BA 99.

1 EXERCISES: ADJUSTING THE ACCOUNTS

THEORY

1. Statement 1: An interim period refers to any period less than twelve months.
Statement 2: A fiscal year refers the twelve-month period from January 1 to December 31.
a. Only Statement 1 is true.
b. Only Statement 2 is true.
c. All statements are true.
d. All statements are false.

2. The following transactions will be recorded the same way under the accrual basis of accounting
and the cash basis of accounting except
a. Paid cash for the purchase of equipment.
b. Obtained a loan from the bank.
c. Paid cash to employees owed last month.
d. Collected cash for services rendered.

3. Failure to record an adjustment to accrued revenue will result in

a. Understated assets and understated equity.
b. Understated liabilities and overstated equity.
c. Overstated assets and overstated equity.
d. Overstated liabilities and understated equity.

4. What is the other half of an adjusting entry where Unearned Service Revenue is debited?
a. Accounts Receivable is credited.
b. Accounts Payable is credited.
c. Supplies Expense is credited.
d. Service Revenue is credited.

5. What type of adjusting entry is the entry below?

Supplies Expense (DR) XXX
Supplies (CR) XXX
a. Accrued Expense
b. Prepaid Expense
c. Unearned Revenue
d. Accrued Revenue

6. The alternative treatment is applicable to the following accounts except

a. Utilities Payable
b. Supplies
c. Prepaid Rent
d. Unearned Subscription Revenue

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BA 99.1 EXERCISES: ADJUSTING THE ACCOUNTS

PROBLEM SOLVING

For journal entries, omit explanations.

E3.3 modified (Weygandt et al., 2018)

Carillo Industries collected $108,000 (a) from customers in 2020. Of the amount collected, P25,000 (b)
was for services performed in 2019. In addition, Carillo performed services worth P36,000 (c) in 2020,
which will not be collected until 2021.

Carillo Industries also paid P72,000 (d) for expenses in 2020. Of the amount paid, $30,000 (e) was for
expenses incurred on account in 2019. In addition, Carillo incurred P42,000 (f) of expenses in 2020,
which will not be paid until 2021.

Required:
a. Compute 2020 cash-basis net income.
b. Compute 2020 accrual-basis net income.

E3.5 (Weygandt et al., 2018)

Devin Wolf Company has the following balances in selected accounts on December 31, 2020.

Accounts receivable $ 0
Accumulated Depreciation – Equipment 0
Equipment 7,000
Interest Payable 0
Notes Payable 10,000
Prepaid Insurance 2,100
Salaries and Wages Payable 0
Supplies 2,450
Unearned Service Revenue 32,000

All the accounts have normal balances. The information below has been gathered at December 31,
2020.

1. Devin Wolf Company borrowed $10,000 by signing a 9%, one-year note on September 1, 2020.
2. A count of supplies on December 31, 2020, indicates that supplies of $900 are on hand.
3. Depreciation on the equipment for 2020 is $1,000.
4. Devin Wolf Company paid $2,100 for 12 months of insurance coverage on June 1, 2020.
5. On December 1, 2020, Devin Wolf collected $32,000 for consulting services to be performed
from December 1, 2020, through March 31, 2021.
6. Devin Wolf performed consulting services for a client in December 2020. The client will be billed
$4,200.
7. Devin Wolf Company pays its employees total salaries of $9,000 every Monday for the preceding
5-day week (Monday through Friday). On Monday, December 29, employees were paid for the
week ending December 26. All employees worked the last 3 days of 2020.

Required: Prepare adjusting entries.

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BA 99.1 EXERCISES: ADJUSTING THE ACCOUNTS

E 3.10 (Weygandt et al., 2018)

The income statement of Lundeen Co. for the month of July shows net income of $1,400 based on
Service Revenue $5,500, Salaries and Wages Expense $2,300, Supplies Expense $1,200, and Utilities
Expense $600. In reviewing the statement, you discover the following.

1. Insurance expired during July of $500 was omitted.

2. Supplies expense includes $250 of supplies that are still on hand at July 31.
3. Depreciation on equipment of $150 was omitted.
4. Accrued but unpaid salaries and wages at July 31 of $400 were not included.
5. Services performed but unrecorded totaled $650.

Required: Prepare a correct income statement for the month ending July 31, 2020.

E3.17 (Weygandt et al., 2018)

The trial balances before and after adjustment for Renfro Company at the end of its fiscal year are
presented below.

Renfro Company
Trial Balance
August 31, 2020
Before Adjustment After Adjustment
DR. CR. Dr. Cr.
Cash $ 10,400 $ 10,400
Accounts Receivable 8,800 11,200
Supplies 2,300 700
Prepaid Insurance 4,000 2,500
Equipment 14,000 14,000
Accumulated Depreciation - Equipment $ 3,600 $ 4,500
Accounts Payable 5,800 5,800
Salaries and Wages Payable 0 1,100
Unearned Rent Revenue 1,500 400
Owner’s Capital 15,600 15,600
Service Revenue 34,000 36,400
Rent Revenue 11,000 12,100
Salaries and Wages Expense 17,000 18,100
Supplies Expense 0 1,600
Rent Expense 15,000 15,000
Insurance Expense 0 1,500
Depreciation Expense 0 _______ 900 _______
$ 71,500 $ 71,500 $ 75,990 $ 75,990

Required: Prepare the adjusting entries that were made.

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BA 99.1 EXERCISES: ADJUSTING THE ACCOUNTS

E3.19 modified (Weygandt et al., 2019)

The following data are taken from the comparative statements of financial position of Newman Billiards
Club, which prepares its financial statements using the accrual basis of accounting.

December 31 2020 2019

Accounts Receivable from members P 16,000 P 8,000
Unearned service revenue 17,000 25,000

Members are billed based upon their use of the club’s facilities. Unearned service revenues arise from
the sale of gift certificates, which members can apply to their future use of club facilities. The 2020
income statement for the club showed that service revenue P161,000 was earned during the year.

Instructions

(Hint: You will probably find it helpful to use T-accounts to analyze these data.)

a. Prepare journal entries for each of the following events that took place during 2020.
1. Accounts receivable from 2019 were all collected.
2. Gift certificates outstanding at the end of 2019 were all redeemed.
3. An additional P38,000 worth of gift certificates were sold during 2020. A portion of these
was used by the recipients during the year; the remainder was still outstanding at the end of
2020.
4. Services performed for members for 2020 were billed to members.
5. Accounts receivable for 2020 (i.e. those billed in item [4] above) were partially collected.
b. Determine the amount of cash received by the club, with respect to member services, during
2020.

E3.20 (Weygandt et al., 2018)

Bob Zeller Company has the following balances in selected accounts on December 31, 2020.

Service Revenue $ 40,000

Insurance Expense 2,400
Supplies Expense 2,450

All the accounts have normal balances. Bob Zeller Company debits prepayments to expense accounts
when paid, and credits unearned revenues to revenue accounts when received. The following
information below has been gathered at December 31, 2020.

1. Bob Zeller Company paid $2,400 for 12 months of insurance coverage on June 1, 2020.
2. On December 1, 2020, Bob Zeller Company collected $40,000 for consulting services to be
performed from December 1, 2020, through March 31, 2021.
3. A count of supplies on December 31, 2020, indicates that supplies of $600 are on hand.

Required: Prepare the adjusting entries needed at December 31, 2020.

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