1. BUA111: Chp. 3: Adjusting Entries
Chapter 3 problems
Dr. K.Moon

2. Introd. To Adjusting Entries
Adjusting Entries are only needed before you prepare financial statements, usually at end of month
They bring the account balances (T-Accounts) up-to- date so financial statements are correct
Remember, t-accounts only need to have “correct”, up- to-date” balances when financial statements are prepared
Very few accounts will need adjustment. Examples follow.
Dr. K.Moon

3. Adjusting Entries: Supplies
Adjusting entry for supplies The balance in the supplies account, before adjustment at the end of the year, is $3,915. Journalize the adjusting entry required if the amount of supplies on hand at the end of the year is $1,750.
Dr. K.Moon

4. Solution
Ex. 3–3 Supplies Expense 2,165 Supplies 2,165 Supplies used ($3,915 – $1,750).
Dr. K.Moon

5. Adjusting Entries: Prepaid Insurance
Adjusting entry for prepaid insurance
The balance in the prepaid insurance account, before adjustment at the end of the year, is $14,800. Journalize the adjusting entry required under each of the following alternatives for determining the amount of the adjustment:
the amount of insurance expired during the year is $11,200;
(b) the amount of unexpired insurance applicable to future periods is $3,600.
Dr. K.Moon

6. Solution
Ex. 3-6: a. Insurance Expense 11,200 Prepaid Insurance 11,200 Insurance expired. b. Insurance Expense 11,200 Insurance expired ($14,800 – $3,600).
Dr. K.Moon

7. Adjusting Entries: Unearned Fees
Adjusting entries for unearned fees The balance in the unearned fees account, before adjustment at the end of the year, is $45,000. Journalize the adjusting entry required if the amount of unearned fees at the end of the year is $9,000.
Dr. K.Moon

8. Solution
Ex. 3–8 Unearned Fees 36,000 Fees Earned 36,000 Fees earned ($45,000 – $9,000).
Dr. K.Moon

9. Adjusting Entries: Accrued Fees
Adjusting entry for accrued fees
At the end of the current year, $12,300 of fees have been earned but have not been billed to clients.
Journalize the adjusting entry to record the accrued fees.
b. If the cash basis rather than the accrual basis had been used, would an adjusting entry have been necessary? Explain.
Dr. K.Moon

10. Solution
a. Accounts Receivable 12,300 Fees Earned 12,300 Accrued fees. b. No. If the cash basis of accounting is used, revenues are recognized only when the cash is received. Therefore, earned but unbilled revenues would not be recognized in the accounts, and no adjusting entry would be necessary.
Dr. K.Moon

11. Adjusting Entries: Accrued Salaries
Adjusting entries for accrued salaries
Torrey Realty Co. pays weekly salaries of $9,375 on Friday for a five-day workweek ending on that day. Journalize the necessary adjusting entry at the end of the accounting period assuming that the period ends
on Tuesday and
(b) on Thursday.
Dr. K.Moon

12. Solution
a. Salary Expense 3,750 Salaries Payable 3,750 Accrued salaries [($9,375/5 days) × 2 days]. b. Salary Expense 7,500 Salaries Payable 7,500 Accrued salaries [($9,375/5 days) × 4 days].
Dr. K.Moon

13. Adjusting Entries: Depreciation
Depreciation of office equipment is $1,000.
Adjusting Entry:
Depreciation Expense: Office Equip ,000
Accumulated Depreciation: Office Equip. 1,000
Dr. K.Moon

14. Sample Problem w/solution
Adjusting entries
On October 31, 2016, the following data were accumulated to assist the accountant in preparing the adjusting entries for Dependable Realty:
a. The supplies account balance on October 31 is $3,975. The supplies on hand on October 31 are $1,050.
b. The unearned rent account balance on October 31 is $11,000, representing the receipt of an advance payment on October 1 of four months’ rent from tenants.
c. Wages accrued but not paid at October 31 are $2,500.
d. Fees accrued but unbilled at October 31 are $4,900.
e. Depreciation of office equipment is $1,100.
Instructions
Journalize the adjusting entries required at October 31, 2016.
Dr. K.Moon

15. Solution: Sample Problem (con’t.)
1. a. Supplies Expense 2,925 Supplies 2,925 Supplies used ($3,975 – $1,050). b. Unearned Rent 2,750 Rent Revenue 2,750 Rent earned ($11,000/4).
Dr. K.Moon

16. Solution: Sample Problem (con’t.)
c. Wages Expense 2,500 Wages Payable 2,500 d. Accounts Receivable 4,900 Fees Earned 4,900 e. Depreciation Expense 1,100 Accum. Deprec.—Office Equipment 1,100
Dr. K.Moon