Exercise B A one-year insurance policy was purchased on August 1 for

$2,400, and the following entry was made at that time:

Prepaid Insurance 2,400

Cash 2,400

What adjusting entry is necessary at December 31, the end of the

accounting year? Show how the T-accounts for Prepaid Insurance and
Insurance Expense would appear after the entries are posted.

Insurance Expense 1,000

Prepaid Insurance 1,000

Exercise C Assume that rent of $ 12,000 was paid on September 1, to

cover a one-year period from that date. Prepaid Rent was debited. If
financial statements are prepared only on December 31 of each year,
what adjusting entry is necessary on December 31 of the first year,
to bring the accounts involved to their proper balances?

Rent Expense 4,000

Prepaid Rent 4,000

Exercise D Supplies were purchased for cash on May 2 for $ 8,000.

Show how this purchase would be recorded. Then show the adjusting
entry that would be necessary, assuming that $ 2,500 of the supplies
remained at the end of the year and the beginning balance for
supplies was $500.

Supplies 8,000
Cash 8,000

Supplies Expense 6,000

Supplies 6,000

Exercise E Assume that a company acquired a building on January 1, at

a cost of $1,000,000. The building has an estimated useful life of 40
years and an estimated residual value of $200,000. What adjusting
entry is needed on December 31 to record the depreciation for the
entire year?

Depreciation Expense 20,000

Accumulated Depreciation 20,000

Exercise F On September 1, Professional Golfer Journal, Inc.,

received a total of $120,000 as payment in advance for one-year
subscriptions to a monthly magazine. A liability account was credited
to record this cash receipt. By the end of the year, one-third of the
magazines paid for in advance had been delivered. Give the entries to
record the receipt of the subscription fees and to adjust the
accounts at December 31, assuming annual financial statements are
prepared at year-end.

Cash 120,000
Unearned Revenue 120,000

Unearned Revenue 40,000

Service Revenue 40,000

Exercise G On April 15, Rialto Theater sold $ 90,000 in tickets for

the summer musicals to be performed (one per month) during June,
July, and August. On July 15, Rialto Theater discovered that the
group that was to perform the July and August musicals could not do
so. It was too late to find another group qualified to perform the
musicals. A decision was made to refund the remaining unearned ticket
revenue to its ticket holders, and this was done on July 20. Show the
appropriate journal entries to be made on April 15, June 30, and July
20. Rialto has a June 30th year-end.

Cash 90,000
Unearned Revenue 90,000

Unearned Revenue 30,000

Revenue 30,000

Unearned Revenue 60,000

Cash 60,000

Exercise H Guilty & Innocent, a law firm, performed legal services in

late December for clients. The $30,000 of services would be billed to
the clients in January of next year. Give the adjusting entry that is
necessary on December 31, if financial statements are prepared at the
end of each month.

Accounts Receivable 30,000

Revenue 30,000

Exercise I A firm borrowed $30,000 on November 1. By December 31,

$300 of interest had been incurred. Prepare the adjusting entry
required on December 31.

Interest Expense 300

Interest Payable 300
Exercise J Convenient Mailing Services, Inc., incurs salaries at the
rate of $ 3,000 per day. The last payday in January is Friday,
January 27. Salaries for Monday and Tuesday of the next week have not
been recorded or paid as of January 31. Financial statements are
prepared monthly. Give the necessary adjusting entry on January 31.

Salaries Expense 6,000

Salaries Payable 6,000
Exercise K The Trial Balance of the Printer Repair Company at
December 31, contains the following account balances listed in
alphabetical order to increase your skill in sorting amounts to the
proper order. Assume each account balance follows the normal balance
rules.

Printer Repair Company

Account Balances
December 31
Accounts Payable $ 41,000
Accounts Receivable 92,000
Accumulated Depreciation—Buildings 25,000
Accumulated Depreciation—Equipment 9,000
Buildings 140,000
Capital Stock 65,000
Cash 60,000
Equipment 36,000
Prepaid Insurance 3,600
Retained Earnings, January 1 4,800
Salaries Expense 96,000
Service Revenue 290,000
Supplies on Hand 4,000
Utilities Expense 3,200

Using these account balances and the following additional

information, prepare the adjusting journal entries for Printer Repair
Company. Post the entries and prepare the Adjusted Trial Balance in
the proper order. • Supplies on hand at December 31, have a cost of $
2,400.
Supplies Expense 1,600
Supplies on Hand 1,600

• The balance in the Prepaid Insurance account represents the cost of

a two-year insurance policy covering the period from January 1 this
year, through December 31 of next year.
Insurance Expense 1,800
Prepaid Insurance 1,800

• The estimated lives of depreciable assets are buildings, 40 years,

and equipment, 20 years. No salvage values are anticipated.
Depreciation Expense 3,500
Accumulated Depreciation - Building 3,500

Depreciation Expense 1,800

Accumulated Depreciation - Equipment 1,800

Exercise L Refer to the adjusted trial balance prepared in the

Printer Repair Company exercise (Ex K). Prepare the closing journal
entries.

Service Revenue 290,000

Income Summary 290,000
to close all nominal revenue
accounts.

Income Summary 107,900

Salaries Expense 96,000
Utilities Expense 3,200
Depreciation Expense 5,300
Insurance Expense 1,800
Supplies Expense 1,600
to close all nominal expense
accounts.

Income Summary 182,100

Retained Earnings 182,100
To close income summary to the
appropriate capital account.

Exercise M Rubino Company reported net income of $100,000 for the

current year. Examination of the financial data indicates that the
following items were ignored:
• Accrued salaries were $ 6,000 at December 31.
Salaries Expense 6,000
Salaries Payable 6,000
• Depreciation on equipment acquired on July 1 amounted to $ 4,000.
Depreciation Expense 4,000
Accumulated Depreciation 4,000
Based on this information, (a) what adjusting journal entries should
have been made at December 31, and (b) what is the correct net
income?
Net Income 90,000

Exercise N After adjustment, these selected account balances of Cold

Stream Campground are:
Retained earnings $540,000.00
Rental revenue 960000
Salaries expense $336,000.00
Depreciated expense – Buildings 64000
Utilities expense 208000
Dividends 32000

Prepare the journal entries to close the books for the period. What
would be the ending balance in Retained Earnings?

Rental Revenue 960,000

Income Summary 960,000
to close all nominal revenue
accounts.

Income Summary 608,000

Salaries Expense 336,000
Depreciated Expense - Buildings 64,000
Utilities Expense 208,000
to close all nominal expense
accounts.

Income Summary 352,000

Retained Earnings 352,000
To close income summary to the
appropriate capital account.

Exercise O The following account balances appeared in the Adjusted

Trial Balance prepared for Liu Company for the year ended December
31:

Service Revenue 330,000

Advertising Expense 1,350
Salaries Expense 130,000
Utilities Expense 2,250
Insurance Expense 900
Rent Expense 6,750
Supplies Expense 2,250
Depreciation Expense—Equipment 4,500
Interest Expense 562
Interest Revenue 1,125

Prepare the closing journal entries.

Service Revenue 330,000
Interest Revenue 1,125
Income Summary 331,125
to close all nominal revenue
accounts.

Income Summary 148,562

Advertising Expense 1,350
Salaries Expense 130,000
Utilities Expense 2,250
Insurance Expense 900
Rent Expense 6,750
Supplies Expense 2,250
Depreciation Expense - Equipment 4,500
Interest Expense 562
to close all nominal expense
accounts.

Income Summary 182,563

 Retained Earnings 182,563
To close income summary to the
appropriate capital account.

Exercise P Which of the following accounts are likely to appear in

the post-closing trial balance for the Blake Company?
• Accounts Receivable
• Cash
• Service Revenue
• Buildings
• Salaries Expense
• Capital Stock
• Dividends
• Accounts Payable
• Income Summary
• Unearned Subscription Fees

Problem A Among other items, the trial balance of Filmblaster, Inc.,

a movie rental company, at December 31 of the current year includes
the following account balances:

Prepaid Insurance $ 10,000

Prepaid Rent $ 14,400
Supplies on Hand $ 2,800

Examination of the records shows that adjustments should be made for

the following items:
1. Of the prepaid insurance in the trial balance, $ 4,000 is for
coverage during the months after December 31 of the current year.
Insurance Expense 6,000
Prepaid Insurance 6,000
2. The balance in the Prepaid Rent account is for a 12-month period
that started October 1 of the current year.
Rent Expense 3,600
Prepaid Rent 3,600
3. $ 300 of interest has been earned but not received.
Interest Receivable 300
Interest Expense 300
4. Supplies used during the year amount to $ 1,800.
Supplies Expense 1,800
Supplies on Hand 1,800

Prepare the annual year-end adjusting journal entries at December 31.

Problem B Marathon Magazine, Inc., has the following account

balances, among others, in its trial balance at December 31 of the
current year:
Supplies on Hand……………… $3,720
Prepaid Rent ……………………. 7,200
Unearned Subscription Fees … $15,000
Subscriptions Revenue……….. 261,000
Salaries Expense ………………. 123,000

• The inventory of supplies on hand at December 31 amounts to $ 720.

Supplies Expense 3,000
Supplies on Hand 3,000
• The balance in the Prepaid Rent account is for a one-year period
starting October 1 of the current year.
Rent Expense 1,800
Prepaid Rent 1,800
• One-third of the $ 15,000 balance in Unearned Subscription Fees has
been earned.
Unearned Subscription Fees 5,000
Subscriptions Revenue 5,000
• Since the last payday, the employees of the company have earned
additional salaries in the amount of $ 5,430.
Salaries Expense 5,430
Salaries Payable 5,430

1. Prepare the year-end adjusting journal entries at December 31.

2. Open ledger accounts for each of the accounts involved, enter the
balances as shown in the trial balance, post the adjusting journal
entries, and calculate year-end balances.

Year End Balances

ACCOUNT TITLE DEBIT CREDIT
Supplies on Hand 720
Prepaid Rent 5,400
Salaries Payable 5,430
Unearned Subscription Fee 10,000
Subscription Revenue 266,000
Salaries Expense 128,430
Supplies Expense 3,000
Rent Expense 1,800
Totals 139,350 281,430

Problem C The following adjusted trial balance is for Jasper

Appliance Repair Company:

JASPER APPLIANCE REPAIR COMPANY

Adjusted Trial Balance

ACCOUNT TITLE DEBIT CREDIT

Cash $ 63,000
Accounts Receivable 42,000
Trucks 110,000
Accumulated Depreciation—Trucks 30,000 $ 30,000
Accounts Payable 10,800
Notes Payable 20,000
Capital Stock 50,000
Retained Earnings 5,500
Dividends 10,000
Service Revenue 230,000
Rent Expense 12,000
Advertising Expense 5,000
Salaries Expense 90,000
Supplies Expense 1,500
Insurance Expense 1,200
Depreciation Expense—Trucks 10,000
Interest Expense 1,000
Miscellaneous Expense 600
Totals $346,300 $346,300

Prepare the closing journal entries at the end of the fiscal year,
June 30 and the post closing trial balance.
Service Revenue 230,000
Income Summary 230,000
to close all nominal revenue
accounts.

Income Summary 121,300

Rent Expense 12,000
Advertising Expense 5,000
Salaries Expense 90,000
Supplies Expense 1,500
Insurance Expense 1,200
Depreciation Expense—Trucks 10,000
Interest Expense 1,000
Miscellaneous Expense 600
to close all nominal expense
accounts.

Income Summary 108,700

Retained Earnings 108,700
To close income summary to the
appropriate capital account.

Retained Earnings 10,000

Dividends 10,000
To close dividends to retained
earnings account.

ASPER APPLIANCE REPAIR COMPANY

Post-Closing Trial Balance

ACCOUNT TITLE DEBIT CREDIT

Cash $ 63,000
Accounts Receivable 42,000
Trucks 110,000
Accumulated Depreciation—Trucks $ 30,000
Accounts Payable 10,800
Notes Payable 20,000
Capital Stock 50,000
Retained Earnings 104,200
Totals $ 215,000 $ 215,000

Problem D The adjusted trial balance for Denver Architects , Inc.,

follows:
DENVER ARCHITECTS, INC.
Adjusted Trial Balance
December 31

ACCOUNT TITLE DEBIT CREDIT

Cash $ 90,000
Accounts Receivable 20,000
Interest Receivable 200
Notes Receivable 4,000
Prepaid Insurance 960
Prepaid Rent 2,400
Supplies on Hand 600
Equipment 60,000
Accumulated Depreciation—Equipment $ 12,500
Buildings 140,000
Accumulated Depreciation—Buildings 15,000
Land 56,240
Accounts Payable 60,000
Notes Payable 10,000
Interest Payable 750
Salaries Payable 7,000
Capital Stock 100,000
Retained Earnings 20,200
Dividends 40,000
Service Revenue 360,000
Interest Revenue 200
Rent Expense 12,000
Insurance Expense 1,920
Rent Expense 9,600
Advertising Expense 1,200
Depreciation Expense—Equipment 2,500
Depreciation Expense—Buildings 3,000
Salaries Expense 150,000
Supplies Expense 2,280
Interest Expense 750
Totals $ 585,650 $ 585,650

1. Prepare an income statement.

DENVER ARCHITECTS, INC.
Income Statement
Service Revenue $ 360,000
Interest Revenue 200 $ 360,200
Less: Operating Expenses
Rent Expense 12,000
Insurance Expense 1,920
Rent Expense 9,600
Advertising Expense 1,200
Depreciation Expense—Equipment 2,500
Depreciation Expense—Buildings 3,000
Salaries Expense 150,000
Supplies Expense 2,280
Interest Expense 750 183,250
Net Income $ 176,950

2. Prepare a statement of retained earnings.

DENVER ARCHITECTS, INC.
Statement of Retained Earnings

Retained Earnings, January 1 $ 20,200

Add: Net Income 176,950
Subtotal 197,150
Less: Dividends paid to shareholders (40,000)
Retained Earnings, December 31 $ 157,150
3. Prepare a classified balance sheet.
DENVER ARCHITECTS, INC.
Balance Sheet
As of December 31

ASSETS
Current Asset
Cash $ 90,000
Accounts Receivable 20,000
Interest Receivable 200
Notes Receivable 4,000
Prepaid Insurance 960
Prepaid Rent 2,400
Supplies on Hand 600
Total Current Asset 118,160

Non Current Asset

Equipment 60,000
Accumulated Depreciation—Equipment (12,500)
Buildings 140,000
Accumulated Depreciation—Buildings (15,000)
Land 56,240
Total Non Current Asset 228,740
Total Assets $ 346,900

LIABILITIES
Current Liabilities
Accounts Payable 60,000
Notes Payable 10,000
Interest Payable 750
Salaries Payable 7,000
Total Liabilities 77,750

OWNERS’ EQUITY
Retained Earnings 157,150

Total Liabilities & Owners’ Equity $ 234,900

Problem E The following trial balance and additional data are for
Sure Sale Reality Company

SURE SALE REALTY COMPANY

Trial Balance
December 31

ACCOUNT TITLE DEBIT CREDIT

Cash $ 62,800
Accounts Receivable 117,120
Prepaid Rent 46,080
Equipment 173,760
Accumulated Depreciation—Equipment $ 21,120
Accounts Payable 62,400
Capital Stock 96,000
Retained Earnings, 2010 January 1 49,920
Dividends 46,080
Commissions Revenue 653,200
Salaries Expense 321,600
Travel Expense 96,480
Miscellaneous Expense 18,720
Totals $ 882,640 $ 882,640

1. Prepare adjusting journal entries and post

The prepaid rent is for the 12 months beginning July 1.
Rent Expense 23,040
Prepaid Rent 23,040
The equipment has an expected life of 10 years with no salvage value.
Depreciation Expense 17,376
Accumulated Depreciation - Equipment 17,376
Accrued salaries are $ 11,520.
Salaries Expense 11,520
Salaries Payable 11,520
Travel expenses accrued but unreimbursed to sales staff at December
31 were $ 17,280
Travel Expense 17,280
Employee Reimbursement 17,280
2. Prepare an adjusted trial balance.
SURE SALE REALTY COMPANY
Adjusted Trial Balance
December 31

ACCOUNT TITLE DEBIT CREDIT

Cash $ 62,800
Accounts Receivable 117,120
Prepaid Rent 23,040
Equipment 173,760
Accumulated Depreciation—Equipment $ 38,496
Accounts Payable 62,400
Salaries Payable 11,520
Employee Reimbursements 17,280
Capital Stock 96,000
Retained Earnings, 2010 January 1 49,920
Dividends 46,080
Commissions Revenue 653,200
Salaries Expense 333,120
Travel Expense 113,760
Miscellaneous Expense 18,720
Rent Expense 23,040
Depreciation Expense 17,376
Totals $ 928,816 $ 928,816

3. Prepare closing journal entries.

Commissions Revenue 653,200
Income Summary 653,200
to close all nominal revenue
accounts.

Income Summary 506,016

Salaries Expense 333,120
Travel Expense 113,760
Miscellaneous Expense 18,720
Rent Expense 23,040
Depreciation Expense 17,376
to close all nominal expense
accounts.

Income Summary 147,184

Retained Earnings 147,184
To close income summary to the
appropriate capital account.

Retained Earnings 46,080

Dividends 46,080
To close dividends to retained
earnings account.

SURE SALE REALTY COMPANY

Post-Closing Trial Balance
December 31

ACCOUNT TITLE DEBIT CREDIT

Cash $ 62,800
Accounts Receivable 117,120
Prepaid Rent 23,040
Equipment 173,760
Accumulated Depreciation—Equipment $ 38,496
Accounts Payable 62,400
Salaries Payable 11,520
Employee Reimbursements 17,280
Capital Stock 96,000
Retained Earnings, 2010 January 1 151,024
Totals $ 376,720 $ 376,720

Problem F The following trial balance and additional data are for
South Sea Tours, Inc.:
SOUTH SEA TOURS, INC.
Trial Balance
December 31
ACCOUNT TITLE DEBIT CREDIT
Cash $ 109,050
Accounts Receivable 133,750
Prepaid Insurance 4,350
Prepaid Advertising 18,000
Notes Receivable 11,250
Land 90,000
Buildings 165,000
Accumulated Depreciation—Buildings $ 49,500
Office Equipment 83,400
Accumulated Depreciation—Office Equipment 16,680
Accounts Payable 56,850
Notes Payable 75,000
Capital Stock 240,000
Retained Earnings, 2010 January 1 47,820
Dividends 30,000
Service Revenue 368,350
Interest Revenue 600
Salaries Expense 96,000
Travel Expense 111,000
Miscellaneous Expense 18,720
Interest Expense 3,000
Totals $854,800 $854,800

1. Prepare the required adjusting journal entries and post. The

company consistently followed the policy of initially debiting all
prepaid items to asset accounts.
The buildings have an expected life of 50 years with no salvage
value.
Depreciation Expense 3,300
Accumulated Depreciation 3,300
The office equipment has an expected life of 10 years with no salvage
value.
Depreciation Expense 8,340
Accumulated Depreciation 8,340
Accrued interest on notes receivable is $ 450.
Interest Receivable 450
Interest Expense 450
Accrued interest on the notes payable is $ 1,000.
Interest Expense 1,000
Interest Payable 1,000
Accrued salaries are $ 2,100.
Salaries Expense 2,100
Salaries Payable 2,100
Expired prepaid insurance is $ 3,750.
Insurance Expense 3,750
Prepaid Insurance 3,750
Expired prepaid advertising is $ 16,500.
Advertising Expense 16,500
 Prepaid Advertising 16,500
2. Prepare an adjusted trial balance.
SOUTH SEA TOURS, INC.
Adjusted Trial Balance
December 31

ACCOUNT TITLE DEBIT CREDIT

Cash $ 109,050
Accounts Receivable 133,750
Interest Receivable 450
Prepaid Insurance 600
Prepaid Advertising 1,500
Notes Receivable 11,250
Land 90,000
Buildings 165,000
Accumulated Depreciation—Buildings $ 52,800
Office Equipment 83,400
Accumulated Depreciation—Office Equipment 25,020
Accounts Payable 56,850
Notes Payable 75,000
Interest Payable 1,000
Salaries Payable 2,100
Capital Stock 240,000
Retained Earnings, 2010 January 1 47,820
Dividends 30,000
Service Revenue 368,350
Interest Revenue 600
Salaries Expense 98,100
Travel Expense 111,000
Miscellaneous Expense 18,720
Interest Expense 3,550
Advertising Expense 16,500
Insurance Expense 3,750
Depreciation Expense - Buildings 3,300
Depreciation Expense - Office Equipment 8,340
Totals $888,260 $869,540

Problem G The following trial balance and additional data are for
Florida Time-Share Property Management Company:
FLORIDA TIME-SHARE PROPERTY MANAGEMENT COMPANY
Trial Balance
December 31

ACCOUNT TITLE DEBIT CREDIT

Cash $ 424,000
Prepaid Rent 28,800
Prepaid Insurance 7,680
Supplies on Hand 2,400
Office Equipment 24,000
Accumulated Depreciation—Office Equipment $ 5,760
Automobiles 64,000
Accumulated Depreciation—Automobiles 16,000
Accounts Payable 2,880
Unearned Management Fees 12,480
Capital Stock 360,000
Retained Earnings, 2010 January 1 120,640
Dividends 28,000
Commissions Revenue 260,000
Management Fee Revenue 19,200
Salaries Expense 199,840
Advertising Expense 2,400
Gas and Oil Expense 14,240
Miscellaneous Expense 1,600
Totals $796,960 $796,960

1. Prepare the adjusting journal entries and post.

Insurance expense for the year, $ 3,840.
Insurance Expense 3,840
Prepaid Insurance 3,840
Rent expense for the year, $ 19,200.
Rent Expense 19,200
Prepaid Rent 19,200
Depreciation expense: office equipment, $ 2,880; and automobiles, $
12,800.
Depreciation Expense - Office Equipment 2,880
Accumulated Depreciation - Office Equipment 2,880

Depreciation Expense - Automobiles 12,800

Accumulated Depreciation - Automobiles 12,800
Salaries earned but unpaid at December 31, $ 26,640.
Salaries Expense 26,640
Salaries Payable 26,640
Supplies on hand at December 31, $ 1,000.
Supplies Expense 1,400
Supplies on Hand 1,400
The unearned management fees were received and recorded on November
1.The advance payment covered six months’ management of an apartment
building.
Unearned Management Fees 12,480
Management Fees Revenue 12,480

2. Prepare the adjusted trial balance.

FLORIDA TIME-SHARE PROPERTY MANAGEMENT COMPANY
Adjusted Trial Balance
December 31
ACCOUNT TITLE DEBIT CREDIT
Cash $ 424,000
Prepaid Rent 9,600
Prepaid Insurance 3,840
Supplies on Hand 1,000
Office Equipment 24,000
Accumulated Depreciation—Office Equipment $ 8,640
Automobiles 64,000
Accumulated Depreciation—Automobiles 28,800
Accounts Payable 2,880
Salaries Payable 26,640
Capital Stock 360,000
Retained Earnings, 2010 January 1 120,640
Dividends 28,000
Commissions Revenue 260,000
Management Fee Revenue 31,680
Salaries Expense 226,480
Advertising Expense 2,400
Gas and Oil Expense 14,240
Miscellaneous Expense 1,600
Insurance Expense 3,840
Rent Expense 19,200
Depreciation Expense - Office Equipment 2,880
Depreciation Expense - Automobiles 12,800
Supplies Expense 1,400
Totals $839,280 $839,280
3. Prepare an income statement.
FLORIDA TIME-SHARE PROPERTY MANAGEMENT COMPANY
Income Statement

Commissions Revenue $ 260,000

Management Fee Revenue 31,680 $ 291,680
Less: Operating Expenses
Salaries Expense 226,480
Advertising Expense 2,400
Gas and Oil Expense 14,240
Miscellaneous Expense 1,600
Insurance Expense 3,840
Rent Expense 19,200
Depreciation Expense - Office Equipment 2,880
Depreciation Expense - Automobiles 12,800
Supplies Expense 1,400 284,840
Net Income $6,840
4. Prepare a statement of retained earnings.
FLORIDA TIME-SHARE PROPERTY MANAGEMENT COMPANY
Statement of Retained Earnings

Retained Earnings, January 1 $ 120,640

Add: Net Income 6,840
Subtotal 127,480
Less: Dividends (28,000)
Retained Earnings, December 31 99,480
5. Prepare a classified balance sheet.
FLORIDA TIME-SHARE PROPERTY MANAGEMENT COMPANY
Balance Sheet

ASSETS
Current Asset
Cash $ 424,000
Prepaid Rent 9,600
Prepaid Insurance 3,840
Supplies on Hand 1,000
Total Current Asset 438,440

Non Current Asset

Office Equipment 24,000
Accumulated Depreciation—Office Equipment (8,640)
Automobiles 64,000
Accumulated Depreciation—Automobiles (28,800)
Total Non Current Asset 50,560
Total Assets $ 489,000

LIABILITIES
Current Liabilities
Accounts Payable 2,880
Salaries Payable 26,640
Total Liabilities 29,520

OWNERS’ EQUITY
Retained Earnings 99,480
Capital Stock 360,000
Total Owner’s Equity 459,480

Total Liabilities & Owners’ Equity $ 489,000

6. Prepare closing entries and post.
Commissions Revenue 260,000
Management Fees Revenue 31,680
Income Summary 291,680
to close all nominal revenue
accounts.

Income Summary 58,360

Advertising Expense 2,400
Gas and Oil Expense 14,240
Miscellaneous Expense 1,600
Insurance Expense 3,840
Rent Expense 19,200
Depreciation Expense - Office Equipment 2,880
Depreciation Expense - Automobiles 12,800
Supplies Expense 1,400
 to close all nominal expense
accounts.

Income Summary 233,320

Retained Earnings 233,320
To close income summary to the
appropriate capital account.

Retained Earnings 28,000

Dividends 28,000
To close dividends to retained
earnings account.

7. Prepare a post closing trial balance.

FLORIDA TIME-SHARE PROPERTY MANAGEMENT COMPANY
Post-Closing Trial Balance
December 31

ACCOUNT TITLE DEBIT CREDIT

Cash $ 424,000
Prepaid Rent 9,600
Prepaid Insurance 3,840
Supplies on Hand 1,000
Office Equipment 24,000
Accumulated Depreciation—Office Equipment $ 8,640
Automobiles 64,000
Accumulated Depreciation—Automobiles 28,800
Accounts Payable 2,880
Salaries Payable 26,640
Capital Stock 360,000
Retained Earnings, 2010 January 1 325,960
Totals $526,440 $752,920
Alternate problem A The trial balance of Caribbean Vacation Tours,
Inc., at December 31 of the current year includes, among other items,
the following account balances:
Prepaid Insurance …………………………………. $24,000
Prepaid Rent ………………………………………… 24,000
Buildings……………………………………………… 188,000
Accumulated Depreciation—Buildings…………. $31,600
Salaries Expense …………………………………… 200,000

Prepare the annual year-end adjusting journal entries at December 31.

The balance in the Prepaid Insurance account is the advance premium

for one year from September 1 of the current year.
Insurance Expense 8,000
Prepaid Insurance 8,000
The buildings are expected to last 25 years, with an expected
residual value of $ 30,000.
Depreciation Expense 6,320
 Accumulated Depreciation 6,320
Salaries incurred but not paid as of December 31 amount to $ 8,400.
Salaries Expense 8,400
Salaries Payable 8,400
The balance in Prepaid Rent is for a one-year period that started
March 1 of the current year.
Rent Expense 20,000
Prepaid Rent 20,000

Alternate problem B Among the account balances shown in the trial

balance of Dunwoody Mail Station, Inc., at December 31 of the current
year are the following:

ACCOUNT TITLE DEBIT CREDIT

Supplies on hand $10,000
Prepaid Insurance 6,000
Buildings 168,000
Accumulated Depreciation,—Buildings $ 39,000
1. Prepare the year-end adjusting journal entries at December 31.
The inventory of supplies on hand at December 31 amounts to $ 3,000.
Supplies Expense 7,000
Supplies on Hand 7,000
The balance in the Prepaid Insurance account is for a two-year policy
taken out June 1 of the current year.
Insurance Expense 1,750
Prepaid Insurance 1,750
Depreciation for the buildings is based on the cost shown in the
Buildings account, less residual value estimated at USD18,000. When
acquired, the lives of the buildings were estimated at 50 years each.
Depreciation Expense 3,000
Accumulated Depreciation - Buildings 3,000

2. Open ledger accounts for each of the accounts involved, enter the
balances as shown in the trial balance, post the adjusting journal
entries, and calculate year-end balances.
Dunwoody Mail Station Inc.
Year-End Balances

ACCOUNT TITLE DEBIT CREDIT

Supplies on hand $3,000
Prepaid Insurance 4,250
Buildings 168,000
Accumulated Depreciation,—Buildings $ 42,000
Supplies Expense 7,000
Insurance Expense 1,750
Depreciation Expense 3,000
Alternate problem C The following adjusted trial balance is for Dream
Home Realty Company:
DREAM HOME REALTY COMPANY
Adjusted Trial Balance
 June 30
Prepare the closing journal entries at the end of the June 30 fiscal
ACCOUNT TITLE DEBIT CREDIT
Cash $ 98,000
Accounts Receivable 40,000
Office Equipment 35,000
Accumulated Depreciation—Office Equipment $ 14,000
Automobiles 40,000
Accumulated Depreciation—Automobiles 20,000
Accounts Payable 63,000
Capital Stock 75,000
Retained Earnings, 2010 January 1 54,700
Dividends 5,000
Commissions Revenue 170,000
Salaries Expense 25,000
Commissions Expense 120,000
Gas and Oil Expense 4,000
Rent Expense 14,800
Depreciation Expense - Office Equipment 3,500
Depreciation Expense - Automobiles 8,000
Supplies Expense 1,400
Utilities Expense 2,000
Totals $396,700 $396,700
year.
Commissions Revenue 170,000
Income Summary 170,000
to close all nominal revenue
accounts.

Income Summary 178,700

Salaries Expense 25,000
Commissions Expense 120,000
Gas and Oil Expense 4,000
Rent Expense 14,800
Depreciation Expense - Office Equipment 3,500
Depreciation Expense - Automobiles 8,000
Supplies Expense 1,400
Utilities Expense 2,000
to close all nominal expense
accounts.

Income Summary 8,700

Retained Earnings 8,700
To close income summary to the
appropriate capital account.

Retained Earnings 5,000

Dividends 5,000
To close dividends to retained
earnings account.

Alternate problem D The adjusted trial balance for Penrod Insurance

Consultants, Inc., follows:
Penrod Insurance Consultants, Inc.
Adjusted Trial Balance
December 31
1. Prepare an income statement for the year ended December 31.
ACCOUNT TITLE DEBIT CREDIT
Cash $ 107,200
Accounts Receivable 68,000
Interest Receivable 400
Notes Receivable 20,000
Prepaid Insurance 2,400
Supplies on Hand 1,800
Land 32,000
Buildings 190,000
Accumulated Depreciation—Buildings $ 40,000
Office Equipment 28,000
Accumulated Depreciation—Office Equipment 8,000
Accounts Payable 48,000
Salaries Payable 8,500
Interest Payable 900
Notes Payable (due next year) 64,000
Capital Stock 120,000
Retained Earnings, 2010 January 1 42,800
Dividends 40,000
Commissions Revenue 392,520
Interest Revenue 1,600
Advertising Expense 24,000
Commissions Expense 75,440
Travel Expense 12,880
Depreciation Expense—Buildings 8,500
Salaries Expense 98,400
Depreciation Expense - Office Equipment 2,800
Supplies Expense 3,800
Insurance Expense 3,600
Repairs Expense 1,900
Utilities Expense 3,400
Interest Expense 1,800
Totals $726,320 $726,320
Penrod Insurance Consultants, Inc.
Income Statement
For the period ended December 31
Commissions Revenue $ 392,520
Interest Revenue 1,600 $ 394,120
Less: Operating Expenses
Advertising Expense 24,000
Commissions Expense 75,440
Travel Expense 12,880
Depreciation Expense—Buildings 8,500
Salaries Expense 98,400
Depreciation Expense - Office Equipment 2,800
Supplies Expense 3,800
Insurance Expense 3,600
Repairs Expense 1,900
Utilities Expense 3,400
Interest Expense 1,800 236,520
Net Income $157,600
2. Prepare a statement of retained earnings.
Penrod Insurance Consultants, Inc.
Statement of Retained Earnings
For the period ended December 31

Retained Earnings, January 1 $ 42,800

Add: Net Income 157,600
Subtotal 200,400
Less: Dividends (40,000)
Retained Earnings, December 31 160,400
3. Prepare a classified balance sheet.
Penrod Insurance Consultants, Inc.
Balance Sheet
As of December 31
Alternate problem E The following trial balance and additional data
ASSETS
Current Asset
Cash $ 107,200
Accounts Receivable 68,000
Interest Receivable 400
Notes Receivable 20,000
Prepaid Insurance 2,400
Supplies on Hand 1,800
Total Current Asset 199,800

Non Current Asset

Land 32,000
Buildings 190,000
Accumulated Depreciation—Buildings (40,000)
Office Equipment 28,000
Accumulated Depreciation—Office Equipment (8,000)
Total Non Current Asset 202,000
Total Assets $ 401,800

LIABILITIES
Current Liabilities
Accounts Payable 48,000
Salaries Payable 8,500
Interest Payable 900
Notes Payable (due next year) 64,000
Total Liabilities 121,400

OWNERS’ EQUITY
Retained Earnings 160,400
Capital Stock 120,000
Total Owner’s Equity 280,400

Total Liabilities & Owners’ Equity $ 401,800

are for Ramon Data Processing Company:
RAMON DATA PROCESSING COMPANY
Trial Balance
December 31
1. Prepare the adjusting journal entries and post.
ACCOUNT TITLE DEBIT CREDIT
Cash $ 76,000
Accounts Receivable 98,000
Prepaid Rent 7,200
Prepaid Insurance 2,400
Equipment 80,000
Accumulated Depreciation—Equipment $ 40,000
Accounts Payable 30,000
Capital Stock 100,000
Retained Earnings, 2010 January 1 65,600
Dividends 24,000
Service Revenue 370,000
Commissions Expense 270,000
Travel Expense 36,000
Miscellaneous Expense 12,000
Totals $605,600 $605,600
The prepaid rent is for the 2- year period beginning January 1 of
this year.
Rent Expense 3,600
Prepaid Rent 3,600
The equipment is expected to last 10 years with no salvage value.
Depreciation Expense - Equipment 8,000
Accumulated Depreciation - Equipment 8,000

The prepaid insurance was for the 12-month period beginning April 1
Insurance Expense 1,800
Prepaid Insurance 1,800
Accrued commissions payable total $ 3,000 at December 31.
Commissions Expense 3,000
Commissions Payable 3,000

2. Prepare the adjusted trial balance.

RAMON DATA PROCESSING COMPANY
Adjusted Trial Balance
December 31
ACCOUNT TITLE DEBIT CREDIT
Cash $ 76,000
Accounts Receivable 98,000
Prepaid Rent 3,600
Prepaid Insurance 600
Equipment 80,000
Accumulated Depreciation—Equipment $ 48,000
Accounts Payable 30,000
Commissions Payable 3,000
Capital Stock 100,000
Retained Earnings, 2010 January 1 65,600
Dividends 24,000
Service Revenue 370,000
Commissions Expense 273,000
Travel Expense 36,000
Miscellaneous Expense 12,000
Rent Expense 3,600
Depreciation Expense - Equipment 8,000
Insurance Expense 1,800
Totals $616,600 $616,600
Alternate problem F The following trial balance and additional data
are for Best-Friend Pet Hospital, Inc.
BEST-FRIEND PET HOSPITAL, INC.
Trial Balance
December 31
1. Prepare the adjusting entries for December 31 and post. The
ACCOUNT TITLE DEBIT CREDIT
Cash $ 16,490
Accounts Receivable 54,390
Supplies on Hand 900
Prepaid Fire Insurance 1,800
Prepaid Rent 21,600
Equipment 125,000
Accumulated Depreciation—Equipment $ 25,000
Accounts Payable 29,550
Notes Payable 9,000
Capital Stock 150,000
Retained Earnings, 2010 January 1 20,685
Service Revenue 179,010
Interest Expense 225
Salaries Expense 142,200
Advertising Expense 29,250
Supplies Expense 2,135
Miscellaneous Expense 3,705
Legal and Accounting Expense 13,750
Utilities Expense 1,800
Totals $413,245 $413,245
company consistently followed the policy of initially debiting all
prepaid items to asset accounts.

Prepaid fire insurance is $ 600 as of the end of the year.

Fire Insurance Expense 1,200
Prepaid Fire Insurance 1,200
Supplies on hand are $ 638 as of the end of the year.
Supplies Expense 262
Supplies on Hand 262
Prepaid rent is $ 2,625 as of the end of the year.
Rent Expense 18,975
Prepaid Rent 18,975
The equipment is expected to last 10 years with no salvage value.
Depreciation Expense - Equipment 12,500
Accumulated Depreciation - Equipment 12,500
Accrued salaries are $ 2,625.
Salaries Expense 2,625
Salaries Payable 2,625
2. Prepare an adjusted trial balance.
BEST-FRIEND PET HOSPITAL, INC.
Adjusted Trial Balance
December 31

ACCOUNT TITLE DEBIT CREDIT

Cash $ 16,490
Accounts Receivable 54,390
Supplies on Hand 638
Prepaid Fire Insurance 600
Prepaid Rent 2,625
Equipment 125,000
Accumulated Depreciation—Equipment $ 37,500
Accounts Payable 29,550
Notes Payable 9,000
Salaries Payable 2,625
Capital Stock 150,000
Retained Earnings, 2010 January 1 20,685
Service Revenue 179,010
Interest Expense 225
Salaries Expense 144,825
Advertising Expense 29,250
Supplies Expense 2,397
Miscellaneous Expense 3,705
Legal and Accounting Expense 13,750
Utilities Expense 1,800
Fire Insurance Expense 1,200
Rent Expense 18,975
Depreciation Expense - Equipment 12,500
Totals $428,370 $428,370
3. Prepare the December 31 closing entries and post.
Service Revenue 179,010
Income Summary 179,010
 to close all nominal revenue
accounts.

Income Summary 228,627

Interest Expense 225
Salaries Expense 144,825
Advertising Expense 29,250
Supplies Expense 2,397
Miscellaneous Expense 3,705
Legal and Accounting Expense 13,750
Utilities Expense 1,800
Fire Insurance Expense 1,200
Rent Expense 18,975
Depreciation Expense - Equipment 12,500
to close all nominal expense
accounts.

Retained Earnings 49,617

Income Summary 49,617
To close income summary to the
appropriate capital account.

4. Prepare a post-closing trial balance.

BEST-FRIEND PET HOSPITAL, INC.
Post-Closing Trial Balance
December 31

ACCOUNT TITLE DEBIT CREDIT

Cash $ 16,490
Accounts Receivable 54,390
Supplies on Hand 638
Prepaid Fire Insurance 600
Prepaid Rent 2,625
Equipment 125,000
Accumulated Depreciation—Equipment $ 37,500
Accounts Payable 29,550
Notes Payable 9,000
Salaries Payable 2,625
Capital Stock 150,000
Retained Earnings, 2010 January 1 28,932
Totals $228,675 $228,675
Alternate problem G The following trial balance and additional data
are for Roswell Interior Decorators, Inc.:
ROSWELL INTERIOR DECORATORS, INC
Trial Balance
2010 December 31
1. Prepare the adjusting journal entries and post.
ACCOUNT TITLE DEBIT CREDIT
Cash $ 85,400
Accounts Receivable 81,600
Supplies on Hand 4,000
Prepaid Rent 12,240
Prepaid Advertising 2,880
Prepaid Insurance 4,400
Equipment 7,600
Accumulated Depreciation—Equipment $2,760
Office Furniture 29,200
Accumulated Depreciation—Office Furniture 8,280
Accounts Payable 25,200
Notes Payable (due next year) 4,000
Salaries Payable 2,625
Capital Stock 100,000
Retained Earnings, 2010 January 1 22,400
Dividends 45,520
Service Revenue 250,000
Salaries Expense 98,800
Utilities Expense 20,000
Miscellaneous Expense 24,000
Totals $412,640 $412,640
Supplies on hand at December 31, are $ 1,000.
Supplies Expense 3,000
Supplies on hand 3,000
Rent expense for the year is $ 10,000.
Rent Expense 10,000
Prepaid Rent 10,000
Advertising expense for the year is $ 2,304.
Advertising Expense 2,304
Prepaid Advertising 2,304
Insurance expense for the year is $ 2,400.
Insurance Expense 2,400
Prepaid Insurance 2,400
Depreciation expense is office equipment, $ 912, and office
furniture, $ 3,000.
Depreciation Expense - Office Equipment 912
Accumulated Depreciation - Office Equipment 912

Depreciation Expense - Office Furniture 3,000

Accumulated Depreciation - Office Equipment 3,000
Accrued interest on notes payable is $ 150.
Interest Expense 150
Interest Payable 150
Accrued salaries are $ 4,200.
Salaries Expense 4,200
Salaries Payable 4,200
2. Prepare an adjusted trial balance.
ROSWELL INTERIOR DECORATORS, INC
 Adjusted Trial Balance
2010 December 31

ACCOUNT TITLE DEBIT CREDIT

Cash $ 85,400
Accounts Receivable 81,600
Supplies on Hand 1,000
Prepaid Rent 2,240
Prepaid Advertising 576
Prepaid Insurance 2,000
Equipment 7,600
Accumulated Depreciation—Equipment $3,672
Office Furniture 29,200
Accumulated Depreciation—Office Furniture 11,280
Accounts Payable 25,200
Notes Payable (due next year) 4,000
Salaries Payable 2,625
Interest Payable 150
Capital Stock 100,000
Retained Earnings, 2010 January 1 22,400
Dividends 45,520
Service Revenue 250,000
Salaries Expense 98,800
Utilities Expense 20,000
Miscellaneous Expense 24,000
Totals $412,640 $412,640
3. Prepare an income statement.
ROSWELL INTERIOR DECORATORS, INC
Income Statement
2010 December 31

Service Revenue $ 250,000

Less: Operating Expenses
Salaries Expense 98,800
Utilities Expense 20,000
Miscellaneous Expense 24,000 142,800
Net Income $107,200
4. Prepare a statement of retained earnings.
ROSWELL INTERIOR DECORATORS, INC
Statement of Retained Earnings
2010 December 31

Retained Earnings, January 1 $ 22,400

Add: Net Income 107,200
Subtotal 129,600
Less: Dividends (45,520)
Retained Earnings, December 31 84,080
5. Prepare a classified balance sheet.
ROSWELL INTERIOR DECORATORS, INC
 Balance Sheet
2010 December 31

6. Prepare closing entries.

ASSETS
Current Asset
Cash $ 85,400
Accounts Receivable 81,600
Supplies on Hand 1,000
Prepaid Rent 2,240
Prepaid Advertising 576
Prepaid Insurance 2,000
Total Current Asset 172,816

Non Current Asset

Equipment 7,600
Accumulated Depreciation—Equipment (3,672)
Office Furniture 29,200
Accumulated Depreciation—Office Furniture (11,280)
Total Non Current Asset 21,848
Total Assets $ 194,664

LIABILITIES
Current Liabilities
Accounts Payable 25,200
Notes Payable (due next year) 4,000
Salaries Payable 2,625
Interest Payable 150
Total Liabilities 31,975

OWNERS’ EQUITY
Retained Earnings 84,080
Capital Stock 100,000
Total Owner’s Equity 184,080

Total Liabilities & Owners’ Equity $ 216,055

7. Prepare a post-closing trial balance.

Alternate Problem H Jupiter Publishing Company began operations on

2010 December 1. The company’s bookkeeper intended to use the cash
basis of accounting. Consequently, the bookkeeper recorded all cash
receipts and disbursements for items relating to operations in
revenue and expense accounts. No adjusting entries were made prior to
preparing the financial statements for December.
1. Prepare journal entries for the transactions as the bookkeeper
prepared them.
Dec. 1 Issued capital stock for $ 300,000 cash.
Cash 300,000
Capital Stock 300,000
3 Received $ 144,000 for magazine subscriptions to run for two years
from this date. The magazine is published monthly on the 23rd.
Magazine Subscriptions Expense 144,000
Cash 144,000
4 Paid for advertising to be run in a national periodical for six
months (starting this month). The cost was $ 36,000.
Advertising Expense 36,000
Cash 36,000
7 Purchased for cash an insurance policy to cover a two-year period
beginning December 15, $ 24,000.
Insurance Expense 24,000
Cash 24,000
12 Paid the annual rent on the building, $ 36,000, effective through
2011 November 30.
Rent Expense 36,000
Cash 36,000
15 Received $ 216,000 cash for two-year subscriptions starting with
the December issue.
Cash 216,000
Subscription Revenue 216,000
15 Salaries for the period December 1–15 amounted to $ 48,000.
Beginning as of this date, salaries will be paid on the 5th and 20th
of each month for the preceding two-week period.
Salaries Expense 48,000
Salaries Payable 48,000
20 Salaries for the period December 1–15 were paid.
Salaries Payable 48,000
Cash 48,000
23 Supplies purchased for cash, $ 21,600. (Only $ 1,800 of these were
subsequently used in 2010.)
Supplies Expense 21,600
Cash 21,600
27 Printing costs applicable equally to the next six issues beginning
with the December issue were paid in cash, $ 144,000.

31 Cash sales of the December issue, $ 84,000.

Cash 84,000
Revenue 84,000
31 Unpaid salaries for the period December 16–31 amounted to $
22,000.
Salaries Expense 22,000
Salaries Payable 22,000
31 Sales on account of December issue, $ 14,000.
Accounts Receivable 14,000
Unearned Revenue 14,000
2. Prepare journal entries as they would have been prepared under the
accrual basis. Where the entry is the same as under the cash basis,
merely indicate “same”. Where possible, record the original
transaction so that no adjusting entry would be necessary at the end
of the month. Ignore explanations.

Business decision case A Heather and Dan Holt met while both were
employed in the interior trim and upholstery department of an auto
manufacturer. After their marriage, they decided to earn some extra
income by doing small jobs involving canvas, vinyl, and upholstered
products. Their work was considered excellent, and at the urging of
their customers, they decided to go into business for themselves,
operating out of the basement of the house they owned. To do this,
they invested $ 120,000 cash in their business. They spent $ 10,500
for a sewing machine (expected life, 10 years) and $ 12,000 for other
miscellaneous tools and equipment (expected life, 5 years). They
undertook only custom work, with the customers purchasing the
required materials, to avoid stocking any inventory other than
supplies. Generally, they required an advance deposit on all jobs The
business seemed successful from the start, as the Holts received
orders from many customers. But they felt something was wrong. They
worked hard and charged competitive prices. Yet there seemed to be
barely enough cash available from the business to cover immediate
personal needs. Summarized, the checkbook of the business for 2010,
their second year of operations, showed:
Balance, 2010 January 1 $ 99,200
Cash received from customers:
For work done in 2019 $ 36,000
For work done in 2010 200,000
For work to be done in 2011 48,000 284,000
$ 383,200

Cash paid out:

Two year insurance policy dated 2010 January $19,200
1
Utilities 48,000
Supplies 104,000
Other Expenses 72,000
Taxes, including sales tax 26,400
Dividends 40,000 309,600
$ 73,600

Considering how much they worked, the Holts were concerned that the
cash balance decreased by $ 25,600 even though they only received
dividends of $ 40,000. Their combined income from the auto
manufacturer had been $ 45,000. They were seriously considering
giving up their business and going back to work for the auto
manufacturer. They turned to you for advice. You discovered the
following:

Of the supplies purchased in 2010, $ 24,000 were used on jobs billed

to customers in 2010; no supplies were used for any other work.
Supplies Expense 24,000
Supplies on Hand 24,000
Work completed in 2010 and billed to customers for which cash had not
yet been received by year-end amounted to $ 40,000.
Accounts Receivable 40,000
Service Revenue 40,000

Prepare a written report for the Holts, responding to their belief

that their business is not sufficiently profitable. (Hint: Prepare an
income statement for 2010 and include it in your report.)

The Holts
Income Statement

Service Revenue $ 200,000

Less: Operating Expenses
Insurance Expense 9,600
Utilities Expense 48,000
Supplies Expense 24,000 81,600
Subtotal 118,400
Less: Other Expenses (72,000)
Net Income before tax 46,400
Taxes (including sales tax) (26,400)
Net Income after tax $ 20,000