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Chapter 3: 41PGB-1 (page 176)

The unadjusted trial balance of Avery Air Purification System at December 31, 2018, and the data needed for the adjustments follow. Account Title Prepaid Rent Cash Debit Credit Accounts Receivable Office Supplies Equipment Accumulated Depreciation—Equipment Accounts Payable Salaries Payable Unearned Revenue Common Stock Dividends Service Revenue Salaries Expense Rent Expense Depreciation Expense—Equipment Advertising Expense Supplies Expense Total Balance \( 7,100 \) 65,200 \( 65,200 20,000 39,300 2,700 15,900 19,100 2,400 1,400 \) 3,800 3,500 9,400 3,900 1,900 Adjustment data at December 31 follow: a. On December 15, Avery contracted to perform services for a client receiving \(2,700 in advance. Avery recorded this receipt of cash as Unearned Revenue. As of December 31, Avery has completed \)2,100 of the services. b. Avery prepaid two months of rent on December 1. (Assume the Prepaid Rent balance as shown on the unadjusted trial balance represents the two months of rent prepaid on December 1.) c. Avery used \(750 of office supplies during the month. d. Depreciation for the equipment is \)800. e. Avery received a bill for December’s online advertising, \(500. Avery will not pay the bill until January. (Use Accounts Payable.) f. Avery pays its employees weekly on Monday for the previous week’s wages. Its employees earn \)2,000 for a five-day workweek. December 31 falls on Wednesday this year. g. On October 1, Avery agreed to provide a four-month air system check (beginning October 1) for a customer for $2,800. Avery has completed the system check every month, but payment has not yet been received and no entries have been made. Requirements 1. Journalize the adjusting entries on December 31. 2. Using the unadjusted trial balance, open the T-accounts with the unadjusted balances. Post the adjusting entries to the T-accounts. 3. Prepare the adjusted trial balance. 4. How will Avery Air Purification System use the adjusted trial balance?

Short Answer

Expert verified

Adjusting entries are as follows:

Journal entry

Transactions

Accounts and Explanation

Debit

Credit

(a)

Unearned Revenue

$2,100

Service Revenue

$2,100

To record service revenue earned that was collected in advance

(b)

Rent Expense

$1,200

Prepaid Rent

$1,200

To record rent expense

(c)

Supplies Expense

$750

Office Supplies

$750

To record office supplies used

(d)

Depreciation Expense—Equipment

$800

Accumulated Depreciation—Equipment

$800

To record depreciation on equipment

(e)

AdvertisingExpense

$500

Accounts Payable

$500

To record accrued advertising expense

(f)

Salaries Expense

$1,200

Salaries Payable

$1,200

To record accrued salaries expense

(g)

Accounts Receivable

$2,800

Service Revenue

$2,800

To record earned service revenue





Step by step solution

01

Calculation of Salaries Expense

Salaries expense is calculated as follows:

SalariesExpense=SalariesPerWeeklyPayroll×NumberofDaysExpiredNumberofDaysPerPayrollWeek=$2,000×35=$1,200

02

Calculation of Rent Expense

Rent expense is calculated as follows:

RentExpense=PrepaidRent×NumberofMonthsExpiredTotalMonthsofInsurancePaid=$2,400×12=$1,200

03

Calculation of Service Revenue Earned

Service revenue earned is calculated as follows:

ServiceRevenue=TotalAmount×NumberofMonthsExpiredTotalMonthsofService=$2,800×34=$2,100

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Most popular questions from this chapter

Resort Travel borrowed \(33,000 on September 1, 2018, by signing a one-year note payable to State One Bank. Resort’s interest expense on the note payable for the remainder of the fiscal year (September through November) is \)355. Requirements 1. Record the adjusting entry to accrue interest expense at November 30, 2018. 2. Post the adjusting entry to the T-accounts of the two accounts affected by the adjustment.

Eastside Magazine collects cash from subscribers in advance and then mails the magazines to subscribers over a one-year period. Requirements 1. Record the journal entry to record the original receipt of \(180,000 cash. 2. Record the adjusting entry that Eastside Magazine makes to record earning \)8,000 in subscription revenue that was collected in advance. 3. Using T-accounts, post the journal entry and adjusting entry to the accounts involved and show their balances after adjustments. (Ignore the Cash account.)

What are the two basic categories of adjusting entries? Provide two examples of each.

Question :Chef ’s Catering completed the following selected transactions during May 2018: Learning Objectives 1, 2 Learning Objectives 1, 2 > Exercises May 1 Prepaid rent for three months, \(2,400. 5 Received and paid electricity bill, \)700. 9 Received cash for meals served to customers, \(2,600. 14 Paid cash for kitchen equipment, \)3,000. 23 Served a banquet on account, \(2,800. 31 Made the adjusting entry for rent (from May 1). 31 Accrued salary expense, \)1,600. 31 Recorded depreciation for May on kitchen equipment, \(50. Date May 1 \)(2,400) $0 Cash Basis Amount of Revenue (Expense) Accrual Basis Amount of Revenue (Expense) Amount of Revenue (Expense) for May Requirements 1. Show whether each transaction would be handled as a revenue or an expense using both the cash basis and accrual basis accounting systems by completing the following table. (Expenses should be shown in parentheses.) Also, indicate the dollar amount of the revenue or expense. The May 1 transaction has been completed as an example. 2. After completing the table, calculate the amount of net income or net loss for Chef ’s Catering under the accrual basis and cash basis accounting systems for May. 3. Considering your results from Requirement 2, which method gives the best picture of the true earnings of Chef ’s Catering? Why?

Question :The accounting records of Mackay Architects include the following selected, unadjusted balances at March 31: Accounts Receivable, \(1,500; Office Supplies, \)700; Prepaid Rent, \(2,240; Equipment, \)8,000; Accumulated Depreciation—Equipment, \(0; Salaries Payable, \)0; Unearned Revenue, \(900; Service Revenue, \)4,100; Salaries Expense, \(800; Supplies Expense, \)0; Rent Expense, \(0; Depreciation Expense—Equipment, \)0. The data developed for the March 31 adjusting entries are as follows: a. Service revenue accrued, \(700. b. Unearned revenue that has been earned, \)100. c. Office Supplies on hand, \(300. d. Salaries owed to employees, \)200. e. One month of prepaid rent has expired, \(560. f. Depreciation on equipment, \)120. Requirements 1. Open a T-account for each account using the unadjusted balances given. 2. Journalize the adjusting entries using the letter and March 31 date in the date column. 3. Post the adjustments to the T-accounts, entering each adjustment by letter. Show each account’s adjusted balance.
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