EXERCISES

The Accounting Cycle (Chapter 4)

Exercise 4.12 – Preparing Adjusting Entries from a Trial Balance

Journalize the nine adjusting entries that the company made on December 31, 2015.

Exercise 4.7 - Preparing Various Adjusting Entries

Sweeney & Allen, a large marketing firm, adjusts its accounts at the end of each month. The following
information is available for the year ending December 31, 2015:

1. A bank loan had been obtained on December 1. Accrued interest on the loan at December 31
amounts to $1,500. No interest expense has yet been recorded.
 2. Depreciation of the firm's office building is based on an estimated life of 30 years. The
building was purchased in 2011 for $450,000.
3. Accrued, but unbilled, revenue during December amounts to $75,000.
4. On March 1, the firm paid $2,400 to renew a 12-month insurance policy. The entire amount
was recorded as Prepaid Insurance.
5. The firm received $15,000 from King Biscuit Company in advance of developing a six-month
marketing campaign. The entire amount was initially recorded as Unearned Revenue. At
December 31, $9,000 had actually been earned by the firm.
6. The company's policy is to pay its employees every Friday. Since December 31 fell on a
Wednesday, there was an accrued liability for salaries amounting to $1,900.
a. Record the necessary adjusting journal entries on December 31, 2015.

b. By how much did Sweeney & Allen's net income increase or decrease as a result of the
adjusting entries performed in part a? (Ignore income taxes.)

Problem 4.1 A - Preparing Adjusting Entries

Florida Palms Country Club adjusts its accounts monthly. Club members pay their annual dues in
advance by January 4. The entire amount is initially credited to Unearned Membership Dues. At the
end of each month, an appropriate portion of this amount is credited to Membership Dues Earned.
Guests of the club normally pay green fees before being allowed on the course. The amounts
collected are credited to Green Fee Revenue at the time of receipt. Certain guests, however, are
billed for green fees at the end of the month. The following information is available as a source for
preparing adjusting entries at December 31:

1. Salaries earned by golf course employees that have not yet been recorded or paid amount to
$9,600.
2. The Tampa University golf team used Florida Palms for a tournament played on December 30
of the current year. At December 31, the $1,800 owed by the team for green fees had not yet
been recorded or billed.
3. Membership dues earned in December, for collections received in January, amount to
$106,000.
4. Depreciation of the country club's golf carts is based on an estimated life of 15 years. The
carts had originally been purchased for $180,000. The straight-line method is used.
(Note: The clubhouse building was constructed in 1925 and is fully depreciated.)
5. A 12-month bank loan in the amount of $45,000 had been obtained by the country club on
November 1. Interest is computed at an annual rate of 8 percent. The entire $45,000, plus all
of the interest accrued over the 12-month life of the loan, is due in full on October 31 of the
upcoming year. The necessary adjusting entry was made on November 30 to record the first
month of accrued interest expense. However, no adjustment has been made to record
interest expense accrued in December.

6. A one-year property insurance policy had been purchased on March 1. The entire premium of
$7,800 was initially recorded as Unexpired Insurance.
7. In December, Florida Palms Country Club entered into an agreement to host the annual
tournament of the Florida Seniors Golf Association. The country club expects to generate
green fees of $4,500 from this event.
8. Unrecorded Income Taxes Expense accrued in December amounts to $19,000. This amount
will not be paid until January 15.
Instructions

a. For each of the above numbered paragraphs, prepare the necessary adjusting entry (including an
explanation). If no adjusting entry is required, explain why.
b. Four types of adjusting entries are described at the beginning of the chapter. Using these
descriptions, identify the type of each adjusting entry prepared in part a above.
c. Although Florida Palms's clubhouse building is fully depreciated, it is in excellent physical
condition. Explain how this can be.

Problem 4.2 A - Preparing and Analyzing the Effects of Adjusting Entries

Enchanted Forest, a large campground in South Carolina, adjusts its accounts monthly. Most guests
of the campground pay at the time they check out, and the amounts collected are credited to Camper
Revenue. The following information is available as a source for preparing the adjusting entries at
December 31:

1. Enchanted Forest invests some of its excess cash in certificates of deposit (CDs) with its local
bank. Accrued interest revenue on its CDs at December 31 is $400. None of the interest has yet
been received. (Debit Interest Receivable.)
2. A six-month bank loan in the amount of $12,000 had been obtained on September 1. Interest is to
be computed at an annual rate of 8.5 percent and is payable when the loan becomes due.
3. Depreciation on buildings owned by the campground is based on a 25-year life. The original cost
of the buildings was $600,000. The Accumulated Depreciation: Buildings account has a credit
balance of $310,000 at December 31, prior to the adjusting entry process. The straight-line
method of depreciation is used.
4. Management signed an agreement to let Boy Scout Troop 538 of Lewisburg, Pennsylvania, use
the campground in June of next year. The agreement specifies that the Boy Scouts will pay a daily
rate of $15 per campsite, with a clause providing a minimum total charge of $1,475.
5. Salaries earned by campground employees that have not yet been paid amount to $1,250.
6. As of December 31, Enchanted Forest has earned $2,400 of revenue from current campers who
will not be billed until they check out. (Debit Camper Revenue Receivable.)
7. Several lakefront campsites are currently being leased on a long-term basis by a group of senior
citizens. Six months' rent of $5,400 was collected in advance and credited to Unearned Camper
Revenue on October 1 of the current year.
8. A bus to carry campers to and from town and the airport had been rented the first week of
December at a daily rate of $40. At December 31, no rental payment has been made, although
the campground has had use of the bus for 25 days.
9. Unrecorded Income Taxes Expense accrued in December amounts to $8,400. This amount will
not be paid until January 15.

Instructions

a. For each of the above numbered paragraphs, prepare the necessary adjusting entry (including an
explanation). If no adjusting entry is required, explain why.
b. Four types of adjusting entries are described at the beginning of the chapter. Using these
descriptions, identify the type of each adjusting entry prepared in part a above.
c. Indicate the effects that each of the adjustments in part a will have on the following six total
amounts in the campground's financial statements for the month of December. Organize your
 answer in tabular form, using the column headings shown below. Use the letters I for increase, D
for decrease, and NE for no effect. Adjusting entry 1 is provided as an example.

d. What is the amount of interest expense recognized for the entire current year on the $12,000 bank
loan obtained September 1?
e. Compute the book value of the campground's buildings to be reported in the current year's
December 31 balance sheet. (Refer to paragraph 3.)

Problem 4.5 A - Preparing Adjusting Entries and Determining Account Balances

Terrific Temps fills temporary employment positions for local businesses. Some businesses pay in
advance for services; others are billed after services have been performed. Advanced payments are
credited to an account entitled Unearned Fees. Adjusting entries are performed on a monthly basis.
An unadjusted trial balance dated December 31, 2015, follows. (Bear in mind that adjusting entries
have already been made for the first 11 months of 2015, but not for December.)
Other Data

1. Accrued but unrecorded fees earned as of December 31, 2015, amount to $1,500.
2. Records show that $2,500 of cash receipts originally recorded as unearned fees had been earned
as of December 31.
3. The company purchased a six-month insurance policy on September 1, 2015, for $1,800.
4. On December 1, 2015, the company paid its rent through February 28, 2016.
5. Office supplies on hand at December 31 amount to $400.
6. All equipment was purchased when the business first formed. The estimated life of the equipment
at that time was 10 years (or 120 months).
7. On August 1, 2015, the company borrowed $12,000 by signing a six-month, 8 percent note
payable. The entire note, plus six months' accrued interest, is due on February 1, 2016.
8. Accrued but unrecorded salaries at December 31 amount to $2,700.
9. Estimated income taxes expense for the entire year totals $15,000. Taxes are due in the first
quarter of 2016.

Instructions

a. For each of the numbered paragraphs, prepare the necessary adjusting entry (including an
explanation).
b. Determine that amount at which each of the following accounts will be reported in the company's
2015 income statement:
1. Fees Earned
2. Travel Expense
3. Insurance Expense
4. Rent Expense
5. Office Supplies Expense
6. Utilities Expense
7. Depreciation Expense: Equipment
8. Interest Expense
9. Salaries Expense
10. Income Taxes Expense
c. The unadjusted trial balance reports dividends of $3,000. As of December 31, 2015, have these
dividends been paid? Explain.