Exercises

chapter 3
Part 1:
Supplies
For each of the following separate cases, prepare adjusting entries required at the year ended December 31, 2015.

A- The Office Supplies account had a $480 debit balance on December 31, 2014 (this is the beginning balance of year
2015). During 2015, $5,349 of office supplies are purchased. A physical count of supplies at December 31, 2015,
shows $587 of supplies available (on hand).

B- The Office Supplies account had a $200 debit balance on December 31, 2014 (this is the beginning balance of year
2015); and $1,000 of office supplies were purchased during the year. The December 31, 2015, physical count showed
$ 460 were used.

C- The Office Supplies account had a $1,200 debit balance. A physical count of supplies at December 31, 2015, shows
$500 of supplies available (on hand).
 Prepaid expenses (General prepaid expenses such as insurance and rent):
For each of the following separate cases, prepare the required entries.

A- On April 1, 2019, Jordan Co. paid $ 24,000 cash for a two-years cars insurance policy with coverage starts immediately.
Prepare the adjusting entry at April 30, 2019, assuming Jordan Company has a monthly accounting period.

B- The Prepaid Insurance account had a $5,000 balance on December 31, 2014 (this is the beginning balance of year
2015). An analysis of insurance policies shows that $2,200 of unexpired insurance benefits remain at December 31,
2015.

C- The Prepaid Insurance account had a $5,000 balance on December 31, 2014 (this is the beginning balance of year
2015). An analysis of insurance policies shows that $2,200 of insurance benefits was expired at December 31, 2015.

D- On September 1, 2019, Lana Co. paid $ 1200 cash for a one-year car insurance policy with coverage starts
immediately.

Required:

- prepare the journal entry on September 1 , 2019.

- Prepare the adjusting entry at September 30, 2019, assuming Lana Company has a monthly accounting period.

- Prepare the adjusting entry at December 31, 2019, assuming Lana Company has an annual accounting period.
 Depreciation
For each of the following separate cases, prepare the required entries.

A- Depreciation on the company’s equipment for 2015 is $19,127. What’s the adjusting entry at year-end?

B- On January 1, 2019, Asda Company purchased furniture for $11,000. The useful life for the furniture is 5
years and the residual value is $1,000. The adjusting entry for depreciation for the year 2019 is (the
company has an annual accounting period):

C- On May 1, 2019, Asda Company purchased furniture for $11,000. The useful life for the furniture is 5 years
and the residual value is $1,000. The adjusting entry for depreciation for the year 2019 is (the company has
an annual accounting period):

D- On May 1, 2019, Asda Company purchased furniture for $11,000. The useful life for the furniture is 5 years
and the residual value is $1,000. The adjusting entry for depreciation for the month of May 2019 is (the
company has a monthly accounting period):
Depreciation Multiple choice questions: (separate cases)
1- On January 1, 2018, ABC Company purchased Truck for $28,000. The useful life for the truck is 120
months and the residual value is $4000. The depreciation expense for the year 2018 is:
A. $ 0.
B. $ 200.
C. $ 2400.
D. $ 28000.
Explanation:
(28,000- 4,000 ) / 120 = 200$ per month

200$ * 12 months= 2400 $ per year

2- On January 1, 2018, ABC Company purchased Truck for $28,000. The useful life for the truck is 120
months and the residual value is $4000. The book value of the equipment at December 31, 2018 is:
A. $ 0.
B. $ 27800
C. $ 4000
D. $ 25600

Explanation:
Book value = 28,000 – 2,400 = 25,600

3- On January 1, 2018, ABC Company purchased Truck for $60,000. If the company depreciate the truck
on a rate of 800 $ per month. The book value of the equipment at December 31, 2018 is:

A. $ 0.
B. $ 60,000
C. $ 9,600
D. $ 50,400

Explanation:

800$ * 12 months= 9,600 $ per year

Book value = 60,000 – 9,600 = 50,400

 Exercises /chapter 3
Part 2
Question 1:
For each of the following separate cases, prepare adjusting entries required of financial statements for the year
ended (date of) December 31, 2015. (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. The company has earned (but not recorded) $750 of service revenue.

c. Wages of $9,000 are earned by workers but not paid as at December 31, 2015.

d. The company has a bank loan and has incurred (but not recorded) interest expense of $3,500 for the year ended
December 31, 2015. The company must pay the interest on January 2, 2016.

Question 2:
Dana Corporation borrowed $22,000 from a financial company (6%, 5-month) on March 1 (the first installment will be
paid after 2 months). If the company prepares monthly financial statements, what is the adjusting entry the company
should record for interest on March 31?

Question 3:
The following situation require adjusting journal entry to prepare financial statements as at April 30. Present both the
April 30 adjusting entry and the subsequent entry during May to record the payment of the accrued expenses.

- Total weekly salaries expense for all employees is $9,000. This amount is paid at the end of the day on Friday
of each five-day workweek. April 30 falls on Tuesday of this year, which means that the employees had
worked two days since the last payday. The next payday is May 3.

Question 4
a- Prepare the adjusting entries the company should record at the end of the accounting period for the
following transactions:
1- Wages of $4,000 are earned by workers but not paid as at December 31.
Wages expense 4,000
 Wages payable 4,000
2- Depreciation on the company’s equipment for the year is $19,127.
Depreciation expense 19,127
Accumulated Depreciation- equipment 19,127
3- The Prepaid Insurance account had a $5,000 balance before any adjustments have been made. An
analysis of insurance policies shows that $2,200 of unexpired insurance benefits remain at December
31, 2015.
Insurance expense 2,800 *
Prepaid Insurance 2,800
*Explanation (=5,000- 2,200 = 2, 800)
4- Two out of three months services were performed. The total amount for the service was paid in advance
and recorded as unearned service revenue of $ 30,000.
Unearned service revenue 20,000*
Service revenue 20,000
*Explanation (30,000*2/3)

b- If the company ignores to record the adjusting entry for the services performed in (a-4 above). This will cause:

Liabilities □ overstated □ understated □ No effect

Net income □ overstated □ understated □ No effect

Equity □ overstated □ understated □ No effect

c- If the company neglects to record the adjusting entry for the prepaid insurance in (a-3 above). This will cause:

Assets □ overstated □ understated □ No effect

Net income □ overstated □ understated □ No effect

Equity □ overstated □ understated □ No effect

Liabilities □ overstated □ understated □ No effect

Part 3
Financial Statements
Question 1
Presented below the Adjusted trial balance of Jordan corporation for the year ended December 31, 2019, prepare the Income
statement, the retained earnings statement, and the statement of financial position (balance sheet).

Account Dr Cr
Cash 23,500
Accounts Receivable 11,000
Supplies 2,000
Prepaid insurance 5,400
Equipment 45,000
Accumulated Depreciation - Equipment 9,500
Land 65,000
Accounts Payable 6,300
Interest payable 1,000
Salaries and wages payable 2,600
Share Capital 85,000
Retained earnings 16,300
Dividends 12,600
Service Revenue 71,500
Depreciation expense- Equipment 2,400
Interest expense 4,000
Salaries and wages expense 20,000
Insurance Expense 1,300
Total 192,200 192,200