Chapter 3 Exercises Adjusting Accounts and Preparing Statements

Chapter 3Exercises

Adjusting Accounts and Preparing Statements

• In-Class Exercises:

Exercise No. Page 3- 2 120 Adjusting Entries

• In-Class Exercises:

Exercise No. Page 3- 2 120 Adjusting Entries

Adjusting EntriesAdjusting EntriesAdjusting EntriesAdjusting Entries


For each of the following cases, prepare adjusting entries required for financial statements for the year ended December 31, 2011. (Assume that prepaid expenses are initially recorded in asset accounts and that fees collected in advance of work are initially recorded as liabilities.)

a. One-third of the work related to $30,000 cash, received in advance, is performed this period.

b. Wages of $9,000 are earned by workers but not paid as of December 31, 2011.

c. Depreciation on the company’s equipment for 2011 is $19,127.

d. The Office Supplies account had a $480 debit balance on December 31, 2010. During 2011, $5,349 of office supplies are purchased. A physical count of supplies at December 31, 2011, shows $587 of supplies available.

e. The Prepaid Insurance account had a $5,000 balance on December 31, 2010. An analysis of insurance policies shows that $2,200 of unexpired insurance benefits remain at December 31, 2011.

f. The company has earned (but not recorded) $750 of interest from investments in CDs for the year ended December 31, 2011. The interest revenue will be received on Jan. 10, 2012.

g. The company has a bank loan and has incurred (but not recorded) interest expense of $3,500 for the year ended December 31, 2011. The company must pay the interest on January 2, 2012.

For each of the following cases, prepare adjusting entries required for financial statements for the year ended December 31, 2011. (Assume that prepaid expenses are initially recorded in asset accounts and that fees collected in advance of work are initially recorded as liabilities.)

a. One-third of the work related to $30,000 cash, received in advance, is performed this period.

b. Wages of $9,000 are earned by workers but not paid as of December 31, 2011.

c. Depreciation on the company’s equipment for 2011 is $19,127.

d. The Office Supplies account had a $480 debit balance on December 31, 2010. During 2011, $5,349 of office supplies are purchased. A physical count of supplies at December 31, 2011, shows $587 of supplies available.

e. The Prepaid Insurance account had a $5,000 balance on December 31, 2010. An analysis of insurance policies shows that $2,200 of unexpired insurance benefits remain at December 31, 2011.

f. The company has earned (but not recorded) $750 of interest from investments in CDs for the year ended December 31, 2011. The interest revenue will be received on Jan. 10, 2012.

g. The company has a bank loan and has incurred (but not recorded) interest expense of $3,500 for the year ended December 31, 2011. The company must pay the interest on January 2, 2012.



Beginning balance………….$ 480Beginning balance………….$ 480Purchases……………………Purchases…………………… 5,349 5,349Total available…………….…$ 5,829Total available…………….…$ 5,829Less: Ending inventory……Less: Ending inventory…… (587 (587))Supplies consumed………...Supplies consumed………...$ 5,242$ 5,242

Beginning balance………….$ 480Beginning balance………….$ 480Purchases……………………Purchases…………………… 5,349 5,349Total available…………….…$ 5,829Total available…………….…$ 5,829Less: Ending inventory……Less: Ending inventory…… (587 (587))Supplies consumed………...Supplies consumed………...$ 5,242$ 5,242


Beginning balance……………...$ 5,000Beginning balance……………...$ 5,000Less: Unexpired insurance……Less: Unexpired insurance…… (2,200 (2,200))Insurance expired……………….Insurance expired……………….$ 2,800$ 2,800

Beginning balance……………...$ 5,000Beginning balance……………...$ 5,000Less: Unexpired insurance……Less: Unexpired insurance…… (2,200 (2,200))Insurance expired……………….Insurance expired……………….$ 2,800$ 2,800


• In-Class Exercise:

Exercise No. Page 3- 6 121 Adjusting & paying accrued wages

• In-Class Exercise:

Exercise No. Page 3- 6 121 Adjusting & paying accrued wages



Pablo Management has five part-time employees, each of whom earns $100 per day. They are normally paid on Fridays for work completed Monday through Friday of the same week. They were paid in full on Friday, December 28, 2011. The next week, the five employees worked only four days because New Year’s Day was an unpaid holiday.

(a) Prepare the adjusting entry that would be recorded on Monday, December 31, 2011.

(b) Prepare the journal entry that would be made to record payment of the employees’ wages on Friday, January 4, 2012

Pablo Management has five part-time employees, each of whom earns $100 per day. They are normally paid on Fridays for work completed Monday through Friday of the same week. They were paid in full on Friday, December 28, 2011. The next week, the five employees worked only four days because New Year’s Day was an unpaid holiday.

(a) Prepare the adjusting entry that would be recorded on Monday, December 31, 2011.

(b) Prepare the journal entry that would be made to record payment of the employees’ wages on Friday, January 4, 2012


5 workers x $100 x 1 day = $5005 workers x $100 x 1 day = $5005 workers x $100 x 1 day = $5005 workers x $100 x 1 day = $500


S M T W T F S . 23 24 25 26 27 28 29 30 31 1 2 3 4 5

End of yearEnd of year New Year’s HolidayNew Year’s Holiday

Last PaydayLast PaydayLast PaydayLast Payday


5 employees x $100 x 3 days = $1,5005 employees x $100 x 3 days = $1,5005 employees x $100 x 3 days = $1,5005 employees x $100 x 3 days = $1,500


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Chapter 3 Exercises Adjusting Accounts and Preparing Statements