1,200

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 E4-19 (Req. 1 and 2) Preparing Adjusting Entries and Adjusted Trial
Balance Continued

Item (c): using up the car’s benefits

Depreciation Expense (+E, SE) 2,400

  Accumulated Depreciation (+xA, -A) 2,400

+ Accumulated Depreciation (+xA, -A) - + Depreciation Expense (E) -

2,400 Bal. Bal. 0
2,400 AJE AJE 2,400
4,800 End End 2,400

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 E4-19 (Req. 1 and 2) Preparing Adjusting Entries and Adjusted Trial
Balance Continued

Item (d): salaries not yet accounted for

Salaries and Wages Expense (+E, SE) 800

  Salaries and Wages Payable (+L) 800

+ Salaries and Wages Payable (L) - + Salaries and Wages Expense (E) -
0 Bal. Bal. 8,800
800 AJE AJE 800
800 End End 9,600

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 E4-19 (Req. 1 and 2) Preparing Adjusting Entries and Adjusted Trial
Balance Continued

Item (e): income taxes for the year

Unadjusted Net Income = $9,420 ($19,570 – 8,800 – 100 – 1,250)

Adjustments:
(a) - 20
(b) -1,200
(c) -2,400
(d) -800
Adjusted Net Income = $ 5,000 x income tax rate 20% = $1,000
Income Tax Expense (+E, SE) 1,000
  Income Tax Payable (+L) 1,000

+ Income Tax Payable (L) - + Income Tax Expense (E) -

0 Bal. Bal. 0
1,000 AJE AJE 1,000
1,000 End End 1,000

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 E4-19 (Req. 1 and 2) Preparing Adjusting Entries and Adjusted Trial
Balance Continued

Required:
Item 2. Prepare
(e): income anthe
taxes for adjusted
year trial balance.

Daily Driver, Inc.

Adjusted Trial Balance
At December 31
Debit Credit
Cash $ 1,000
Supplies 30
Prepaid Insurance 0
Equipment 40,000
Accumulated Depreciation $ 4,800
Salaries and Wages Payable 800
Income Tax Payable 1,000
Common Stock 300 25,000
Retained Earnings 5,430
Service Revenue 19,570
Salaries and Wages Expense 9,600
Supplies Expense 120
Depreciation Expense 2,400
Insurance Expense 1,200
Fuel Expense 1,250
Income Tax Expense 1,000
Total $ 56,600
$ 56,600
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 End of Chapter 4

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