Birendra Mahato

Adjusting entries and Worksheet

1. The trial balance of Northern Airlines at January 31 is shown. It was prepared after posting the
recurring the transactions for the month of January, but it does not reflect any month-end
adjustments.
Northern Airlines
Unadjusted Trial Balance
January 31
Details Debit (Rs.) Credit(Rs.)
Cash 75,000
Parts Inventory 45,000
Land 80,000
Buildings- Hangars 250,000
Accumulated Depreciation- Hangars 24,000
Equipment-Aircraft 650,000
Accumulated Depreciation-Aircraft 120,000
Tickets sold in advance 85,000
Capital Stock 500,000
Retained Earnings 368,000
Ticket Revenue 52,000
Maintenance Expenses 19,000
Wages and Salary Expenses 30,000
Total 1149,000 1149,000

The following additional information is available:

a. Airplane parts needed for repairs and maintenance are purchased regularly, and the amounts
paid are added to the asset account Parts Inventory. At the end of each month, the inventory is
counted. At the end of January, the amount of parts on hand is Rs. 36,100.
b. The estimated useful life of Hanger is 20 years with an estimated salvage value of Rs.10, 000 at
the end of useful life. The original cost of hanger was Rs. 250,000.
c. The estimated useful life of the aircraft is ten years with estimated salvage value of Rs. 50,000.
The original cost of the aircraft was Rs. 650,000.
d. As tickets are sold in advance, the amounts are added to the cash and to the liability account
Tickets Sold in advance. A count of the redeemed tickets reveals that Rs.47, 000 worth of tickets
were used during January.
e. Wages and salaries owed but unpaid to employees at the end of January total Rs.7, 600.
f. Northern rents excess hanger space to other companies. The amount owed but unpaid to
Northern at the end of January is Rs. 2,500.
g. Assume a corporate income tax rate of 34%.
Required:
a. Necessary adjusting entries
b. Ten column worksheet
c. Closing entries

2. Four Stars Video has been in the video rental business for five years. Unadjusted trial balance at
May 31 2010 as follows.
 Details Debits(Rs.) Credits(Rs.)
Cash 4,000
Prepaid Rent 6,600
Video Inventory 25,600
Display Stands 8,900
Accumulated Depreciation 5,180
Accounts Payable 3,260
Customer Subscriptions 4,450
Capital Stock 5,000
Retained Earnings 22,170
Rental Revenue 9,200
Wages and Salary Expenses 2,320
Utilities Expenses 1,240
Advertising Expenses 600
Totals 49,260 49,260
The following additional information is available:
a. Four star rent a store in shopping mall and prepays the annual rent of Rs. 7,200 on April 1 of each
year. 7200/12 =600
Rent expenses 600
Prepaid rent 600
b. The assets account Video Inventory represents the cost of video purchased from supplies. When
new title is purchased from a supplier, its cost is debited to this account. When a title has served
its useful life and can no longer be rented, it is removed from the Inventory in the store. Based on
the monthly count, the cost of titles on hand at the end of May is Rs. 23,140.
Video inventory expenses 2,460
Video inventory 2,460
c. The display stands have an estimated useful life of five years and an estimated salvage value of
Rs. 500.
Depreciation expenses 140
Accumulated depreciation 140
Dep. Expenses =
= = Rs.1,680
Monthly = 1680/12= 140
d. Wages and Salaries owed but unpaid to employees at the end of May amount to Rs. 1,450.
Wages and salary expenses 1,450
Wages and salary payable 1,450
e. In addition to individual rentals, Four Star operates a popular discount subscription program.
Customers pay an annual fee of Rs.120 for an unlimited numbers of rentals. Based on the Rs.10
per month earned on each of these subscriptions, the amount earned for the month of May is Rs.
2,440.
Customer subscription 2,440
Rental revenue 2,440
f. Four Star accrues income taxes using an estimated tax rate equal to 30% of the income for the
month.
Tax expenses ?
Tax payable ?
Required:
a. Necessary adjusting entries
b. Ten column worksheet
c. Closing entries

3. Bobs Reynolds operates a real estate business. A trial balance on April 30, 2010, before any
adjusting entries are recorded, appears as follows:
Reynolds Realty Company
Unadjusted Trial Balance
April 30, 2010

Details Debits(Rs.) Credit(Rs.)

Cash 15,700
Prepaid Insurance 450
Office Supplies 250
Office Equipment 50,000
Accumulated Depreciation- Office equipment 5,000
Automobile 12,000
Accumulated Depreciation-Automobile 1,400
Accounts Payable 6,500
Unearned Commission 9,500
Notes Payable 2,000
Capital Stock 10,000
Retained Earnings 40,000
Dividends 2,500
Commission Earned 17,650
Utilities Expenses 2,300
Salaries Expenses 7,400
Advertising Expenses 1,450
Totals 92,050 92,050
Other Data
a. Monthly insurance cost is Rs.50
b. Office Supplies on hand on April 30,2010, amount to Rs.180
c. The office equipment was purchased on April 1, 2009. On that date, it had an estimated useful life
of ten years.
d. On September 1, 2009, the automobile was purchased; it had an estimated useful life of five years.
e. A deposit is received in advance of providing any service for first time customers. Amounts
received in advance are recorded initially in the account Unearned Commission. Based on
services provided to these first time customers, the balance in this account at the end of April
should be Rs. 1500
f. Repeated customers are allowed to pay for services one month after the date of sale of their
property. Services rendered during the month but not yet collected or billed to these customers
amount to Rs.1500
g. Interest owed on the note Payable but not yet paid amounts to Rs. 20
h. Salaries owed but unpaid to employees at the end of month amount to Rs.2500
Required:
a. Necessary adjusting entries
b. Ten column worksheet
c. Closing entries

4. The following unadjusted trial balance is available for Ace Consulting Inc. on June 30,2010
Ace Consulting Inc
Unadjusted Trial balance
June 30, 2010
Details Debit(Rs) Credit(Rs.)
Cash 6,320
Accounts Receivable 14,600
Supplies on Hand 800
 Prepaid Rent 4,800
Furniture and Fixtures 18,000
Accumulated Depreciation 5,625
Accounts Payable 5,200
Capital Stock 10,000
Retained Earnings 17,955
Consulting Revenue 12,340
Utilities Expenses 4,100
Wages and Salary Expenses 2,500
Totals 51,120 51,120
Other Data
a. Wages and Salaries earned by employees at the end of June but not yet paid amount to Rs.
2,380
Wages and salary expenses 2,380
Wages and salary payable 2,380
b. Supplies on hand at the end of June amount to Rs.550
Supplies expenses 250
Supplies on hand 250
c. Depreciation of Furniture and fixture for June is Rs. 375
Depreciation 375
Acc. Depreciation 375
d. Ace prepays the rent on its office building space on June 1 of each year. The rent amounts to
Rs. 400 per month
Rent expenses 400
Prepaid rent 400
e. Consulting services rendered and billed for which cash has not yet been received amount to
Rs.4,600
Accounts receivable 4,600
Service revenue 4,600
Required:
a. Necessary adjusting entries
b. Ten column worksheet
c. Closing entries

5. Lewis and Associates has been in the termite inspection and treatment business for five years. An
unadjusted trial balance at June 30, 2010, follows.
Lewis and Associates
Unadjusted Trial balance
June 30, 2010
Details Debit (Rs.) Credit(Rs.)
Cash 6,200
Account Receivable 10,400
Prepaid Rent 4,400
Chemical Inventory 9,400
 Equipment 18,200
Accumulated Depreciation 1,050
Account Payable 1,180
Capital Stock 5,000
Retained Earnings 25,370
Treatment Revenue 40,600
Wages and Salary Expenses 22,500
Utilities expenses 1,240
Advertising expenses 860
Totals 73,200 73,200
The following additional information is available:
a. Lewis rents a warehouse with office space and prepays the annual rent of Rs.4,800 on May 1
of each year
b. The asset account Equipment represents the cost of treatment equipment, which has an
estimated useful life of ten years and an estimated salvage value of Rs.200
c. Chemical inventory on hand equals Rs.,1300
d. Wages and salaries owed but unpaid to employees at the end of the month amount to Rs.
1,080
e. Lewis accrues income taxes using an estimated tax rate equal to 30% of the income for the
month
Required:
a. Necessary adjusting entries
b. Ten column worksheet
c. Closing entries

6. The following unadjusted trial balance is available for Tenfour Trucking Company on January 31,
2010
Tenfour Trucking Company
Unadjusted trial balance
January 31, 2010
Details Debit(Rs.) Credit(Rs.)
Cash 27,340
Account Receivable 41,500
Prepaid Insurance 18,000
Warehouse 40,000
Accumulated Depreciation-Warehouse 21,600
Truck Fleet 240,000
Accumulated Depreciation-Truck Fleet 112,500
Land 20,000
Account Payable 32,880
Notes Payable 50,000
Interest Payable 4,500
Customer Deposits 6,000
Capital Stock 100,000
Retained Earnings 40,470
Fright Revenue 165,670
Gas and oil expenses 57,330
Maintenance Expenses 26,400
Wages and Salary Expenses 43,050
Dividend 20,000

Totals 533,620 533,620

Required:
1. Enter the unadjusted trial balance in the first two columns of a ten-column work sheet
2. Enter the necessary adjustments in the appropriate columns of the work sheet for each of the
following:
a. Prepaid insurance represents the cost of a 24-month policy purchased on January 1, 2010
b. The warehouse has an estimated useful life of 20 years and an estimated salvage value of
Rs. 4000
c. The Truck Fleet has an estimated useful life of six years and an estimated salvage value
of Rs.15,000
d. The promissory note was signed on January 1, 2009. Interest at annual rate of 9% and
principal of Rs.50,000 are due on December 31, 2010
e. The customer deposits represent amounts paid in advance by new customers. A total of
Rs. 4500 of the balance in customer Deposits was earned during January 2010
f. Wages and Salaries earned by employees at the end of January but not yet paid amount
to Rs. 8200
g. Income taxes are accrued at a rate of 30% at the end of each month.
3. Complete the remaining column of the work sheet
4. Prepare in good form the following financial statements:
a. Income statement for the month ended January 31,2010
b. Statement of retained earnings for month ended January 31, 2010
c. Balance sheet at January 31,2010
7. The unadjusted trial balance for Forever Green Landscaping on August 31, 2010, follows.
Forever Green Landscaping
Unadjusted Trial balance
August 31, 2010
Details Debits(Rs.) Credit(Rs.)
Cash 6,460
Account Receivable 23,400
Supplies on Hand 1,260
Prepaid Insurance 3,675
Equipment 28,800
Accumulated Depreciation –equipment 9,200
Buildings 72,000
Accumulated Depreciation-Buildings 16,800
Accounts Payable 10,500
Notes Payable 10,000
Capital Stock 40,000
Retained Earnings 42,100
Service Revenue 14,200
Advertising Expenses 1,200
Gasoline and Oil Expenses 1,775
Wages and Salary Expenses 4,230
Totals 142,800 142,800
Required:
1. Enter the unadjusted trial balance in the first two columns of a ten-column work sheet
2. Enter the necessary adjustments in the appropriate columns of the work sheet for each of the
following:
a. A count of office supplies on hand at the end of August reveals a balance of Rs.730
b. The company paid Rs.4200 in cash on May 1,2010, for a two years insurance policy
c. The equipment has a four-year estimated useful life and no salvage value
d. The buildings have an estimated useful life of 30 years and no salvage value
e. The company leases space in its buildings to another company. The agreement requires the
tenant to pay Forever Green Rs.700 on the 10th of each month for the previous month’s rent
f. Wages and salaries earned by employees at the end of August but not yet paid amount to
Rs.3320
g. The company signed a six month promissory note on August 1, 2010. Interest at an annual
rate of 12% and principal amount of Rs.10,000 are due on February 1, 2011
3. Complete the remaining columns of the worksheet.
4. Assume that Forever Green closes its book at the end of each month before preparing financial
statements. Prepare the necessary closing entries at August 31,2010

8. Moonlight Bay Inn is incorporated on January 2, 2010, by its three owners, each of whom
contributes Rs. 20,000 in cash in exchange for shares of stock in the business. In addition to the
sale of stock, the following transaction are entered into during the month of January

January 2: A Victorian inn is purchased for Rs. 50,000 in cash. An appraisal performed on
the date indicates that the land is worth is Rs. 15,000 and the remaining balance
of the purchase price is attributable to the house. The owners estimate that the
house will have an estimated useful life of 25 years and an estimated salvage
value of Rs. 5000
January 3: A two year, 12% Rs.30, 000 promissory note was signed at second state Bank.
Interest and Principal will be repaid on the maturity date of January 3, 2012
January 4: New Furniture for the inn is purchased at a cost of Rs.15, 000 in cash. The
Furniture has an estimated useful life of ten years and no salvage value.
January 5: A 24-month property insurance policy is purchased at a cost of Rs. 15,000 in cash.
January 6: An advertisement for the inn is placed in the local newspaper. Moonlight Bay
pays Rs. 450 cash for ad, which will run in the paper throughout January.
January 7: Cleaning supplies are purchased on account for Rs. 950. The bill is payable
within 30 days.
January 15: Wages of Rs.4230 for the first half of the month are paid in cash.
January 16: A guest mails the business Rs.980 in cash as a deposit for a room to be rented for
two weeks. The guest plans to stay at the inn during the last week of January and
the first week of February.
January 31: Cash receipts from rentals of rooms for the month amount to Rs.8300.
January 31: Cash receipts from operation of the restaurant for the month amount to Rs.6600
January 31: Each stockholder is paid Rs 200 in cash dividends.
Required:
1. Prepare journal entries to record each of the preceding transaction.
2. Post each of the journal entries to T accounts.
3. Place the balance in each of the T accounts in the unadjusted trial balance columns of a ten –
column worksheet.
4. Enter the appropriate adjustments in the next two columns of the worksheet for each of the
following:
a. Depreciation of the house
b. Depreciation of the furniture
c. Interest on the promissory note
 d. Recognition of the expired portion of the insurance
e. Recognition of the earned portion of the guest’s deposit
f. Wages earned during the second half of January amount to Rs. 5120 and will be paid on
February 3.
g. Cleaning supplies on hand on January 31 amount to Rs. 230
h. A gas and electricity bill that is received from the city amounts to Rs.740 and is payable
by February 5.
i. Income taxes are to be accrued at a rate 30% of income before taxes.
5. Complete the remaining columns of the worksheet.
6. Prepare in good form the following financial statements:
a. Income statement for the month ended January 31, 2010
b. Statement of retained earnings for the month of January 31, 2010
c. Balance sheet at January 31,2010
7. Assume that you are loan officer at Second State Bank. (Refer to the transaction on January 3)
What are your reactions to Moonlight’s first month of operations? Are you comfortable with
the loan you made? Explain your answer.

Summary of adjusting entry

Cash paid before expense is incurred Cash received before revenue is earned
1 Rent expenses 1 Unearned revenue
Prepaid rent Service revenue
(To record rent expenses) (To record revenue earned)
2 Insurance expenses 2 Customer deposit
Prepaid insurance Service revenue
(To record insurance expenses) (To record revenue earned)
3 Depreciation expenses 3 Ticket sold in advance
Acc. Depreciation Ticket revenue
(To record depreciation expenses) (To record revenue earned)
4 Supplies expenses 4 Cash received in advance
Office supplies Service revenue
(To record supplies expenses) (To record revenue earned )
5 Repairs and maintenances 5 Subscription received in advance
Parts inventory Service revenue
(To record R and M expenses) ( To record revenue earned)
Expenses incurred before cash is paid Revenue earned before cash is received
1 Salary expenses 1 Accounts receivable
Salary payable Service revenue
(To record salary expenses) (To record revenue earned)
2 Tax expenses 2 Interest receivable
Tax payable Interest revenue
(To record tax expenses) (To record interest earned)
3 Interest expenses 3 Rent receivable
Interest payable Rent revenue
(To record interest expenses) (To record rent earned)
4 Rent expenses
Rent payable
(To record rent expenses)
5 Commission expenses
Commission payable
(To record commission expenses)

Office Supplies
Somerville Corp. purchases office supplies once a month and prepares monthly financial statements. The
asset account office supplies on hand have a balance of Rs. 1,450 on May 1. Purchase of supplies during
May amount to Rs. 1,100. Supplies on hand at May 31 amount to Rs. 920. Prepare the necessary journal
entry on Somerville‘s books on May 31. What will be the effect on net income for May if this is not
recorded?
Solution:
Beginning balance of office supplies 1,450
Add: Purchase of office supplies 1,100
Total office supplies 2,550
Less: Ending balance of supplies 920
Office supplies used /expenses 1,630

Adjusting entry
Date Particulars Debit Credit
May 31 Supplies expenses 1,630
Office supplies 1,630
(To record supplies expenses)
Net income overstated by Rs. 1,630.

Prepaid Rent
On September 1, Northampton Industries signed a six month lease for office space, which is effective
September 1. Northampton agreed to prepay the rent and mailed a check for Rs. 12,000 to the landlord on
September 1. Assume that Northampton prepares adjusting entries only four times a year: on March 31,
June 30, September 30, and December 31.
Required:
a. Compute the rental cost for each full month.
b. Prepare the journal entry to record the payment of rent on September 1.
c. Prepare the adjusting entry on September 30.
d. Assume that the accountant prepares the adjusting entry on September 30 but forget to record an
adjusting entry on December 31. Will net income for the year be understated of overstated? By
what amount?
Solution:
a. Monthly rent cost = = Rs. 2,000
b. Journal entry
Date Particulars Debit Credit
September 1 Prepaid rent 12,000
Cash 12,000
(To record rent paid in advance)

c. Adjusting entry:
Date Particulars Debit Credit
September 30 Rent expenses 2,000
Prepaid rent 2,000
(To record rent expenses)
d. If accountant forgets to make adjusting entry at the end of December, net income will be
overstated by Rs. 6,000.

Depreciation
On July 1, 2010, Dexter Corp. buy a computer system for Rs. 260,000 in cash. Assume that the computer is
expected to have a four –year life and estimated salvage value of Rs. 20,000 at the end of that time.
Required:
a. Prepare the journal entry to record the purchase of the computer on July 1,2010
b. Compute the depreciable cost of the computer.
c. Using the straight-line method, compute the monthly depreciation
d. Prepare the adjusting entry to record depreciation at the end of July 2010
e. Compute the computer’s carrying value that will be shown on Dexter’s balance sheet prepared
on December 31,2010
Solution:
a. July 1, 2010
 Computer system 260,000
Cash 260,000
(To record purchase of computer system)
b. Depreciable cost = Acquisition cost – Salvage value
Depreciable cost = 260,000 – 20,000 = Rs. 240,000
c. Using straight line method
Depreciation expenses =
= = Rs. 60,000
Monthly depreciation = 60,000/12 = Rs. 5,000
d. July 31, 2010
Depreciation expenses 5,000
Acc. Depreciation 5,000
(To record depreciation expenses)
e. Balance sheet presentation
December 31, 2010
Plant, property and equipment
Computer system 260,000
Less: Acc. Depreciation (6 × 5,000) 30,000
Carrying value 230,000

Prepaid Insurance
On April 1, 2010, Briggs Crops, Purchased a 24-month property insurance policy for Rs. 72,000. The
policy is effective immediately. Assume that Briggs prepares adjusting entries once a year, on December
31.
a. Compute the monthly cost of the insurance policy.
b. Prepare the journal entry to record the purchase of the policy on April 1,2010
c. Prepare the adjusting entry on December 31,2010
d. Assume that the accountant forgets to record an adjusting entry on December 31, 2010. Will net
income for the year December 31, 2010, be understated or overstated? Explain your answer.
Solution:
a. Monthly cost = Rs. 72,000/ 24 = Rs. 3,000
b. April 1, 2010
Prepaid insurance 72,000
Cash 72,000
(To record insurance paid in advance)
c. December 31, 2010
Insurance expenses 27,000
Prepaid insurance 27,000
(To record insurance expense)
d. If accountant forgets to make adjusting entry at the end of December, net income will be
overstated by Rs. 27,000.

Subscriptions
Horse Company living publishes a monthly magazine for which a 12-month subscription costs Rs. 30. All
subscriptions require payment of the full Rs. 30 in advance. On August 1, 2010, the balance in the
subscriptions received in advance account was Rs. 40,500. During the month of August, the company sold
900 yearly subscriptions. After the adjusting entry at the end of August, the balance in the subscriptions
received in advance account is Rs. 60,000.
Required:
a. Prepare the journal entry to record the sale of the 900 yearly subscriptions during the month of
August.
b. Prepare the adjusting journal entry on August 31.
c. Assume that the accountant made correct entry during August to record the sale of the 900
subscriptions but forget to make the adjusting entry on August 31. Would net income for August
be overstated or understated? Explain your answer.
Solution:
Beg balance, August 1, 2010 40,500
Add: Advance on sales ( 900 × 30) 27,000
Total advance sales 67,500
Less: ending advance on sales 60,000
Service provided 7,500
a. August
Cash (900 × 30) 27,000
Subscription received in advance 27,000
(To record cash received in advance)
b. August 31, 2010
Subscription received in advance 7,500
Service revenue 7,500
(To record revenue earned)
c. If accountant forgets to make adjusting entry at the end of August, net income will be understated by
Rs. 7,500.

Customer Deposits
Wolfe and Wolfe collected Rs. 9,000 from the customer on April 1 and agreed to provide legal services
during the next three months. Wolfe and Wolfe expect to provide an equal amount of services each
month.
Required:
a. Prepare the journal entry for the receipt of the customer deposit on April 1.
b. Prepare the adjusting entry on April 30.
c. What will be the effect on net income for April if the entry in (b) is not recorded?
Solution:
a. April 1
Cash 9,000
Customer deposit 9,000
(To record cash received in advance)
b. April 30, ( Adjusting entry)
Customer deposit 3,000
Service revenue 3,000
(To record revenue earned)
c. Net income will be understated by Rs. 3,000

Concert Tickets Sold in Advance

Rock and Roll produces an outdoor concert festival that runs from June 28, 2010, through July 1, 2010.
Concertgoers pay Rs. 80 for four days pass to festival, and all 10,000 tickets are sold out by the May 1,
2010, deadline to buy tickets. Assume that Rock N Roll prepares adjusting entries at the end of each
month.
Required:
a. Prepare Journal entry on May 1, 2010 assuming that all 10,000 tickets are sold on this date.
b. Prepare the adjusting entry on June 30,2010
c. Prepare the adjusting entry on July 31,2010
Solution:
a. May 1, 2010
Cash (80 × 10,000 ) 800,000
Ticket sold in advance 800,000
(To record ticket sold in advance)
b. June 30, 2010
Ticket sold in advance 600,000
Service revenue 600,000
(To record revenue earned)
c. July 31, 2010
Ticket sold in advance 200,000
 Service revenue 200,000
(To record revenue earned)

Wages Payable
Denton Corporation employs 50 workers in its plant. Each employee is paid Rs. 10 per hour and works
seven hours per day, Monday through Friday. Employees are paid every Friday. The last pay date was
Friday, October 20.
Required:
a. Compute the Rs amount of the weekly payroll.
b. Prepare journal entry on Friday, October 27, for the payment of weekly payroll.
c. Denton prepares monthly financial statements. Prepare the adjusting journal entry on Tuesday,
October 31, last day of the month.
d. Prepare journal entry on Friday, November 3, for the payment of the weekly payroll.
e. Will net income for the month of October be understated or overstated if Denton doesn’t bother
with an adjusting entry on October 31? Explain your answer.

Interest Payable
Billings Company takes out a 12%, 90-day, Rs.10, 000 loan with First National Bank on March 1, 2010
Required:
a. Prepare journal entry on March 1,2010
b. Prepare the adjusting entries for the month of March and April 2010
c. Prepare the entry on May 30, 2010, when Billings repays the principal and interest to First
National Bank.

Interest Payable
Glendive takes out a 12%, 90 day, Rs. 100,000 loan with Second State bank on March 1, 2010.Assume that
Glendive prepares adjusting entries only four times a year: March 31, June 30, September 30 and
December s 31.
Required:
a. Prepare journal entry on March 1,2010
b. Prepare the adjusting entry on March 31,2010
c. Prepare the entry on May 30, 2010, when Glendive repays the principal and interest to Second
State bank.
Property Taxes Payable
Lexington Builders owns property in Kaneland County. Lexington’s 2009 property taxes amounted to
Rs.50,000, kaneland County will send out the 2010 property tax bills to property owners during April
2011. Taxes must be paid by June 1, 2011. Assume that Lexington prepares adjusting entries only once a
year, on December 31, and those property taxes for 2010 are expected to increase by 5% over those for
2009
Required:
a. Prepare the adjusting entry required to record the property taxes on December 31,2010
b. Prepare the journal entry to record the payment of the 2010 property taxes on June 1, 2011

Interest Receivable
On June 1, 2010, Micro Tel Enterprises lends Rs.60, 000 to Maxi Driver Inc. The loan will be repaid in 60
days with interest at 10%.
Required:
a. Prepare the journal entry on Micro Tel’s books on June 1 , 2010
b. Prepare the adjusting entry on Micro Tel’s books on June 30, 2010
c. Prepare the entry on Micro Tel’s books July 31, 2010, when Maxi driver repays the principal and
interest.

Rent Receivable
Hudson Corp. has extra space in its warehouse and agrees to rent it out to Stillwater Company at the rate
of Rs. 2, 000 per month. The space was made available to Stillwater beginning on September 1, 2010.
Under the terms of the agreement, Stillwater pays the month’s rent on the fifth day after the end of the
month. Assume that Hudson prepares adjusting entries at the end of each month.
Required:
 a. How much revenue should Huston record in September? How much revenue should Hudson
recorded in October?
b. Prepare the necessary entries on Hudson’s books during the month of October
Solution:
a. Revenue recognized of Rs. 2,000 for the month of September and same amount in October.
September 30, 2010
Rent receivable (Stillwater) 2,000
Rent revenue 2,000
(To record rent earned)

b. Necessary entry in the month of October

October 5, 2010
Cash 2,000
Rent receivable 2,000
(To record cash collection from rent)
October 31, 2010 (adjusting entry)
Rent receivable 2,000
Rent revenue 2,000
(To record rent earned)

Adjustment only
Ogonquit Enterprises prepares annual financial statement and adjusts it accounts only at the end of year.
The following information is available for the year ended December 31, 2010
a. Ogonquit purchased office furniture last year for Rs.25, 000. The furniture has an estimated
useful life of seven years and estimated salvage value Rs.4,000
Depreciation expenses 3,000
Acc. Depreciation 3,000
(To record depreciation expenses)
b. The supplies account had balance of Rs.1, 200 on January 1, 2010. During 2010, Ogonquit
Enterprises added Rs. 12,900 to the account purchase of supplies during the year. A count of
office supplies on hand at the end of December 2010 indicates a balance of Rs.900
Supplies expenses 13,200
Office supplies 13,200
(Used = 1200 + 12900 – 900 = 13,200)

c. On July 1, 2010, Ogonquit created a liability account, Customer deposits, for Rs.8, 800. This sum
represents an amount that customer paid in advance and that will be earned evenly by Ogonquit
over an eight-month period
Solution:
December 31, 2010
Customer deposits 6,600
Service revenue 6,600
(To record revenue earned)
d. Ogonquit rented some warehouse space on September 1, 2010, at a rate of Rs.4,000 per month. On
the date, Ogonquit debited prepaid rent for six month’s rent paid in advance.
Solution:
December 31, 2010
Rent expenses 16,000
Prepaid rent 16,000
(To record rent expenses)
e. Ogonquit took out a 90-days,6%,Rs. 30,000 note on November 1, 2010, with interest and principal
to be paid at maturity
Solution
December 31, 2010
Interest expenses 300
Interest payable 300
Interest = 30,000 × 6% × 2/12 = 300
 f. Ogonquit operates five days per week with an average weekly payroll of Rs. 4,150. Ogonquit
pays its employees every Thursday. December 31, 2010, is a Friday.
Solution
December 31, 2010
Salary and wages expenses 830
Salary and wages payable 830
(To record wages and salary expenses)
December 25, 2010 Saturday
December 26, 2010 Sunday
December 27, 2010 Monday
December 28, 2010 Tuesday
December 29, 2010 Wednesday
December 30, 2010 Thursday ( paid)
December 31, 2010 Friday

Required:
a. For each of preceding situations, prepare in general journal from the appropriate adjusting
entries to be recorded on 31December, 2010
b. Assume that Ogonquit’s accountant forgets to record the adjusting entries on December 31,
2010. Will net income for the year be understated or overstated? By what amount?

Depreciation expenses 3,000 Over

Supplies expenses 13,200 Over
Service revenue 6,600 Under
Rent expenses 16,000 Over
Interest expenses 300 Over
Salary and wages expenses 830 Over
Total over 33,330
Total under 6,600
Difference in over 26,730
Net income overstated by Rs. 26,730

Gross concept Net concept

December 31, 2010 December 31, 2010

Depreciation expenses 3,000 Depreciation expenses 3,000
Acc. Depreciation 3,000 Furniture 3,000

Balance sheet presentation Balance sheet presentation

Furniture 21,000 Furniture 21,000
Less: Acc. Depreciation 3,000 Less: Depreciation 3,000
Carrying value 18,000 Carrying value 18,000

December 31, 2011 December 31, 2011

Depreciation expenses 3,000 Depreciation expenses 3,000
 Acc. Depreciation 3,000 Furniture 3,000

Balance sheet presentation Balance sheet presentation 2011

Furniture 21,000 Furniture 18,000
Less: Acc. Depreciation 6,000 Less: Depreciation 3,000
Carrying value 15,000 Carrying value 15,000

Adjusting entries
Flood Relief Inc. prepares monthly financial statements and therefore adjusts its accounts at the end of
every month. The following information is available.
a. Flood received a Rs. 10,000, 4%, two year note receivable from a customer for services rendered.
The principal and interest are due on June 1, 2012. Flood expects to be able to collect the note and
interest in full at that time.
Interest receivable 33.33
Interest revenue 33.33
(To record interest earned)
Interest = 10,000 × 0.04 × 1/12 =33.33
b. Office supplies totaling Rs. 5600 were purchased during the month. The asset account supply is
debited whenever a purchase is made. A count in the storeroom on June 30, 2010, indicates that
supplies on hand amount to Rs.507. The supplies on hand at the beginning of the month total Rs.
475
Supplies expenses 5,568
Supplies on hand 5,568
(Used = 475 + 5600 -507 = 5568)
c. The company purchased a machine last year for Rs. 170,000. The machine are expected to be used
for four year and estimated salvage value Rs.2,000
Depreciation expenses 3,500
Acc. Depreciation 3,500
Depreciation = = 42,000
Monthly depreciation = 42,000 /12 = Rs. 3,500
d. On June 1, the company paid Rs. 4,650 for rent of June, July, and August. The asset prepaid rent
was debited; it did not have balance on June 1.
Rent expenses 1,550
Prepaid rent 1,550
(To record rent expenses)
e. The company operates seven days per week with a weekly payroll of Rs 7,000. Wages earners are
paid every Sunday. The last day of the month is Saturday, June 30.
Wages expenses 6,000
Wages payable 6,000
(To record wages expenses)

June 24 Sunday (paid)

June 25 Monday
June 26 Tuesday
June 27 Wednesday
June 28 Thursday
June 29 Friday
June 30 Saturday
July 1 Sunday ( Paid)
f. Based on its income for the month, Flood estimates that federal income taxes for June amount to
Rs.2,900
Tax expenses 2,900
Tax payable 2,900
( To record tax expenses)
Required: For each of the preceding situations, prepare in general journal from the appropriate
adjusting entry to be recorded on June 30, 2010.