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Problem #1: Adjusting Entries

Here are the adjusting entries for the information provided: A) Adjusting Entries: 1. Insurance Expense Dr. 4,800 Prepaid Insurance Cr. 4,800 (Insurance expired for 12 months at Tk 400 per month) 2. Supplies Expense Dr. 2,400 Supplies Cr. 2,400 (Consumption of supplies Tk 3,300 - Tk 900 on hand) 3. Depreciation Expense - Cottages Dr. 3,600 Accumulated Depreciation - Cottages Cr. 3,600 4. Depreciation Expense - Furniture Dr. 2,400 Accumulated Depreciation

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Shahzad Asif
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317 views

Problem #1: Adjusting Entries

Here are the adjusting entries for the information provided: A) Adjusting Entries: 1. Insurance Expense Dr. 4,800 Prepaid Insurance Cr. 4,800 (Insurance expired for 12 months at Tk 400 per month) 2. Supplies Expense Dr. 2,400 Supplies Cr. 2,400 (Consumption of supplies Tk 3,300 - Tk 900 on hand) 3. Depreciation Expense - Cottages Dr. 3,600 Accumulated Depreciation - Cottages Cr. 3,600 4. Depreciation Expense - Furniture Dr. 2,400 Accumulated Depreciation

Uploaded by

Shahzad Asif
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Problem #1

Journalize the following transactions by combining the related transactions into a compound
entry, post them into the ledger and prepare a trial balance
Rs.
July
Ajit started business by investing
1st : 3,00,000
Cash
1,00,000
Goods
50,000
and Furniture
1,00,000
Purchased building
3rd : 30,000
Purchased goods for cash
3rd : 25,000
Purchased goods on credit from Sujit
3rd : 25,500
Sold goods for cash
5th : 24,000
Sold goods for cash to Avtar
5th : 40,650
Sold goods to Mahendra on credit
5th : 32,000
Deposited cash into bank
6th : 15,000
Withdrew from bank for office use.
8th : 5,000
Withdrew from bank for private use.
8th : 1,200
Paid freight.
10th : 2,000
Paid cartage.
10th : 14,600
Paid salary
10th :

Adjusting entries
Two basis of accounting treatments
 Cash basis- accounting recognizes revenue and expenses in cash
 Accrual basis- accounting recognizes revenues when it is earned(realized or
realizable) and recognized expenses when it is incurred

Superiority of accrual basis


 cash basis does not follow the GAAP and is not consistent with revenue and
matching principles
 cash basis provides misleading picture of financial result

Adjusting entries
Adjusting entry is an entry related to the internal transactions of a business entity. It is a
some sort of accounting procedure to show the portion of earning and expenses to that
particular period of financial statements.

Need for adjusting entries


 some events are not journalized
 some cost are expired with the passage of time
 some items may be unrecorded

Classification of adjusting entries

1. Prepayments- advancement. example prepaid expense and unearned revenue


2. Accruals- due. Accrued revenue and accrued expense
3. Estimates- estimation, forecasting. example provision, depreciation

1. Duke Garments have the following information taken as trial balance on 31 st


December,2011.
Name of Accounts Debit Balance in tk Credit Balance in tk
Cash 8,000  
Accounts Receivable 36,000  
Allowance for uncollectable A/C   4,800
Supplies 6,500  
Prepaid Expense 8,000  
Inventory(01.01.2011) 94,000  
Fixture & Equipment 50,000  
Accumulated Depreciation   10,000
Purchase 170,000  
Purchase Return   13,200
Sales   300,000
Sales Return 50,000  
Rent Expense 60,000  
Salary Expense 40,000  
Accounts Payable   25,000
Notes Payable   8,000
Advertising Expense 28,000  
Other expense 9,000  
Capital   198,500
Total 559,500 559,500
Information for Adjustment for 2011:

1. Estimated uncollectible account expense tk.2, 500.


2. Supplies on hand at 31st December2011,tk. 3,000.
3. Prepaid expense is expired tk.2, 200.
4. Inventory at December31, 2011. is tk 85,000.
5. Estimated depreciation is tk. 5,000.
6. Interest expense is accrued tk.1, 500.
7. Salary is due tk.4, 000.
8. Advertising expense is accrued tk.5, 000.

Requirements:

A) Show the necessary adjusting entries.


B) Prepare adjusted trial balance
C) prepare financial statements(income statement, owners equity, balance sheet)
2. Eastern Housing ltd has the following information taken as trial balance on 31 stDecember
2011:

Debit Balance in Credit Balance in


Name of Accounts taka taka
Cash 5,960  
Accounts Receivable 2,560  
Prepaid Insurance(for 1year) 600  
Supplies 720  
Land 52,000  
Building 36,000  
Accumulated Depreciation, building   150
Office equipment 12,000  
Accumulated Depreciation, office equipment   100
Notes Payable   20,000
Accounts Payable   960
Income tax payable   1,600
Unearned management fee   4,200
Capital   80,000
Retained Earnings   400
Dividend 2,000  
Sales Commission revenue   16,205
Advertising Expense 1,275  
Salaries expense 9,305  
Telephone expense 1,195  
Total 123,615 123615
Information for Adjustment for 2011:

1. Insurance expense for one month is expired.


2. Consumption of supplies is tk.320.
3. Depreciation is estimated for building tk. 250 and for office equipment tk.450.
4. Earned management fees from unearned management fees revenue tk.1, 500.
5. Interest expense is accrued tk.230
6. Salary is accrued tk2, 500.
7. Accrual of income tax is tk.515.
8. Advertising expense is accrued tk.225.

Requirements:

A) Show the necessary adjusting entries.


B) Prepare adjusted trial balance.
C) prepare financial statements(income statement, owners equity, balance sheet)
3. Spring River Resort opened for business on July 1, 2011 with eight air conditioned
units. Its trial balance before adjustment on June30, 2012 is as follows.

Spring River Resort


Trial balance
June 30, 2012

Name of Accounts Debit (TK) Credit(TK)


Cash 19600
Supplies 3300
Prepaid Insurance 6000
Land 25000
Cottage 125000
Furniture 26000
Accounts Payable 6500
Unearned Rent 7400
Mortgage Payable 80000
P. Orbis Capital 100000
P . Orbis Drawing 5000
Rent Revenue 80000
Repair Expense 3600
Salaries Expense 51000
Utilities expense 9400
Total 273900 273900

Adjustments

1. Insurance expire at the rate of tk 400 per month.


2. Account on June30 shows tk 900 of supplies on hand.
3. Annual depreciation is tk 3600 on cottages and tk 2400 on furniture.
4. Unearned rent of tk 4100 was earned prior to June 30.
5. Salaries of tk 400 were unpaid at June 30.
6. Rental of tk 800 were due from tenants at June 30.
7. Utilities expense of tk 600 was accrued in June 30.
8. The mortgage interest rate is 9% per year. The mortgage was taken out on November30,
2011.

Requirement

A. Provide adjusting entries on June 30, 2012(for the period July 1,2011- June 30,2012).
B. Prepare adjusted trial balance on June 30, 2012.
C. prepare financial statements(income statement, owners equity, balance sheet)

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