Exam 3: Adjusting the Accounts

Patterson Realty Company received a cheque for $21,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent Revenue was credited for the full $21,000. Financial statements will be prepared on July 31. Patterson Realty should make the following adjusting entry on July 31

On Friday of each week, Gruppe Company pays its factory personnel weekly wages amounting to $40,000 for a five-day work week. Instructions a. Prepare the necessary adjusting entry at year end, assuming December 31 falls on Wednesday. b. Prepare the journal entry for payment of the week's wages on the payday which is Friday, January 2 of the next year.

Lamburg Company has prepared the following adjusting entries at its fiscal year end on June 30, 2014. The adjustment for depreciation has not yet been prepared for the current year. Lamburg's building was purchased 7 years ago. Lamburg follows straight-line depreciation and for the past 6 years depreciation has been properly recorded. The Land was purchased 11 years ago. Instructions a. Prepare an adjusting entry to record depreciation expense. b. Using the chart below prepare an adjusted trial balance in the last two columns. Use the middle two columns to record any increases and decreases to the account from the adjusting entries. If additional accounts are needed, add them at the bottom of the list of accounts in the trial balance. c. Prepare an income statement, statement of owner's equity and a balance sheet.

Accumulated Depreciation is

Many business transactions will affect more than one accounting period.

Prepayments must always be debited to an asset account and credited to a liability account.

Roberts Company prepared the following income statement using the cash basis of accounting: ROBERTS COMPANY Income Statement, Cash Basis Year Ended December 31, 2013 _____________________________________________________________________________ Service revenue (does not include $40,000 of services performed on account Additional data: 1. Depreciation on a company automobile for the year amounted to $6,000. This amount is not included in the expenses above. 2. On July 1, 2013, paid for a one-year insurance policy on the automobile amounting to $1,800. This amount is included in the expenses above. Instructions a. Prepare Roberts Company's income statement on the accrual basis in conformity with generally accepted accounting principles. Show calculations and explain each change. b. Explain which basis (cash or accrual) provides a better measure of profit.

Prepayments are always made with cash.

In the adjusted trial balance, if some of your adjusting entries have been posted twice, the debit totals will equal the credit totals on the trial balance.

Pierson Insurance Agency prepares monthly financial statements. Presented below is an income statement for the month of June that is correct on the basis of information considered. Additional Data: When the income statement was prepared, the company accountant neglected to take into consideration the following information: 1. A utility bill for $2,000 was received on the last day of the month for electric and gas service for the month of June. 2. A company insurance salesman sold a life insurance policy to a client for a premium of $28,000. The agency billed the client for the policy and is entitled to a commission of 20%. 3. Supplies on hand at the beginning of the month were $3,000. The agency purchased additional supplies during the month for $2,500 in cash and $2,200 of supplies were on hand at June 30. 4. The agency purchased a new car at the beginning of the month for $16,800 cash. The car is expected to have a useful life of four years. 5. Salaries owed to employees at the end of the month total $5,300. The salaries will be paid on July 5. Instructions Prepare a correct income statement.

Ove is a lawyer who requires that his clients pay him in advance of legal services rendered. Ove routinely credits Legal Fee Revenue when his clients pay him in advance. In June, Ove collected $16,000 in advance fees and completed 75% of the work related to these fees. What adjusting entry is required by Ove's firm at the end of June?

An adjusting entry will credit a liability to increase the liability.

Marshwinds Wind Turbines shows a balance in Salaries Payable of $80,000 at the end of the month. The next payroll amounting to $100,000 is to be paid in the following month. What will be the journal entry to record the payment of salaries?

Rockport Quarry signed a four-month, 5%, $9,000 note payable on September 1. The amount of interest to be accrued at the end of September is

The preparation of adjusting entries is

Adjusting entries are NOT necessary if the trial balance debit and credit columns balances are equal.

An adjusted trial balance

An asset-expense relationship exists with

For the following independent situations, prepare the required adjusting journal entries. 1. Bristol French Fry Company prepares monthly financial statements. On July 1, the Office Supplies account had a balance of $3,000. During July, additional office supplies were purchased for $3,800 and that amount was debited to Office Supplies Expense. On July 31, a physical count of office supplies revealed that there was $2,700 on hand. Prepare the adjusting journal entry that Bristol French Fry Company should make on July 31. 2. Hartland Bridge Co. prepares monthly financial statements. On September 1, a cheque for $9,600 was received from a tenant for six months' rent. The full amount was credited to Rental Revenue. Prepare the adjusting entry the company should make on September 30.

Chris's Florist Shop records all prepaid costs as assets and all revenue collected in advance as liabilities, and makes adjustments only at its fiscal year end, which is June 30. All of Chris's purchases are for cash unless stated otherwise. The following information relates to Chris's June 30, 2014 year end, its first year of operations. 1. On July 2, 2013, Chris purchased equipment for $12,000. The equipment is expected to have a useful life of 8 years. 2. On August 1, 2013 a one-year insurance policy was purchased for $1,740. 3. On February 1, 2014 a corporate customer paid $2,080 as full payment for a one year contract for fresh flowers to be delivered to its offices every Monday morning. At June 30, 21 of the required 52 deliveries had been completed. 4. On July 2, 2013 Chris purchased enough supplies to last the entire first year of operations for $4,400. At June 30, 2014, Chris counted the supplies on hand and calculated the cost, which amounted to $1,035. 5. On May 31, 2014 Chris borrows $20,000 from the bank to increase the amount of inventory and expand the business. The interest rate on the loan is 6% and requires monthly payments of interest on the first of each month. The principal is due in one year's time. The first interest payment is due July 1. 6 Chris pays her store assistant on alternate Fridays. The last pay day in June was June 20 and the first pay day after year end is July 4. The assistant worked 30 hours during this period, of which 20 were in July, and the rest in June. The assistant earns $9.50 an hour. 7. June 28 is a busy day and Chris has to make deliveries to numerous customers. On July 5 she reviews her June billings, and realizes that she made one large sale for $325 on June 30 for flowers that were delivered, but for which no invoice was issued. The sale was to a regular customer who will pay promptly when the invoice is sent. Instructions: a. For each transaction, prepare any adjusting entries required at June 30, 2014. b. Assume that before making the above adjustments, Chris's Florist Shop's profit was $6,570. Calculate what the correct profit is after recording all of the adjustments.