Exam 3: Measuring Business Income: The Adjusting Process

Companies reporting under IFRS and ASPE do not go through the same adjusting process.

Based on the partial trial balance and the partial adjusted trial balance shown below, prepare the six missing adjusting entries. The adjusting entries should be dated December 31. Unadjusted Account Trial Balance Adjusted Trial Balance Debit Credit Debit Credit Accounts Receivable 101,600 107,800 Supp lies 5,000 3,200 Prepaid Insurance 10,600 7,800 Accumulated Amortization 55,300 60,200 Salary Payable 1,800 Unearned Service Revenue 13,500 12,100 Service Revenue 211,900 219,500 Salary Expense 110,600 112,400 Insurance Expense 2,800 Supp lies Expense 1,800 Amortization Expense 4,900

On October 1 of the current year, Wood Services received $15,000 for services to be performed evenly over the next 12 months. Wood Services initially recorded the $15,000 as unearned service revenue. The adjusting entry on December 31 of the current year will include a:

Prepare an adjusted trial balance based on the following adjustment data and the unadjusted trial balance. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text {Tudhope Plumbing}$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text {Unadjusted Trial Balance}$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text {December 31, 2019}$ Debit Credit Cash \ 12,000 Accounts receivable 20,500 Office supplies 9,500 Prepaid insurance 10,200 Equipment 80,500 Accum. amort -equipment \ 30,900 Accounts payable 15,500 Unearned service revenue 20,600 Mike Tudhope, Capital 80,200 Mike Tudhope, Withdrawals 20,600 Service revenue 63,700 Salary expense 30,600 Advertising expense 15,400 Utilities expense 9,900 Miscellaneous expense 1,700 Total \ 210,900 \ 210,900 Adjustment data: a)Office supplies on hand on December 31, 2019, amount to $4,600. b)During the year, $5,400 of prepaid insurance expired. c)Amortization on equipment for the year is $12,400. d)Unearned service revenue on December 31, 2019, amounts to $6,800. e)Salaries owed to employees on December 31, 2019, amount to $3,300.

When an unearned revenue is initially recorded as a revenue, the adjusting entry would include a:

Failure to adjust for an accrued expense will overstate expenses and understate net income.

The following unadjusted account balances and adjustment data are for Nugent Consulting as of December 31, 2019: Cash \ 12,900 Prepaid insurance 2,000 Office supplies 1,300 office equipment 10,500 Accumulated amort.-office equipment 3,500 Accounts payable 2,900 Salary payable 0 Unearned service revenue 4,500 Neela Nugent, Capital 11,750 Neela Nugent, Withdrawals 5,600 Service revenue 13,350 Salary expense 3,700 Amort. expense-office equipment 0 Supplies expense 0 Insurance expense 0 Adjustment data: Office supplies on hand December 31, 2019, $250 Prepaid insurance expired during 2019, $325 Unearned service revenue, December 31, 2019, $2,500 Amortization on equipment for 2019, $1,800 Accrued salaries, $900 Fill in the trial balance, adjustments, and adjusted trial balance columns in the following table.

The matching objective is the basis for recording:

Net income is reported on the income statement at $75,000. Adjusting entries for accrued revenues of $6,000 and unearned revenue earned during the current period of $2,500 were accidentally omitted. The correct net income is:

The concept underlying accounting for property, plant and equipment and amortization expense is the same as for prepaid expenses.

Table 3-6 -Refer to Table 3-6. 1. Post each journal entry to the T-accounts. 2. Prepare an unadjusted trial balance on December 31.

Stan's Shoe Repairs recorded $2,000 of unearned service revenue being earned and the collection of $4,000 cash for service revenue previously accrued. The impact of these two entries on total service revenue is:

If a required prepaid adjustment had not been made, the financial statements would have been affected as follows:

On December 1, 2018, Parsons Sales sold machinery to Janet's Vegetables for $2,000. Janet could not pay at the time of sale, but agreed to pay 9 months later, and signed a 9-month note at 12% interest. Parsons accrues interest only at year-end. On September 1, 2019 Parsons collected the whole amount due. Janet's Vegetables will be using the equipment in the business. Provide all of the required journal entries for Parson Sales for 2018 and 2019, and, for Janet's Vegetables the 2018 required journal entries, assuming a one-year useful life and $200 estimated residual value for the equipment. General Journal-Parsons Sales Date Accounts Debit Credit General Journal-Janet's Vegetables Date Accounts Debit Credit

Prepaid rent shows a beginning balance of $500 and an ending balance of $600. During the year, prepaid rent was debited for $2,200. What is the amount of rent expense shown on the current year's income statement?

When an unearned revenue is initially recorded as a revenue, the adjusting entry has the following effect on the financial statements:

The balance sheet reports the:

Unearned revenue recorded initially as unearned revenue is adjusted by debiting a liability account.

Janet Smythe started her personal coaching business, Smythe Personal Coaching, on November 1, 2019. Janet records purchasing supplies as assets and cash received from clients on deposit as unearned revenue. The following transactions occurred during the first month of operations: Nov. 1 Janet Smythe invested $25,000 personal cash in the business by depositing that amount in the bank account titled Smythe Personal Coaching. The business gave capital to Smythe. Nov. 1 Paid the November rent on the office space, $1,500. Nov. 3 Purchased a computer and printer for use in the business; she used her personal credit card in the amount of $1,800. The computer has an expected life of three years with no salvage value. Nov. 5 Purchased office supplies in the amount of $75 on an account she set up with the store, Ace Office Depot. Nov. 10 Received $500 from her first client, Robert Jones, as payment in advance for coaching fees. (Record this amount in the account Unearned Coaching Revenue.) Nov. 17 Travelled to Montreal to attend a personal coaches conference. The conference lasted one week and costs were: travel $1,500; conference registration fee, $750. Used cash from the business to pay for the expenses. Nov. 25 Paid Ace Office Depot the amount owing from November 5. Nov. 30 Counted the office supplies and estimated that there was $25 of supplies remaining. Robert Jones had received $100 of coaching during the month. Required: Prepare journal entries for the above transactions and the appropriate corresponding adjusting journal entries necessary to prepare financial statements for the month of November. Date Accounts Debit Credit

Combining the amounts from the unadjusted trial balance with the adjustments gives rise to the: