3.11: 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, 2015, 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 2015, January 2016, and February 2016.
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, 2015.

Required: Prepare all necessary adjusting entries at December 31, 2015. 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, 2015, 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, 2015.
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, 2015.
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, 2015. 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, 2015, 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. 		Depreciation
   Truck		Expense – Truck		Acc. Dep'n – Truck
   6,000		600			600

   Additional information: The truck was purchased July 1; it has an estimated useful life of 4 years.

2. Cash		Unearned Rent		Rent Earned
   600			-0-		600

   Additional information: A part of the office was sublet during the entire 12 months for $50 per month.

3. Unused Supplies		Supplies Expense
   		1,250

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

4. Prepaid Rent		Rent Expense
   1,200		4,400

   Additional information: The monthly rent is $400.

5. Wages Expense		Wages Payable
   6,000			-0-

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

6. Bank Loan		Interest Expense		Interest Payable
   	8,000	600			100

   Additional information: The bank loan bears interest at 10 per cent. The money was borrowed on January 1, 2015.

7. Cash		Utilities Expense		Utilities Payable
   	1,000	1,200			200

   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.

8. Cash		Prepaid Insurance		Insurance Expense
   	1,200	600		600

   Additional information: A $1,200 one-year insurance policy had been purchased effective February 1, 2015; there is no other insurance policy in effect.

9. Unearned Rent Revenue		Rent Earned
   	900		-0-

   Additional information: The Unearned Rent Revenue balance applies to three months: November 2015, December 2015, and January 2016. $600 of the $900 has been earned as at December 31, 2015.

10. Cash		Other Unearned Revenue		Commissions Earned
    25,200			-0-		25,200

    Additional information: $2,000 of the total $25,200 balance in commission revenue has not been earned at December 31, 2015.

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, 2015 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 2015; January and February 2016.
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, 2015.

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, 2015:

	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, 2015.
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, 2015.
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, 2016.

Smith and Smith Co. Unadjusted Trial Balance At June 30, 2016
	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, 2016.

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, 2016. (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, 2016, is the year-end, prepare the closing journal entries.
2. Prepare a post-closing trial balance at June 30, 2016.