Skip to main content
Business LibreTexts

3.7: Exercises

  • Page ID
    98082
    • Henry Dauderis and David Annand
    • Athabasca University via Lyryx Learning

    \( \newcommand{\vecs}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}} } \)

    \( \newcommand{\vecd}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash {#1}}} \)

    \( \newcommand{\id}{\mathrm{id}}\) \( \newcommand{\Span}{\mathrm{span}}\)

    ( \newcommand{\kernel}{\mathrm{null}\,}\) \( \newcommand{\range}{\mathrm{range}\,}\)

    \( \newcommand{\RealPart}{\mathrm{Re}}\) \( \newcommand{\ImaginaryPart}{\mathrm{Im}}\)

    \( \newcommand{\Argument}{\mathrm{Arg}}\) \( \newcommand{\norm}[1]{\| #1 \|}\)

    \( \newcommand{\inner}[2]{\langle #1, #2 \rangle}\)

    \( \newcommand{\Span}{\mathrm{span}}\)

    \( \newcommand{\id}{\mathrm{id}}\)

    \( \newcommand{\Span}{\mathrm{span}}\)

    \( \newcommand{\kernel}{\mathrm{null}\,}\)

    \( \newcommand{\range}{\mathrm{range}\,}\)

    \( \newcommand{\RealPart}{\mathrm{Re}}\)

    \( \newcommand{\ImaginaryPart}{\mathrm{Im}}\)

    \( \newcommand{\Argument}{\mathrm{Arg}}\)

    \( \newcommand{\norm}[1]{\| #1 \|}\)

    \( \newcommand{\inner}[2]{\langle #1, #2 \rangle}\)

    \( \newcommand{\Span}{\mathrm{span}}\) \( \newcommand{\AA}{\unicode[.8,0]{x212B}}\)

    \( \newcommand{\vectorA}[1]{\vec{#1}}      % arrow\)

    \( \newcommand{\vectorAt}[1]{\vec{\text{#1}}}      % arrow\)

    \( \newcommand{\vectorB}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}} } \)

    \( \newcommand{\vectorC}[1]{\textbf{#1}} \)

    \( \newcommand{\vectorD}[1]{\overrightarrow{#1}} \)

    \( \newcommand{\vectorDt}[1]{\overrightarrow{\text{#1}}} \)

    \( \newcommand{\vectE}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash{\mathbf {#1}}}} \)

    \( \newcommand{\vecs}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}} } \)

    \( \newcommand{\vecd}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash {#1}}} \)

    EXERCISE 3–1 (LO1,2) Adjusting Entries

    The following are account balances of Graham Corporation:

    Account Title Amount in Unadjusted Trial Balance Balance after Adjustment
    Interest Receivable $ -0- $110
    Prepaid Insurance 1,800 600
    Interest Payable -0- 90
    Salaries Payable -0- 450
    Unearned Rent 700 200

    Required:

    1. Enter the unadjusted balance for each account in the following T-accounts: Interest Receivable, Prepaid Insurance, Interest Payable, Salaries Payable, Unearned Rent, Interest Earned, Rent Earned, Insurance Expense, Interest Expense, and Salaries Expense.
    2. Reconstruct the adjusting entry that must have been recorded for each account.
    3. Post these adjusting entries and agree ending balances in each T-account to the adjusted balances above.
    4. List revenue and expense amounts for the period.

    EXERCISE 3–2 (LO1,2) Adjusting Entries

    The trial balance of Lauer Corporation at December 31, 2023 follows, before and after the posting of adjusting entries.

      Trial Balance Adjustments Adjusted Trial Balance
      Dr. Cr. Dr. Cr. Dr. Cr.
    Cash $4,000       $4,000  
    Accounts Receivable 5,000       5,000  
    Prepaid Insurance 3,600       3,300  
    Prepaid Rent 1,000       500  
    Truck 6,000       6,000  
    Accumulated Depreciation   $ -0-       $1,500
    Accounts Payable   7,000       7,400
    Salaries Payable           1,000
    Unearned Rent   1,200       600
    Share Capital   2,700       2,700
    Revenue   25,000       25,000
    Rent Earned           600
    Advertising Expense 700       700  
    Commissions Expense 2,000       2,000  
    Depreciation Expense         1,500  
    Insurance Expense         300  
    Interest Expense 100       500  
    Rent Expense 5,500       6,000  
    Salaries Expense 8,000       9,000  
    Totals $35,900 $35,900     $38,800 $38,800

    Required:

    1. Indicate in the "Adjustments" column the debit or credit difference between the unadjusted trial balance and the adjusted trial balance.
    2. Prepare in general journal format the adjusting entries that have been recorded. Include descriptions.

    EXERCISE 3–3 (LO1,2) Adjusting Entries

    The following data are taken from an unadjusted trial balance at December 31, 2023:

    Prepaid Rent $ 600
    Office Supplies 700
    Income Taxes Payable -0-
    Unearned Commissions 1,500
    Salaries Expense 5,000

    Additional Information:

    1. The prepaid rent consisted of a payment for three months' rent at $200 per month for December 2023, January 2024, and February 2024.
    2. Office supplies on hand at December 31, 2023 amounted to $300.
    3. The estimated income taxes for 2023 are $5,000.
    4. All but $500 in the Unearned Commissions account has been earned in 2023.
    5. Salaries for the last three days of December amounting to $300 have not yet been recorded.

    Required:

    1. Prepare all necessary adjusting entries in general journal format.
    2. Calculate the cumulative financial impact on assets, liabilities, equity, revenue and expense if these adjusting entries are not made.

    EXERCISE 3–4 (LO1,2) Adjusting Entries

    The following are general ledger accounts extracted from the records of Bernard Inc. at December 31, 2023, its year-end ('Bal' = unadjusted balance):

    Prepaid Advertising Accounts Payable Share Capital
    Bal. 1,000   500     Bal. 15,000     Bal. 8,000
            200  
            100 Subscription Revenue
    Unused Supplies       400       5,000
    Bal. 750   400       800  
        Advertising Expense
      Salaries Payable   500    
    Equipment       700  
    Bal. 21,750        
      Unearned Subscriptions Commissions Expense
    Acc. Dep'n – Equipment   5,000 Bal. 10,000   800    
        Bal. 1,500    
          250   Dep'n Expense – Equipment
          250    
        Maintenance Expense
          200    
        Salaries Expense
        Bal. 9,500    
          700    
        Supplies Expense
        Bal. 2,500    
          400    
        Telephone Expense
          100    
        Utilities Expense
          400    

    Required: Prepare in general journal format the adjusting entries that were posted. Include plausible descriptions/narratives for each adjustment.

    EXERCISE 3–5 (LO1,2) Adjusting Entries

    The following unadjusted accounts are extracted from the general ledger of A Corp. at December 31, 2023:

    Truck Depreciation Expense – Truck Acc. Dep'n – Truck
      10,000       1,300           1,300

    Additional Information: The truck was purchased January 1, 2023. It has an estimated useful life of 4 years.

    Required: Prepare the needed adjusting entry at December 31, 2023.

    EXERCISE 3–6 (LO1,2) Adjusting Entries

    The following unadjusted accounts are taken from the records of B Corp. at December 31, 2023:

    Bank Loan Interest Expense Interest Payable
          12,000   1,100           100

    Additional Information: The bank loan was received on January 1, 2023. It bears interest at 10 per cent.

    Required: Prepare the adjusting entry at December 31, 2023.

    EXERCISE 3–7 (LO1,2) Adjusting Entries

    The following general ledger accounts and additional information are taken from the records of Wolfe Corporation at the end of its fiscal year, December 31, 2023.

    Cash 101 Unused Supplies 173 Advertising Exp. 610
    Bal. 2,700     Bal. 700     Bal. 200    
     
    Accounts Receivable 110 Share Capital 320 Salaries Expense 656
    Bal. 2,000         Bal. 3,800 Bal. 4,500    
     
    Prepaid Insurance 161 Repair Revenue 450 Telephone Expense 669
    Bal. 1,200         Bal. 7,750 Bal. 250    

    Additional Information:

    1. The prepaid insurance is for a one-year policy, effective July 1, 2023.
    2. A physical count indicated that $500 of supplies is still on hand.
    3. A $50 December telephone bill has been received but not yet recorded.

    Required: Record all necessary adjusting entries in general journal format.

    EXERCISE 3–8 (LO2) Adjusting Entries

    Below are descriptions of various monthly adjusting entries:

    1. Adjusting entry for revenue earned but not yet billed to the customer.
    2. Adjusting entry for cash received from a customer for revenue not yet earned.
    3. Adjusting entry for revenue earned that was originally received as cash in advance in the previous month.
    4. Adjusting entry for services received from a supplier, but not yet paid.
    5. Adjusting entry for cash paid to a supplier for repair services not yet received.
    6. Adjusting entry for repair services received that was originally paid as cash in advance to the supplier in the previous month.
    7. Adjusting entry for salaries earned by employees, but not yet paid.
    8. Adjusting entry for annual depreciation expense for equipment.

    Required: For each description above, identify the likely journal entry debit and credit account.

    EXERCISE 3–9 (LO2) Adjusting Entries

    Turner Empire Co. employs 65 employees. The employees are paid every Monday for work done from the previous Monday to the end-of-business on Friday, or a 5-day work week. Each employee earns $80 per day.

    Required:

    1. Calculate the total weekly payroll cost and the salary adjustment at March 31, 2024.
    2. Prepare the adjusting entry at March 31, 2024.
    3. Prepare the subsequent cash entry on April 4, 2024.

    EXERCISE 3–10 (LO1,2,3) Adjusting Entries

    Below is a trial balance for Quertin Quick Fix Ltd. at October 31, 2024 with three sets of debit/credit columns. The first set is before the October month-end adjusting entries, and the third column is after the October month-end adjusting entries.

    Quertin Quick Fix Ltd.
    Trial Balance
    At October 31, 2024
      Unadjusted Trial Balance Adjustments Adjusted Trial Balance
      Debit Credit Debit Credit Debit Credit
    Accounts payable     $ 225,000             $ 225,500
    Accounts receivable $ 325,000             $ 395,000    
    Accrued salaries payable       5,000               9,500
    Accumulated depreciation, equipment   1,500                   2,500
    Advertising expense   1,500               1,500    
    Cash   80,000               118,700    
    Depreciation expense   800               1,800    
    Equipment   150,000               150,000    
    Land   150,000               150,000    
    Maintenance service expenses   1,000               1,000    
    Notes payable       210,000               210,000
    Office supplies   5,000               5,000    
    Prepaid advertising expenses   15,000               16,300    
    Rent expense   14,000               14,000    
    Retained earnings       37,800               37,800
    Salaries expense   45,000               49,500    
    Service revenue       300,000               370,000
    Share capital       10,000               10,000
    Unearned service revenue       10,000               50,000
    Utilities expense   12,000               12,500    
                             
      $ 799,300 $ 799,300         $ 915,300 $ 915,300

    Required: Determine the differences for all the account balances and identify the most likely adjusting entries that would have been recorded in October to correspond to these differences.

    EXERCISE 3–11 (LO3) Prepare an Adjusted Trial Balance

    After Bernard Inc. completed its first year of operations on December 31, 2023, the following adjusted account balances appeared in the general ledger.

    Prepaid Advertising Accounts Payable Share Capital
      1,000           13,250       8,000
    Supplies   Subscription Revenue
      750             5,000
    Equipment Salaries Payable Advertising Expense
      21,750           700   500    
    Acc. Dep'n – Equipment Unearned Subscriptions Commissions Expense
          1,500       10,000   800    
        Dep'n Expense – Equipment
          250    
        Maintenance Expense
          200    
        Salaries Expense
          10,200    
        Supplies Expense
          2,500    
        Telephone Expense
          100    
        Utilities Expense
          400    

    Required:Prepare an adjusted trial balance at December 31, 2023.

    EXERCISE 3–12 (LO6) Closing Entries

    Below is the adjusted trial balance for Quefort Ltd. as at September 30, 2024:

      Debit Credit
    Accounts payable     $ 23,250
    Accounts receivable $ 106,800    
    Accrued salaries payable       8,700
    Accumulated depreciation, building       200
    Accumulated depreciation, equipment       3,200
    Advertising expense   4,050    
    Building   111,000    
    Cash   87,300    
    Cash dividends   5,000    
    Depreciation expense   2,380    
    Equipment   15,000    
    Income tax expense   4,500    
    Income taxes payable       4,500
    Insurance expense   3,700    
    Interest expense   150    
    Interest payable       150
    Repair expense   7,800    
    Notes payable       30,000
    Office supplies   1,800    
    Prepaid insurance expense   12,790    
    Rent expense   22,500    
    Retained earnings       65,470
    Salaries expense   41,700    
    Service revenue       276,000
    Share capital       1,500
    Shop supplies expense   750    
    Unearned service revenue       37,500
    Utilities expense   23,250    
      $ 450,470 $ 450,470

    Required: Prepare the closing entries.

    EXERCISE 3–13 (LO6) Prepare Closing Entries and a Post-Closing Trial Balance

    The following alphabetized adjusted trial balance information is available for Willis Inc. at December 31, 2023. Assume all accounts have normal balances.

    Accounts Payable $ 4,400
    Accounts Receivable 3,600
    Accumulated Depreciation – Machinery 2,800
    Accumulated Depreciation – Warehouse 8,000
    Bank Loan 47,600
    Cash 12,000
    Commissions Earned 20,000
    Depreciation Expense – Machinery 900
    Depreciation Expense – Warehouse 1,200
    Dividends 14,000
    Insurance Expense 1,800
    Interest Expense 2,365
    Interest Payable 1,200
    Land 15,000
    Machinery 20,000
    Retained Earnings 36,000
    Salaries Expense 33,475
    Salaries Payable 1,970
    Share Capital 52,100
    Subscriptions Revenue 17,630
    Supplies 2,500
    Supplies Expense 15,800
    Unearned Fees 800
    Utilities Expense 2,860
    Warehouse 67,000

    Required: Prepare closing entries and a post-closing trial balance.

    Problems

    PROBLEM 3–1 (LO1,2) Adjusting Entries

    The following unrelated accounts are extracted from the records of Meekins Limited at December 31, its fiscal year-end:

      Balance
      Unadjusted Adjusted
    (a) Prepaid Rent $ 900 $ 600
    (b) Wages Payable 500 700
    (c) Income Taxes Payable -0- 1,000
    (d) Unearned Commissions Revenue 4,000 3,000
    (e) Other Unearned Revenue 25,000 20,000
    (f) Advertising Expense 5,000 3,500
    (g) Depreciation Expense – Equipment -0- 500
    (h) Supplies Expense 850 625
    (i) Truck Operation Expense 4,000 4,500

    Required: For each of the above unrelated accounts, prepare the most likely adjusting entry including plausible description/narrative.

    PROBLEM 3–2 (LO1,2) Adjusting Entries

    The unadjusted trial balance of Lukas Films Corporation includes the following account balances at December 31, 2023, its fiscal year-end. Assume all accounts have normal debit or credit balances as applicable.

    Prepaid Rent $ 1,500
    Unused Supplies -0-
    Equipment 2,400
    Unearned Advertising Revenue 1,000
    Insurance Expense 900
    Supplies Expense 600
    Telephone Expense 825
    Wages Expense 15,000

    The following information applies at December 31:

    1. A physical count of supplies indicates that $100 of supplies have not yet been used at December 31.
    2. A $75 telephone bill for December has been received but not recorded.
    3. One day of wages amounting to $125 remains unpaid and unrecorded at December 31; the amount will be included with the first Friday payment in January.
    4. The equipment was purchased December 1; it is expected to last 2 years. No depreciation has yet been recorded.
    5. The prepaid rent is for three months: December 2023, January 2024, and February 2024.
    6. Half of the unearned advertising has been earned at December 31.
    7. The $900 balance in Insurance Expense is for a one-year policy, effective August 1, 2023.

    Required: Prepare all necessary adjusting entries at December 31, 2023. Descriptions are not needed.

    PROBLEM 3–3 (LO1,2) Adjusting Entries

    The unadjusted trial balance of Mighty Fine Services Inc. includes the following account balances at December 31, 2023, its fiscal year-end. No adjustments have been recorded. Assume all accounts have normal debit or credit balances.

    Notes Receivable $10,000
    Prepaid Rent -0-
    Prepaid Insurance 600
    Unused Supplies 500
    Bank Loan 5,000
    Subscription Revenue 9,000
    Rent Expense 3,900
    Truck Operation Expense 4,000

    The following information applies to the fiscal year-end:

    1. Accrued interest of $250 has not yet been recorded on the Notes Receivable.
    2. The $600 prepaid insurance is for a one-year policy, effective September 1, 2023.
    3. A physical count indicates that $300 of supplies is still on hand at December 31.
    4. Interest on the bank loan is paid on the fifteenth day of each month; the unrecorded interest for the last 15 days of December amounts to $25.
    5. The Subscription Revenue account consists of one $9,000 cash receipt for a 6-month subscription to the corporation's Computer Trends report; the subscription period began December 1, 2023.
    6. Three days of salary amounting to $300 remain unpaid and unrecorded at December 31.
    7. The rent expense account should reflect 12 months of rent. The monthly rent expense is $300.
    8. A bill for December truck operation expense has not yet been received; an amount of $400 is owed.

    Required: Prepare all necessary adjusting entries at December 31, 2023. Descriptions are not needed.

    PROBLEM 3–4 (LO1,2) Adjusting Entries

    The following accounts are taken from the records of Bill Pitt Corp. at the end of its first 12 months of operations ended December 31, 2023, prior to any adjustments.

    In addition to the balances in each set of accounts, additional data are provided for adjustment purposes if applicable. Treat each set of accounts independently of the others.

    1. Additional information: The truck was purchased July 1; it has an estimated useful life of 4 years.
    Depreciation
    Truck Expense – Truck Acc. Dep'n – Truck
      6,000       600           600
    1. Additional information: A part of the office was sublet during the entire 12 months for $50 per month.
    Cash Unearned Rent Rent Earned
      600           -0-       600
    1. Additional information: A physical inventory indicated $300 of supplies still on hand at December 31.
    Unused Supplies Supplies Expense
              1,250    
    1. Additional information: The monthly rent is $400.
    Prepaid Rent Rent Expense
      1,200       4,400    
    1. Additional information: Unrecorded wages at December 31 amount to $250.
    Wages Expense Wages Payable
      6,000           -0-
    1. Additional information: The bank loan bears interest at 10 per cent. The money was borrowed on January 1, 2023.
    Bank Loan Interest Expense Interest Payable
          8,000   600           100
    1. Additional information: The December bill has not yet been received or any accrual made; the amount owing at December 31 is estimated to be another $150.
    Cash Utilities Expense Utilities Payable
          1,000   1,200           200
    1. Additional information: A $1,200 one-year insurance policy had been purchased effective February 1, 2023; there is no other insurance policy in effect.
    Cash Prepaid Insurance Insurance Expense
          1,200   600       600    
    1. Additional information: The Unearned Rent Revenue balance applies to three months: November 2023, December 2023, and January 2024. $600 of the $900 has been earned as at December 31, 2023.
    Unearned Rent Revenue Rent Earned
          900       -0-
    1. Additional information: $2,000 of the total $25,200 balance in commission revenue has not been earned at December 31, 2023.
    Cash Other Unearned Revenue Commissions Earned
      25,200           -0-       25,200

    Required: Prepare all necessary adjusting entries. Include descriptions/narratives.

    PROBLEM 3–5 (LO1,2,3) Adjusting Accounts

    Roth Contractors Corporation was incorporated on December 1, 2023 and had the following transactions during December:

    Part A

    1. Issued share capital for $5,000 cash.
    2. Paid $1,200 for three months' rent: December 2023; January and February 2024.
    3. Purchased a used truck for $10,000 on credit (recorded as an account payable).
    4. Purchased $1,000 of supplies on credit. These are expected to be used during the month (recorded as expense).
    5. Paid $1,800 for a one-year truck insurance policy, effective December 1.
    6. Billed a customer $4,500 for work completed to date.
    7. Collected $800 for work completed to date.
    8. Paid the following expenses: advertising, $350; interest, $100; telephone, $75; truck operation, $425; wages, $2,500.
    9. Collected $2,000 of the amount billed in (f) above.
    10. Billed customers $6,500 for work completed to date.
    11. Signed a $9,000 contract for work to be performed in January.
    12. Paid the following expenses: advertising, $200; interest, $150; truck operation, $375; wages, $2,500.
    13. Collected a $2,000 advance on work to be done in January (the policy of the corporation is to record such advances as revenue at the time they are received).
    14. Received a bill for $100 for electricity used during the month (recorded as utilities expense).

    Required:

    1. Open general ledger T-accounts for the following: Cash (101), Accounts Receivable (110), Prepaid Insurance (161), Prepaid Rent (162), Truck (184), Accounts Payable (210), Share Capital (320), Repair Revenue (450), Advertising Expense (610), Interest Expense (632), Supplies Expense (668), Telephone Expense (669), Truck Operation Expense (670), Utilities Expense (676), and Wages Expense (677).
    2. Prepare journal entries to record the December transactions. Descriptions are not needed.
    3. Post the entries to general ledger T-accounts.

    Part B

    At December 31, the following information is made available for the preparation of adjusting entries.

    1. One month of the Prepaid Insurance has expired.
    2. The December portion of the December 1 rent payment has expired.
    3. A physical count indicates that $350 of supplies is still on hand.
    4. The amount collected in transaction (m) is unearned at December 31.
    5. Three days of wages for December 29, 30, and 31 are unpaid; the unpaid amount of $1,500 will be included in the first Friday wages payment in January.
    6. The truck has an estimated useful life of 4 years.

    Required:

    1. Open additional general ledger T-accounts for the following: Supplies (173), Accumulated Depreciation – Truck (194), Wages Payable (237), Unearned Revenue (249), Depreciation Expense – Truck (624), Insurance Expense (631), and Rent Expense (654).
    2. Prepare all necessary adjusting entries. Omit descriptions.
    3. Post the entries to general ledger T-accounts and calculate balances.
    4. Prepare an adjusted trial balance at December 31, 2023.

    PROBLEM 3–6 (LO6) Closing Accounts

    Required:

    1. Using the adjusted trial balance answer from Problem 3–5, journalize the appropriate closing entries (create additional accounts if required).
    2. Prepare a post-closing trial balance.

    PROBLEM 3–7 (LO1,2,3,4,5,6) Comprehensive Accounting Cycle Review Problem

    The unadjusted trial balance of Packer Corporation showed the following balances at the end of its first 12-month fiscal year ended August 31, 2023:

      Balance
      Debits Credits
    Cash $12,000  
    Accounts Receivable 3,600  
    Prepaid Insurance -0-  
    Supplies 2,500  
    Land 15,000  
    Building 60,000  
    Furniture 3,000  
    Equipment 20,000  
    Accumulated Depreciation – Building   $ -0-
    Accumulated Depreciation – Equipment   -0-
    Accumulated Depreciation – Furniture   -0-
    Accounts Payable   4,400
    Salaries Payable   -0-
    Interest Payable   -0-
    Unearned Commissions Revenue   1,200
    Unearned Subscriptions Revenue   800
    Bank Loan   47,600
    Share Capital   52,100
    Retained Earnings   -0-
    Income Summary   -0-
    Commissions Earned   37,900
    Subscriptions Revenue   32,700
    Advertising Expense 4,300  
    Depreciation Expense – Building -0-  
    Depreciation Expense – Equipment -0-  
    Depreciation Expense – Furniture -0-  
    Insurance Expense 1,800  
    Interest Expense 2,365  
    Salaries Expense 33,475  
    Supplies Expense 15,800  
    Utilities Expense 2,860  
    Totals $176,700 $176,700

    At the end of August, the following additional information is available:

    1. The company's insurance coverage is provided by a single comprehensive 12-month policy that began on March 1, 2023.
    2. Supplies on hand total $2,850.
    3. The building has an estimated useful life of 50 years.
    4. The furniture has an estimated useful life of ten years.
    5. The equipment has an estimated useful life of 20 years.
    6. Interest of $208 on the bank loan for the month of August will be paid on September 1, when the regular $350 payment is made.
    7. A review of the unadjusted balance in the unearned commissions revenue account indicates the unearned balance should be $450.
    8. A review of the unadjusted balance in the subscription revenue account reveals that $2,000 has not been earned.
    9. Salaries that have been earned by employees in August but are not due to be paid to them until the next payday (in September) amount to $325.

    Required:

    1. Set up necessary general ledger T-accounts and record their unadjusted balances. Create and assign account numbers that you deem appropriate.
    2. Prepare the adjusting entries. Descriptions are not needed.
    3. Post the adjusting entries to the general ledger T-accounts and calculate balances.
    4. Prepare an adjusted trial balance at August 31, 2023.
    5. Prepare an income statement and balance sheet.
    6. Prepare and post the closing entries.
    7. Prepare a post-closing trial balance.

    PROBLEM 3–8 (LO1,2,3) Challenge Question – Adjusting Entries

    Below is an unadjusted trial balance for Smith and Smith Co., at June 30, 2024.

    Smith and Smith Co.
    Unadjusted Trial Balance
    At June 30, 2024
      Debit Credit
    Cash $ 50,400    
    Accounts receivable   25,000    
    Shop supplies   1,500    
    Prepaid insurance expense   4,500    
    Prepaid advertising expense   2,000    
    Prepaid rent expense      
    Building   74,000    
    Accumulated depreciation, building     $
    Equipment   10,000    
    Accumulated depreciation, equipment       2,000
    Accounts payable       12,000
    Accrued salaries payable       15,500
    Interest payable      
    Income taxes payable      
    Notes payable       20,000
    Unearned service revenue       30,000
    Share capital       1,000
    Retained earnings       24,900
    Service revenue       125,000
    Salaries expense   22,000    
    Insurance expense      
    Interest expense      
    Shop supplies expense   200    
    Advertising expense   2,200    
    Depreciation expense   1,400    
    Maintenance service expense   5,200    
    Rent expense   20,000    
    Income tax expense      
    Utilities expense   12,000    
      $ 230,400 $ 230,400

    Additional information for June not yet recorded:

    1. Unbilled and uncollected work to June 30 totals $45,000.
    2. An analysis of prepaid advertising shows that $500 of the balance was consumed.
    3. A shop supplies count on June 30 shows that $1,200 are on hand.
    4. Equipment has an estimated useful life of ten years and an estimated residual value of $500.
    5. The records show that fifty percent of the work, for a $10,000 fee received in advance from a customer and recorded last month, is now completed.
    6. Salaries of $5,800 for employees for work done to the end of June has not been paid.
    7. Utilities invoice for services to June 22 totals $3,500.
    8. Accrued revenues of $7,800 previously recorded to accounts receivable were collected.
    9. A building was purchased at the end of May. Its estimated useful life is fifty years and has an estimated residual value of $10,000.
    10. Rent expense of $5,000 cash for July has been paid and recorded directly to rent expense.
    11. Interest for the 6% note payable has not yet been recorded for June.
    12. Income taxes of $3,000 is owing but not yet paid.
    13. Unrecorded and uncollected service revenue of $9,000 has been earned.
    14. A two year, $1,800 insurance policy was purchased on June 1 and recorded to prepaid insurance expense.
    15. The prior balance in the unadjusted prepaid insurance account (excluding the insurance in item n. above), shows that $300 of that balance is not yet used.

    Required:

    1. Prepare the adjusting and correcting entries for June.
    2. Prepare an adjusted trial balance at June 30, 2024.

    PROBLEM 3–9 (LO4) Challenge Question – Preparation of Financial Statements

    Using the adjusted trial balance in PROBLEM 3–8 above:

    Required: Prepare an income statement, statement of changes in equity and a balance sheet as at June 30, 2024. (Hint: For the balance sheet, also include a subtotal for each asset's book value).

    PROBLEM 3–10 (LO6) Closing Entries and Post-Closing Trial Balance

    Required: Using the adjusted trial balance in PROBLEM 3–8 above:

    1. Assuming that June 30, 2024, is the year-end, prepare the closing journal entries.
    2. Prepare a post-closing trial balance at June 30, 2024.

    This page titled 3.7: Exercises is shared under a CC BY-NC-SA 3.0 license and was authored, remixed, and/or curated by Henry Dauderis and David Annand (Lyryx Learning) .