Problems: Adjusting Entries
Problem 1: Selected accounts of City Real Estate firm, are shown below as of
January 31,2003,of the current year before any adjusting entries has been made:
Particulars
Dr
Cr.
Prepaid Insurance
2,700
Supplies on hand
750
Office Equipment
8,400
Unearned rental fees
3,000
Salaries expenses
2,100
Renal fees earned
12,000
Based on the following information, record in a general journal the necessary
adjusting entries on January 31:
(a) Prepaid insurance represents premiums for 3 years paid on January 1
(b) Supplies of Tk. 450 were on hand January 31
(c) Office equipment is expected to last 10 years
(d) The firm collected 6 months rent in advance on January 1 from a tenant renting space
for Tk 500 per month
(e) Accrued salaries not recorded as of January 31 are Tk. 360
Solution:
Date
Particulars
(a) Insurance Expense Dr
2003
Prepaid Insurance Cr
Jan 31
(Three yeas i.e. 36 months insurance premium
=Tk 2,700
One months premium (2,700*1/36)=Tk 75)
(b) Supplies Expense Dr
”
Supplies on hand Cr
(Supplies Expense=750-450=Tk 300)
(c) Depreciation Expense –Equipment Dr
”
Accumulated Depreciation –Equipment Cr
(Annual Depreciation=8,400/10=Tk 840
Monthly Depreciation=840/12=Tk 70)
”
(d) Unearned Rental Fees Dr
Rental Income Cr
(e) Salaries Expense Dr
”
Salaries Payable Cr
L.F.
Dr
(Tk)
75
Cr
(Tk)
75
300
300
70
70
500
500
360
360
Problem 2:
Cox’s Bazar Beach Motel adjusts and closes its accounts once a year on December
31.Most guests of the motel pay at the time they check out and the amounts collected are
credited to ‘rental revenue’. A few guests pay in advance for rooms and these amounts
are credited to ‘unearned rental revenue’ at the time of receipt. The following information
is available as a source for preparing adjusting entries a December 31.
(a) A one year bank loan in the amount of Tk. 80,000 ha been obtained on November
1.No interest has been paid and no and no interest expense has been recorded. The
interest accrued at December 31 is Tk. 1,600
(b) On December 16 a suite of rooms was rented to a corporation for 6 months at a
monthly rental of Tk. 3200. The entire6 months rent of Tk. 19,200 was collected in
advance and credited to unearned rental revenue. At December 31 the amount of
tk.1600 representing one-half months rent was considered to be earned and the
remainder of Tk. 17,600 was considered to be unearned.
(c) As of December 31, the motel has earned Tk. 18,090 rental revenue from current
guests who will not be billed until they are ready to check out.
(d) Salaries earned by employees at December 31,but not yet paid to Tk. 11,640
(e) Depreciation on the motel for the year was Tk. 51,250
(f) Depreciation on the station wagon owned by the motel was based on a 4-year life.
The station wagon was purchased on September 1 of this current year at a cost of
12,600.Depreciation for four months should be recorded at December 31.
(g) On December 31, Cox’s Bazar beach motel entered into an agreement to host the
national shooter society’s convention in June of next year. The motel expects to earn
rental revenue of at least tk.30, 000 from the convention.
Instructions:
For each of the numbered paragraphs, draft separate adjusting entries, if required.
One or more of the above paragraphs may not require any adjusting entry.
Cox’s Bazar Beach Motel
Adjusting journal entries
Particulars
Solution:
Date
Dec
31
(a) Interest Expense Dr
Interest payable Cr
(b) Unearned Rental Revenue Dr
Rental Income Cr
(c) Rent Receivable Dr
Rent Income Cr
(d) Salary Expense Dr
Salary payable Cr
(e) Deprecation Expense-Motel Dr
Accumulated Depreciation –Motel Cr
(f) Deprecation Expense-Station Wagon Dr
Accumulated Depreciation – Station Wagon Cr
(12,600/4=3150/1/3=Tk 1,050)
(g) Agreement for rental did not constitute a
transaction
LF
Dr
(Tk)
1600
Cr
(Tk)
1600
1600
1600
18,090
18,090
11,640
11,640
51,250
51,250
1050
1050
-
-
Problem no.3:
The information presented below was obtained from a review of the ledger (before
adjustments) and other records of Golden Heart Co. Ltd. at the end of the current fiscal
year ended December 31:
(a) As Office Supplies have been purchased during the year they have been debited to
Office Supplies Expense, Which has a balance of tk. 995, at December 31. The
inventory of supplies at that date totals tk. 280.
(b) On December 31 Rent Expense has a debit balance of tk. 26,000, which includes rent
of tk. 2000 for January of the following year paid on December 31 of the preceding
year.
(c) Sales commissions are uniformly 1% of net sales and are paid the tenth of the month
following the sales. Net sales for the month ended December 31 were tk. 90,500.
Only commissions paid have been recorded during the year.
(d) Prepaid Advertising has a debit balance of tk. 7,800 at December 31, which
represents the advance payment on March 1 of a yearly contract for a uniform
amount of space in 52 consecutive issues of a weekly publication. As of December
31 advertisements had appeared in 44 issues.
(e) Unearned Rent has a credit balance of tk. 14,700 composed of the following:
(1) January 1 balance of tk. 2700 representing rent prepaid for three months
January through March and
(2) a credit of tk. 12,000 representing advance payment of rent for twelve
months at tk. 1000 a month beginning with April.
(f) Management Fees Earned has a credit balance of tk. 1,30,750 at December 31. The
unbilled fees at December 31 total tk. 7,150.
Journalize the adjusting entries as of December 31 of the current fiscal year.
Solution:
Date
Dec. 31
(a)
(b)
(c)
(d)
(e)
(f)
Adjusting entries on December 31
Particulars
L.F.
Dr
Supplies Dr
Office Supplies Expense Cr
280
Prepaid Rent Dr
Rent expense Cr
2000
Commission Expense Dr
Commission Payable Cr
905
Advertising Expense Dr
Prepaid advertisement Cr
6600
Unearned Rent Dr
Rent Income Cr
11,700
Management Fees Receivable Dr
Management Fees Income Cr
7150
Cr
280
2000
905
6600
11,700
Calculation:
(c)Commission expense (for December )= (tk.90,500 1%)= tk. 905
(d)Advertisement expense = (7800 44/52)= Tk.6600
(f) (1) Rental Income tk. 2700
(2) Rental income =(tk.12,000 9/12)= tk.9,000( April to Dec.)
7150
Closing Entry
Closing entry: Closing entries are required to close all the nominal accounts at the end of
a certain accounting period or at the end of a fiscal year.
The following closing entries are needed to close the nominal accounts:
1.To close the revenue:
Sales a/c Dr
Interest income a/c Dr
Dividend income a/c Dr
Gain on sale of asset a/c Dr
Income Summary Account Cr
2.To close the expenses:
Income Summary Dr
Purchase a/c Cr
Wages a/c Cr
Salaries a/c Cr
Depreciation a/c Cr
Interest expense a/c Cr
3. To record the profit:
Income Summary Dr
Capital or retained earnings Cr
4.To record the loss:
Capital or Retained earnings Dr
Income summary Cr
5.To transfer the dividends declared:
Retained earnings Dr
Dividends Cr