Chapter 3 exercises

1. A company has 20 employees who each earn $500 per week for a 5-day week that
begins on Monday. December 31 of Year 1 is a Monday, and all 20 employees
worked that day.

a) Prepare the required adjusting journal entry to record accrued salaries on December
31.
31/12 Adjusting accrued salaries Salary expense 2000
Salary payable 2000

b) Prepare the journal entry to record the payment of salaries on January 4 of the next
year.
4/1 pay salaries Salary payable 2000

Salary expense 8000

Cash 10,000

2. a) Topflight Company had $1,500 of store supplies at the beginning of the current
year. During this year, Topflight purchased $8,250 worth of store supplies. On
December 31, $1,125 worth of store supplies remained. Calculate the amount of
Topflight Company's store supplies expense for the current year and record it. 

Total supplies available for use = 1500+ 8250 = $9750

Total supplies were used = 9750 – 1125 = $8625 = supplies expense

31/12 Record supplies expense/ adjust supplies Supplies expense 8625

Supplies 8625

b) On January 1, 2010 a company paid $24,000 cash for 2 year of rent in advance and adjusting
entries are made at the end of each month. Calculate each month’s rental expense and the balance
of Prepaid Rent as of December 31, 2010. 

Rental expense each month = 24000 / 24 = $1000

Prepaid rent at 31/12/2010 = 24000 – 12 * 1000 = $12000

31/1/2010 adjust for prepaid rent Rent expense 1000

Prepaid rent 1000
3.  Prepare general journal entries on December 31 to record the following unrelated year-end
adjustments.
a. Estimated depreciation on office equipment for the year, $4,000.
b. The Prepaid Insurance account has a $3,680 debit balance before adjustment. An examination of
insurance policies shows $950 of insurance expired.
c. The Prepaid Insurance account has a $2,400 debit balance before adjustment. An examination of
insurance policies shows $600 of unexpired insurance.-> expired insurance = 2400 – 600 = $1800
d. The company has three office employees who each earn $100 per day for a five-day workweek
that ends on Friday. The employees were paid on Friday, December 26, and have worked full days on
Monday, Tuesday, and Wednesday, December 29, 30, and 31.
e. On November 1, the company received 6 months' rent in advance from a tenant whose rent is
$700 per month. The $4,200 was credited to the Unearned Rent account.
f. The company collects rent monthly from its tenants. One tenant whose rent is $750 per month has
not paid his rent for December. 

Date Account name Dr Cr

31/12 Depreciation expense 4000

a. Accumulated depreciation 4000

31/12 Insurance expense 950

b. Prepaid insurance 950

31/12 Insurance expense 1800

c. Prepaid insurance 1800

31/12 Salary expense 900

d. Salary payable 900

31/12 Unearned Rent 1400

e. Rent revenue 1400

31/12 Account receivable 750

f. Rent revenue 750

4. On Dec. 01 Company A purchased a car for use that costs $30 000. Estimated useful
life of the car is for 20 year and salvage value is equal to 0. Calculate the depreciation
expense for the month end and prepare the journal entry to record that expense.
5. During the current year ended December 31, clients paid fees in advance for
accounting services amounting to $25,000. These fees were recorded in an account
called Unearned Accounting Fees. If $3,500 of these fees remains unearned on
December 31 of this year, present the December 31 adjusting entry to bring the
accounts up to date. 
6.  Bella Beauty Salon's unadjusted balance of accounts for the current year follows:

  

Prepaid insurance 240

Supplies 210
Accumulated depreciation
on shop equipment 1120
Accumulated depreciation
on building 6060
unearned rent 800

rent earned 3400

fees earned 24400
wages expense 3400
property taxes expense 1050
interest expense 4950

a. An insurance policy examination showed $1,240 of expired insurance.

b. An inventory count showed $210 of unused shop supplies still available.
c. Depreciation expense on shop equipment, $350.
d. Depreciation expense on the building, $2,220.
e. An employee hired a space behind the spa, the accrued rent revenues of $200 was unrecorded at
the time the trial balance was prepared.
f. $800 of the Unearned Rent account balance was earned by year-end.
g. The one employee, a receptionist, works a five-day workweek at $50 per day. The employee was
paid last week but has worked four days this week for which she has not been paid.
h. Three months' property taxes, totalling $450, have accrued. This additional amount of property
taxes expense has not been recorded.
i. One month's interest on the note payable, $600, has accrued but is unrecorded.
j. The Spa has provided service to a customer for a package of $1000 but not yet paid and recorded.
Prepare adjusting entries

Dat Description Account name Dr Cr

e
a Adjusting prepaid Insurance expense 1240
insurance Prepaid insurance 1240
b Adjust Supplies Supplies expense 780
Shop supplies 780
c Adjust depreciation Depreciation expense 350
Accumulated depreciation-shop equipment 350
d Adjust depreciation Depreciation expense 2220
 Accumulated depreciation-building 2220
e Adjust accrued Account receivable 200
revenue Rent earned 200
f adjust unearned rent Unearned rent 800
Rent earned 800
g adjust accrued salary Wages expense 200
Wages payable 200
h. Adjust accrued tax Property taxes expense 450
Property taxes payable 450
i Adjust accrued Interest expense 600
interest Interest payable 600
j Adjust accrued Account receivable 1000
revenue Fees earned 1000

7. Western Company had $500 of store supplies available at the beginning of the current
year. During the year Western Company purchased $2,750 worth of store supplies.
On December 31 of this year $375 worth of store supplies remained.

a. Calculate the amount of Western Company's store supplies expense for the current
year. (Show your calculations.)

Supplies expense = 500 + 2750 – 375 = $2875

b. Prepare the journal entry to adjust the supplies account.
31/12 Adjust supplies
 8. In general journal form, record the December 31 adjusting entries for the following
transactions and events. Assume that December 31 is the end of the annual accounting
period.
a. The Prepaid Insurance account shows a debit balance of $2,340, representing the
cost of a three-year fire insurance policy that was purchased on October 1 of the
current year.
2340/36 x3
b. The Office Supplies account has a debit balance of $400; a year-end inventory
count reveals $80 of supplies still on hand.
c. On 1 Nov, received $3000 cash from customer for a service to be provided in 3
months.

d. Estimated depreciation on office equipment is $600.

e. Accrued salaries (incurred, not paid) amount to $400. 

f. Accrued rent revenue was $1000, not yet been paid nor recorded.

(all entries dated December 31)

Date Description Account name Dr Cr

31/12
a
b.
c
d.
e
f

9. Company had trial balance as at 30, November 2012 as followed:

A Company
Trial balance
30 November, 2012
Dr Cr Dr Cr
Cash 25540
Prepaid insurance 1200
Account receivable 3240
Supplies 6540
Equipment – Car 26000
Accumulated 21000
depreciation – Car
Account payable 5320
Unearned rent 4200
revenue
Borrowings 12012
Contributed Capital 16200
 Retained earnings 1788
salary payable
Total 64520 64520
Additional information

1. depreciation expense on equipment is $200.

31/12 Dr depreciation expense 200
Cr Accumulated depreciation 200
2. $700 of Unearned rent revenue balance was earned by month end.
31/12 Unearned rent revenue 700
Rent earned 700
3. Insurance for November totalled $200 which was paid in advance.
31/12 Insurance expense 200
prepaid insurance 200
4. Accrued salary totalled $1000, not yet paid and recorded.

31/12 Salary expense 1000

Salary payable 1000

A Company

Balance sheet

30 November, 2012

Assets

Cash 25540

Prepaid insurance 1000

Account receivable 3240

Supplies 6040

Equipment – Car 26000

Accumulated depreciation – Car (21200)

Total assets 40620

Liabilities

Account payable 5320

Unearned rent revenue 3500

salary payable 1000

Borrowings 12012

Total liabilities 21832

Equity

Contributed Capital 16200

Retained earnings 2588

Total equity 18788

total liabilities and equity 40620

General Journal

1. Depreciation expense 200

Accumulated depreciation 200
2. Unearned rent revenue 700
rent revenue 700
3. insurance expense 200
Prepaid insurance 200
 4. salary expense 1000
Salary payable 1000
5. Supplies expense 500
Supplies 500
30/11. Consulting revenue 4000
Rent revenue 700
Income summary 4700
30/11 Income Summary 3900
Salary exp 2000
Advertising exp 1000
Depreciation exp 200
Insurance exp 200
Supplies exp 500
30/11 Income Summary 800
Retained earnings 800

A Company
Income Statement
For month ended 30 November, 2012
Revenues
Consulting revenue 4000
Rent revenue 700
Total revenues 4700
Expenses
Salary exp 2000
Advertising exp 1000
Depreciation exp 200
Insurance exp 200
Supplies exp 500
Total expenses 3900
Net income 800

Prepare Balance Sheet as at 30 November 2012.

 
1.

2. a) $1,500 + $8,250 - $1,125 = $8,625

b) Rental expense of each month = $24,000 : 24 = $ 1000

The total rental expenses from 1/1/2010 – 31/21/2010 = $1000 x 12 = $12,000

The balance of prepaid rent = $24,000 - $12,000 = $12,000

3.

4. Depreciation expense for the month end = (30000 - 0)/(20*12) = $ 125

Dec. 31 DR Depreciation expense 125

CR Accumulated depreciation 125

5. Services revenue already earned in December = 25 000 – 3500 = $ 21500

Dec. 31 DR Unearned accounting fees 21500

CR Accounting fees earned 21500

6.

j. Account receivable 1000

Fees earned 1000

7.

8.

9.

   

($15,000/6 mo. = $2,500/mo; 4 mo. unearned = 4 x $2,500 = $10,000)