Adjusting Entries & Adjusted Trial Balance

Q.1 Among the ledger accounts used by Glenwood Speedway are the following:

Prepaid Rent, Rent Expense, Unearned Admissions Revenue, Admissions Revenue,

Prepaid Printing, Printing Expense, Concessions Receivable, and Concessions Revenue.
For each of the following items, write first the journal entry (if one is needed) to record
the external transaction and second the adjusting entry, if any required on June 30, the
end of
the fiscal year.

a. On May 1, borrowed $400,000 from National Bank by issuing a 10% note payable due
in three months.

b. On May 1, paid rent for six months beginning May 1 at $20,000 per month.

c. On May 2, sold season tickets for a total of $800,000 cash. The season includes 80
racing days: 30 in May 25 in June, and 25 in July.

d. On May 4, an agreement was reached with snack-bars, Inc., allowing that company to
sell refreshments at track in return for 10% of the gross receipts from refreshment sales.

e. On May 6, schedules for the 20 racing days in May and the first 10 racing days in June
were printed and paid for at a cost of $18,000.

f. On May 31, Snack-Bars, Inc. reported that the gross receipts from refreshment sales in
May had been $175,000 and that the 10% owed to Glenwood Speedway would be
remitted on June 10.

Assume that the May 1 payment of $120,000 was properly recorded as prepaid rent, but
the May 31 adjusting entry was inadvertently omitted. What is the effect, if any, of this
omission on financial statements at May 31?
Q.2 Murree Hills Resort adjusts and closes its account annually. Most guests of the resort pay
at the time they check out, and the amounts collected are credited to Rental Revenue. A
few guests pay in advance for rooms, and these amounts are credited to Unearned Rental
Revenue at the time of receipt. The following information is available as a source of
preparing adjusting entries at December 31:

a. Salaries earned by employees but not yet recorded or paid amount to $7,900.

b. As of December 31, Murree has earned $11,075 rental revenue from current guests
who will not be billed until they are ready to check out. (Debit Rent Receivable.)

c. On November 1, a suite of rooms was rented to a corporation for six months at a

monthly rental of $3,200. The entire six months’ rent of $19,200 was collected in
advance and credited to Unearned Rental Revenue.

d. A limousine to carry guests to and from the airport had been rented beginning
December 19 from Quick Rent A Car, at a daily rate of $120. No rental payment has
yet been made. (The limousine has been rented for 13 days in December.)

e. A six-month loan in the amount of $30,000 had been obtained on October 1. Interest
is to be computed at a rate of 10% per year and is payable when the loan is due. No
interest has been paid and no interest expense has been recorded.

f. Depreciation on the resort’s buildings is based on an estimated useful life of 30 years.

The original cost of the buildings was $1,755,000. Alta uses the straight-line method.

g. In December, Murree Hills Resort entered into an agreement to host the annual
symposium of tourists in April of next year. The resort expects to earn rental revenue
of at least $45,000.

h. A one-year fire insurance policy had been purchased on September 1. The premium
of $7,200 for the entire life of the policy had been paid on September 1 and recorded
as Unexpired Insurance.

Instructions:

For each of the above lettered paragraphs, draft a separate adjusting journal entry
(including explanation) if the information indicated that an adjusting entry is needed.
Q.3 On January 1, 2019, Saba Geelani, an attorney, opened her own legal practice, to be
known as the Law Office, of Saba Geelani. The following trial balance was prepared at
April 30, 2019, after four months of operations:
GEELANI LAW OFFICE
Trial Balance
As on April 30, 2019

Cash $ 10,060
Legal Fees Receivable –0–
Unexpired Insurance 3,000
Prepaid Office Rent 4,800
Office Supplies 1,460
Office Equipment 26,400
Accumulated Depreciation: Office Equipment –0–
Notes Payable maturing on July 31, 2019 (@ 12%) 16,000
Interest Payable –0–
Salaries payable –0–
Unearned Retainer Fees 16,020
Owner’s Capital 20,000
Owner’s Drawing 4,000
Legal Fees Earned 1,580
Salaries Expense 2,680
Miscellaneous Expense 1,200
Office Rent Expense –0–
Office supplies Expense –0–
Depreciation Expense: Office Equipment –0–
Interest Expense –0–
Insurance Expense –0–
TOTAL: $ 53,600 $ 53,600
Other Data:
a. Note payable was issued on February 1.
b. Salaries earned by the office staff but not yet recorded or paid $3,470 at April, 30.
c. Many clients are asked to make an advance payment for the legal services to be
rendered in future months. Fee is charged at a fixed monthly rate. Amount shown
above was received on March 1 showing four months’ advance. These advance
payments are credited to the Unearned Retainer Fees account.
d. Some clients are not billed until all services relating to their matter have been
rendered. As of April 30, services priced at $4,780 had been rendered to these clients
but had not yet been recorded in the accounting records.
e. A professional liability insurance policy was purchased on March 1. The premium of
$3,000 for the first six months was paid and recorded as Unexpired Insurance.

f. The Business took an office at a monthly rate of $800 on January 1; six months’ rent
was paid in advance. (Prepaid Office Rent Account).
g. Office supplies on hand at April 30 amounted to $460.
h. The office equipment was purchased on February 1 and is being depreciated over an
estimated useful life of 10 years.
Instructions:
a. Prepare the adjusting entries required at April 30.
b. Post adjusting entries to General Ledger.
c. Make Adjusted Trial Balance.
d. Determine the amount of Net Income to be reported in the company’s income
statement for the month ended April 30.
e. Prepare Balance Sheet.

===============================================================
Q.4 Mira Resort opened for business on June 1. Its trial balance on August 31 is as follows.
MIRA RESORTTRIAL BALANCE AS ON AUGUST 31, 2019
Title of Accounts Debit Credit
Cash $19,600
Prepaid Insurance 4,500
Supplies 2,600
 Land 20,000
Buildings 120,000
Equipment 16,000
Accounts Payable $4,500
Unearned Rent Revenue 4,600
Mortgage Payable 50,000
Common Stock 100,000
Dividends 5,000
Salaries and Wages Expense 44,800
Utilities Expenses 9,200
Maintenance and Repairs Expense 3,600
Rent Revenue 86,200
Grand Total $245,300 $245,300
Other data:
1. The balance in prepaid insurance is a one-year premium paid on June 1, 2019.
2. An inventory count on August 31 shows $650 of supplies on hand.
3. Annual depreciation rates are buildings (4%) and equipment (10%). Salvage value is
estimated to be 10% of cost.
4. Unearned Rent Revenue of $3,800 was earned prior to August 31, 2019
5. Salaries of $375 were unpaid at August 31,2019.
6. Rentals of $800 were due from tenants at August 31, 2019
7. The mortgage interest rate is 8% per year.
Instructions:
a) Journalize the adjusting entries on August 31 for the 3-month period June 1–August 31.
b) Prepare an adjusted trial balance on August 31, 2019
Q.5 The trial balance of Bellmen Fashion Center contained the following accounts at
November 30, the end of the company’s fiscal year.

BELLMEN FASHION CENTER

TRIAL BALANCE AS ON NOVEMBER 30, 2020
Title of Account Debit Credit
Cash $28,700
Accounts Receivable 33,700
Inventory 45,000
Supplies 5,500
Equipment 133,000
Accumulated Depreciation—Equipment $24,000
Notes Payable 51,000
Accounts Payable 48,500
Common Stock 90,000
Retained Earnings 8,000
Sales Revenue 757,200
Sales Returns and Allowances 4,200
Cost of Goods Sold 495,400
Salaries and Wages Expense 140,000
 Advertising Expense 26,400
Utilities Expenses 14,000
Maintenance and Repairs Expense 12,100
Freight-out 16,700
Rent Expense 24,000
GRAND TOTAL: $978,700 $978,700

Adjustment data:
1. Supplies on hand totaled $1,500.
2. Depreciation is $15,000 on the equipment.
3. Interest of $11,000 is accrued on notes payable at November 30.

Other data:
1. Salaries expense is 70% selling and 30% administrative.
2. Rent expense and utilities expense are 80% selling and 20% administrative.
3. $30,000 of notes payable is due for payment next year.
4. Maintenance and repairs expense is 100% administrative.

Instructions
1. Journalize the adjusting entries.
2. Prepare an adjusted trial balance.
3. Prepare an income statement and retained earnings statement for the year and a
balance sheet as of November 30, 2020.
4. Journalize the closing entries.

Q.6 Young advertising agency was founded in January 2003. Presented below are adjusted.
Presented below is adjusted and unadjusted trial balance as of December 31, 2020.

YOUNG ADVERTISING AGANCY

Trial Balance
December 31, 2020
Unadjusted Adjusted
Dr. Cr. Dr. Cr.
Cash $11,000 $11,000
Accounts Receivable 20,000 21,500
Art Supplies 8,400 5,000
Repaid Insurance 3,350 2,500
Printing Equipment 60,000 60,000
Accumulated Depreciation 28,000 35,000
Accounts Payable 5,000 5,000
Interest Payable 0 150
Notes Payable 5,000 5,000
Unearned Advertising Revenue 7,000 ` 5,600
Salaries Payable 0 1,300
 Common Stock 10,000 10,000
Retained Earnings 3,500 3,500
Advertising Revenue 58,600 61,500
Salaries Expense 10,000 11,300
Insurance Expense 0 850
Interest Expense 350 500
Depreciation Expense 7,000
Art Supplies Expense 3,400
Rent Expense 4,000 4,000
$117,10
0 $117,100 $127,050 $127,050

Instructions:
1. Journalize the annual adjusting entries that were made. (Omit Explanations.)
2. Prepare an income statement and a statement of retained earnings for the year ending
December 31, 2020, and an unclassified balance sheet at December 31, 2020.

Q.7 The following Trial Balance has been extracted from the accounting record of Salmon
Lubricants as on December 31, 2015. You are required to prepare Income Statement or
Trading and Profit & Loss Account for 2015 and make a Balance Sheet as at that date
considering the adjustments given hereunder:

Title of Account Debit Credit

Cash Rs.540,000
Bank Balance 750,000
Owner’s Capital Rs2,600,000
Stock as on January 1, 2015 2,100,000
Plant & Machinery 1,200,000
Office Equipment 1,070,000
Purchases & Sales 1,800,000 7,200,000
Investment @ 12% (July 1, 2015) 2,000,000
Returns 250,000 200,000
Wages (Factory Employees) 620,000
Advertisement 120,000
Salaries to Administrative Staff 180,000
 Sundry Debtors & Creditors 2,560,000 2,970,000
Coal, Gas & Electricity (Factory) 320,000
Provision for Doubtful Accounts 80,000
Building Rent (60% occupied by Factory) 900,000
Carriage Inward 75,000
Interest on Investment 95,000
Bad Debts 50,000
Loan from Bank 1.10.2015 @ 16% 1,800,000
General & Administrative Expenses 300,000
Insurance Plant & Machinery 650,000
Discount 50,000 250,000
Commission 70,000 550,000
Factory Overhead (Expenses) 140,000
Grand Total Rs.15,745,000 Rs.15,745,000
Adjustments:

1. Stock (Finished Goods) valued on December 31, 2015 was Rs. 1,700,000.
2. Raise Provision for Doubtful Accounts to 5% of Sundry Debtors.
3. Goods taken away by the Owner for his personal use worth Rs. 40,000.
4. There was a loss of goods by fire on December 21, 2015, to the extent of Rs. 150,000,
not covered by insurance.
5. Provide commission @ 2% on the gross profit for Works Manager whereas
Marketing Manager is entitled 5% of net profit after charging such commission.
6. Insurance prepaid Rs. 250,000 and accrued wages Rs. 180,000
7. Charge depreciation 10% on Plant & Machinery and 15% on Office Equipment.

Q.8 Presented below is the trial balance of Thompson Corporation at December 31, 2020.

THOMPSON CORPORATION
TRIAL BALANCE AS ON DECEMBER 31, 2020

Title of Accounts Debits Credits

Purchase Discounts $ 10,000
Cash $ 243,600
Accounts Receivable 105,000
Rent Revenue 18,000
Retained Earnings 160,000
Salaries and Wages Payable 18,000
Sales Revenue 1,100,000
Notes Receivable 110,000
Accounts Payable 49,000
Accumulated Depreciation—Equipment 28,000
Sales Discounts 14,500
 Sales Returns and Allowances 17,500
Notes Payable 70,000
Selling Expenses 232,000
Administrative Expenses 99,000
Common Stock (30,000 shares) 300,000
Cash Dividends 45,000
Allowance for Doubtful Accounts 5,000
Supplies 14,000
Freight-in 20,000
Land 70,000
Equipment 140,000
Bonds Payable 100,000
Gain on Sale of Land 30,000
Inventory January 1, 2020 89,000
Accumulated Depreciation—Buildings 19,600
Buildings 98,000
Purchases 610,000
Totals $1,907,600 $1,907,600
A physical count of inventory on December 31 resulted in an inventory amount of
$64,000. The tax rate is 40 percent.

Instructions:

1. Income Statement showing EPS & Statement of Retained Earnings for the year 2020.
2. Balance Sheet as on December 31, 2020.