Chapter 3 Exercise

1/ Match each definition with its related term by entering the appropriate letter in the space
provided. Definition 1/ At year-end, wages payable of $405,000 had not been recorded or paid. 2/ Office supplies were purchase during the year for $500 and $11,200 of them remained on hand (unused) at year-end. 3/ Interest of $28110 on a note receivable were earned at year-end, although collection of the interest is not due until the following year. 4/ At year-end, services revenue of 224,880 was collected in cash but was not yet earned. Term A. Accrued expense B. Deferred expense C. Accrued revenue D. Deferred revenue

2/

-Recording the adjusting Entries (Deferred Account) for each of the following transactions (a) through (c) for Suzuki Company, 1. Identify if the adjustment is to deferred revenue or deferred expense account. 2. Give the adjusting entries required for the year ended December 31, 2007 a. Collected $90,000 rent for the period December1, 2007, to April 1, 2008, which was credited to unearned rent revenue on December 1, 2007. b. c. Paid $45,000 for two-year insurance premium on July 1, 2007 Purchased a machine for $3,598,000 cash on January 1, 2004. The company estimates the annual depreciation of $337,000.

Recoding the adjusting entries (Accrued Accounts)

1/ Identify if the adjustment is to accrued revenue accrued expense account.

2/ Give the adjusting entries required for the year ended December 31, 2007 a. Estimated electricity usage at $36,000 for December to be paid in July 2008. b. Owed wages to 10 employees who worked three days at $17,000 each per day at the end of December. The company will pay employees at the end of the first week of January 2008. c. On September 1, 2007 Loaned $562,000 to an officer who will repay the loan principle and interest in one year at an annual interest rate of 12 percent.

3/ Recording seven typical adjusting entries

Bing Ben Variety Store is completing the accounting process for the year just ended, December 31, 2007. The transactions during 2007 have been journalize and posted. The following data with respect to adjusting entries are available: a. Office supplies on hand at January 1, 2007, totaled $290. Office supplies purchased and debited to Office supplies during the year amounted to $665. The year-end count showed $250 of supplies on hand. b. Wages earned by employees during December 2007, unpaid and unrecorded at December 31, 2007, amounted to $3070. The last payroll was December 28; the next payroll will be January 6 2008. c. Three-fourths of the basement of the store is rented for $1,245 per month to another merchant M. Dittman Inc. On November 1, 2007. The store collected six months' rent in the amount of $7470 in advance from Dittman; it was credited in full to Unearned Rent Revenue when collected. d. The remaining basement space is rented to Kathy's specialty shop for $680 per month, payable monthly. On December 31, 2007 the rent for November and December 2007 had not been collected or recorded. Collection is expected January 10, 2008. e. The store use delivery equipment that cost $24,900; $4150 was the estimated depreciation for 2007. f. On July 1, 2007, a two year insurance premium amounting to $3485 was paid in cash and debited in full to Prepaid Insurance. Coverage began on July 1, 2007. g. Big Ben's repair shop to meet its own needs. The shop also does repairs for M. Dittman. At the end of December 31, 2007, Dittman had not paid $625 for completed repairs. This amount has not yet been recorded as repairs Shop Revenue. Collection is expected during January 2008. Required:

1/ Identify each of these transactions as deferred revenue, deferred expense, accrued revenue, or accrued expense. 2/ For each situation record the adjusting entries that should be recorded for Big ban's at December 31, 2007.

4/ Recording Seven Typical Adjusting Entries

Pablo's Boat Yard, Inc is completing the accounting process for the year just ended, November 30, 2006. The transactions during 2006 has been Journalize and posted. The following data with respect to adjusting entries are available: a. Pablo's winterized (cleaned and covered) three boats for customers at the end of November, but did not bill the customers $22,760 for the services until December. b. The Gomez family paid Pablo's $26,000 on November 1, 2006, to store their sailboat for the winter until May 1, 2007. Pablo's credited the full amount to unearned storage revenue on november1. c. Wage earned by employees during November 2006, unpaid and unrecorded at November 30, 2006, amounted to $31,430. The next payroll date will be December 5, 2006. d. On october1, 2006 Pablo's paid $4,500 to the local news paper for advertisement to run every Thursday for 12 weeks. All ads have been run expected for three Thursdays in December to complete the 12 weeks contract. e. Pablo's used boat-lifting equipment that cost $2,493,000; $2,493,000 was the estimated depreciation for 2006. f. Boat repair supplies on hand at December 1, 2005, totaled $169,100. Repair supplies purchased and debited to supplies during the year amounted to $514,900. The year-end count showed $132,250 of the supplies on hand. g. Pablo's borrowed $1,626,000 at a 10 percent annual interest rate on April 1, 2006 to expand its boat storage facility. The loan requires Johnson's to pay the interest quarterly until the note is repaid in three years. Pablo's paid quarterly interest on July 1 and October 1. Required: 1/ Identify each of these transactions as deferred revenue, deferred expense, accrued revenue or accrued expense. 2/ For each situation record the adjusting entry that should be recorded for Johnson's at November 30, 2006.

5/ Recording the adjusting entries

Magasaki Company's annual accounting year ends on December 31. It is December 31, 2007, and all of the 2007 entries except the following adjusting entries have been made: a. On September 1, 2007, Magasaki collected six months' rent of $810,000 on storage space. At that date, Magasaki debited cash credited unearned revenue for $810,000. b. At December 31, 2007, wages earned by employees totaled $1,608,000. The employees will be paid on the next payroll date, January 15, 2008. c. The company earned service revenues of $225,000 on a special mission job that was completed December 29, 2007. Collected will be made in January 2008. No entry has been recorded. d. On October 1, 2007 Company borrowed $2,249,000 from a local bank and signed a 12 percent note for that amount. The Principle and interest are payable on the maturity date, September 31, 2008. e. On November 1, 2007 Magasaki paid a one-year premium for property insurance, $675,000 for coverage stating on that date. Cash was credited and prepaid insurance was debited for this amount. f. Depreciation of $167,000 must be recognized on a services truck purchased on July 1, 2007, at a cost of $1,349,000. g. Cash of $27,000 was collected on November 1, 2007, for services to be rendered evenly over the next year beginning on November1. Unearned services revenue was credit when the cash was received. h. On December 31, 2007, the company estimates it owed $45,000 for 2007 property tax on land. The tax will be paid when the bill is received in January 2008. Required: 1/ Indicate whether each transaction relates to a deferred revenue, deferred expense, accrued revenue or accrued expense. 2/ Give the adjusting entry required for each transaction at December 31, 2007.

6/ Pedro Towing Company is at the end of its accounting year, December 31, 2008. The
following data that must be considered were developed from the company's record and related documents. a. On July 1, 2008 a three-year insurance premium on equipment in the amount of $13,000 was paid and debited in full to prepaid insurance on that date. Coverage began on July 1. b. During 2008, office supplies amounting to $8,700 were purchased for cash and debited in full to supplies. At the end of 2007, the count of supplies remaining on hand was $2,200. The inventory of supplies counted on hand at December 31, 2008, was $3,300. c. On December 31, 2008, HH's garage completed repairs on one of the company's trucks at a cost of $8,700 the amount is not yet recorded and by agreement will be paid during January 2009. d. On December 31, 2008, property taxes on land owned during 2008 were estimated at $17,400. The taxes have not been recorded, and will be paid in 2009 when billed. e. On December 31, 2008, the company completed a contract for an out-of-state company for $87,000 payable by the customer within 30 days. No cash has been collected and no journal entry has been made for this transaction. f. On January 1, 2008, the company purchased a new hauling van at a cash cost of $312,000. Depreciation estimated at $12,000 for the year has not been recorded for 2008. g. On October 1, 2008, the company borrowed $108,400 from a local on a one-year, 12 percent note payable. The principle plus interest is payable at the end of 12 months. h. The income before any of the adjustments or income taxes was $325,200. The Company's federal income tax rate is 30 percent. (Hint: compute adjusted income based on (a) through (g) to determine income tax expense.) Required: 1/ Indicate whether each transaction relates to deferred revenue, deferred expense, accrued revenue, or accrued expense. 2/ Give the adjusting entry required for each transaction at December 31, 2008.

7/ Recording the adjusting entries

Hokkaido Company's annual accounting year ends on June 30. It is June 30, 2007, and all of the 2007 entries except the following adjusting entries have been made: a. On March 30, 2007, Hokkaido paid a six-month premium for property insurance, $360,000, for coverage stating on that date. Cash was credited and prepaid insurance was debited for this amount. b. At June 30, 2007, wage of $ 101,000 were earned by employees but not yet paid. The employees will be paid on the next payroll date, July 15, 2007. c. On June 1, 2007, Hokkaido collected two months' maintenance revenue of $51,000. At that date Hokkaido debited cash and credited unearned revenue for $51,000. d. Depreciation of $337,000 must be recognized on a services truck that cost $1687, 000 when purchased on July 1, 2006. e. Cash of $472,000 was collected on May 1, 2007, for services rendered evenly over the next year beginning on May 1. Unearned revenue was credited when the cash was received. f. On February 1, 2007, the company borrowed $1,799.000 from local bank and signed a 9 percent note for that amount. The principle and interest are payable on maturity date. January 31, 2008. g. On June 30, 2007, the company estimated that it owed $56,000 in property taxes on land it owned in the first half of 2007. The taxes will be paid when billed in August 2007. h. The company earned service revenue of $225,000 on a special job that was completed June 29, 2007. Collection will be made during July 2007; no entry has been recorded. Required: 1/ Indicate whether each transaction relates to a deferred revenue, deferred expense, accrued revenue, or accrued expense. 2/ give the adjustment entry required for each transaction at June 30 2007.

8/ Recording the adjusting entries

Fergi Catering Company is at its accounting year-end, December 31, 2008. The following data that must be considered were developed from the company's recorded and related documents: a. During 2008, office supplies amounting to $996 were purchased for cash and debited in full to supplies. At the beginning of 2008, the count of supplies on hand was $290 and, at December 31, 2008 was $332. b. On December 31, 2008, the company catered an evening gala for a local celebrity. The $6,225 bill was payable by the end of January 2009. No cash has been collected, and no journal entry has been made for this transaction.

c. On December 31, 2008, repairs on one of the company delivery vans were completed at a cost estimate of $500; the amounts is not yet paid or recorded. The repair shop will bill Fergi's Catering at the beginning of January 2009. d. On October 1, 2008, a one year insurance premium on equipment in the amount of $996 was paid and debited in full to prepaid insurance on that date. Coverage began in November 1. e. In November 2008, Fergi's signed a lease for a new retail location, providing a down payment of $1,740 for the first three months' rent that was debited in full to prepaid rent. The lease began on December 1, 2008. f. On July 1, 2008, the company Purchased new refrigerated display counters at a cash cost of $15,000. Depreciation of $1,300 has not been recorded for 2008. g. On November 1, 2008, the company loaned $3,320 to one of its employees on a one year, 12 percent note. The principle plus interest is payable by the employees at the end of 12 months. h. The income before any of the adjustments or income taxes was $18,600. The company's federal income tax rate is 30 percent. Compute adjusted income based on (a) through (g) to determine income tax expense. Required: 1/ Indicated whether each transaction relates t a deferred revenue, deferred expense, accrued revenue or accrued expense. 2/ Give the adjusting entry required for each transaction at December 31, 2008.

9/ Big Ban's home health care services encounter the following situations:
1/ Big Ban purchased $1,500 of supplies in 2008; at the end of the year $500 of supplies remained unused. 2/ Big Ban incur utilities expense which is not yet paid in cash or recorded. 3/ Big Ban employees worked 3 days in 2008, but will not be paid until 2009. 4/ Big Ban earned service revenue but has not yet received cash or recorded the transaction. 5/ Received cash for future services to be performed in 2009. 6/ Big Ban paid $8,000 rent on October 1 for the 4 months starting October 1. 7/ Big Ban collect $2,000 from a customer for services to be performed next year. 8/ Big Ban borrowed $20,000 on October 1, 2008, signing a 10% one year note payable. Required: Identify what type of adjusting entry (prepaid expense, unearned revenue, accrued expense, and accrued revenue) is needed in each situation, at December 31, 2008.

10/ Ryan Stiles Company has the following balance in selected accounts on December 31, 2008.
Account receivable Equipment Accumulated depreciation equipment Interest payable Note payable Prepaid insurance Salary payable Supplies Unearned consulting revenue 0 7,000 0 0 25,000 2,520 0 2,650 40,000

All the accounts have normal balances. The information below has been gathered at December 31, 2008. 1/ Ryan stiles Company borrowed 25,000 by signing a 12%, one-year note on October 1, 2008.

2/ A count of supplies on December 31, 2008, indicates that supplies of 700 are in hand. 3/ Depreciation on the equipment for 2008 is 2,000 4/ Ryan stiles Company paid 2,520 for 12 months of insurance coverage on August 1, 2008. 5/ On December 1, 2008, Ryan Company collected 50,000 for consulting services to be performed from December 1, 2008 through March 31, 2009. 6/ Ryan Performed consulting services for a client in December, 2008. The client will be billed 5,300 7/ Ryan Stiles company pays its Employees total salaries of 10, 000 every monday for the preceding 5-day week (Monday through Friday). On Monday December, 30 December, employees were paid for the week ending December 27. All equipment worked the last 2 days of 2008. Required: Prepare the adjusting entries for the seven items described above.

11/ The ledger of Vuthy Real Estate agency on March 31 of the current year includes the
following selected accounts before adjusting entries have been prepared. Debit Prepaid insurance Supplies Equipment Accumulated depreciation of equipment Note payable Unearned rent Rent revenue Interest expense Wages expense 0 14,000 4,500 3,500 30,000 10,500 25,000 10,800 60,000 Credit

Analysis of the accounts shows the following: 1/ the equipment depreciate 500 per month.

2/ the unearned rent represent 10800collected on December 1 for the period December 1 through March 31. 3/ Interest of 750 is accrued on the notes payable. 4/ Supplies on hand total 1,100. 5/ the company paid 4,200 on January 1 for a 2 year insurance policy. Required: Prepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly. Additional accounts are: depreciation expense; Insurance expense, interest payable and supplies expense.

12/ Phnom Penh dental clinic open on January 1, 2008. During the first month of operations the
following transactions occurred. 1. Performed services for patients who had dental Plan insurance at January 1, 1,280 of such services was earned but not yet recorded. 2. Utilities expenses incurred nut not paid prior to January 31 totaled $365. 3. Purchased dental equipment on January 1 for 80,000, paying 20,000 in cash and signing a 60,000, three year note payable. The equipment depreciates 500 per month. Insurance is 600 per month. 4. Purchased a one year malpractice insurance policy on January 1 for 9,600. 5. Purchased 2,300 of dental supplies. On January 31, determined that 700 of supplies were on hand. Required: Prepare the adjusting entries on January 31. Account title are: Accumulated depreciation of dental equipment, depreciation of expense, services revenue, services revenue, account receivable, insurance expense, interest expense, interest payable, prepaid insurance, supplies, supplies expense, utilities expense and utilities payable.

13/ Ken Ham started his own consulting firm on April 1, 2008. The trial balance at April 31 is as
follows.

Hambone Consulting Trial Balance April 30, 2008 Account Number Cash Accounts receivable Supplies Prepaid insurance Office furniture Account payable Unearned services revenue Capital Services revenue Salary expense Rent expense $3,400 $900 $31,700 Other data: 1. $900 of supplies have been use during the month. $31,700 Debit $5,700 $6,000 $1,900 $3,600 $10,200 $4,500 $2,000 $17,700 $7,500 Credit

2. Travel expense incurred but not paid on April 31, 2008, $250. 3. 4. 5. Insurance is for two years. $400 of the balance in the unearned service revenue account remains unearned at the end of the month. April 30, is a Wednesday and employees are paid on Friday. Hambone Consulting has two employees, who are paid $800 each for a five day work week.

6. The office furniture has a 5 year life with no salvage value. It is being depreciated at $170 per month for 60 months. 7. Invoices representing $1,200 of services performed during the month have not been recorded as of April 30. Required: a. Prepare the adjusting entries for the month of April. b. Post the adjusting entries to the ledger accounts. Enter the totals from the trial balance as beginning balance and c. Prepare an adjusted trial balance at April 30, 2008.

14/The Mound View Motel opened for business on May 1, 2008. Its trial balance befor
adjustment on May 31 is as follows. Mound View Motel Trial Balance May 31, 2008 Account Number Cash Supplies Prepaid insurance Land Lodge Furniture Accounts Payable Unearned rent Mortgage payable Capital Rent revenue Advertising expense $600 Debit $3,500 $2,200 $2,280 $12,000 $60,000 $15,000 $4,800 $3,300 $35,000 46,380 10,300 Credit

Salary expense Utilities expense

$3,300 $900 99,780 99,780

Other data: 1. Prepaid insurance is a 1 year policy starting May 1, 2008. 2. A count of supplies shows $750 of unused supplies on May 31. 3. Annual depreciation is $3,000 on the lodge and $2,700 on furniture. 4. The mortgage interest rate is 12% (the mortgage was taken out on May 1.) 5. Two-third of the unearned rent has been earned. 6. Salaries of $750 are accrued and unpaid at May 31. Required: a. Journalize the adjusting entries on May 31. b. Prepare an adjusted trial balance on May 31. c. Prepare an income statement and an owner's equity statement for the month of May and a balance sheet at May 31.