3.7: Exercises

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

2. 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

3. Additional information: A physical inventory indicated $300 of supplies still on hand at December 31.

Unused Supplies				Supplies Expense
					1,250

4. Additional information: The monthly rent is $400.

Prepaid Rent				Rent Expense
	1,200				4,400

5. Additional information: Unrecorded wages at December 31 amount to $250.

Wages Expense				Wages Payable
	6,000						-0-

6. 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

7. 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

8. 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

9. 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-

10. 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.

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1. The maturity date is March 4, 2023 calculated as: January 31 less January 3 = 28 days + 28 days in February = 56 days + 4 days = March 4.