BE4-2

Indicate why adjusting entries are needed.

(SO 3), C

The ledger of Hubbard Company includes the following accounts. Explain why each account may require adjustment.

(a)	Prepaid Insurance.
(b)	Depreciation Expense.

(c)	Unearned Service Revenue.
(d)	Interest Payable.

BE4-3

Identify the major types of adjusting entries.

(SO 3), AN

Dicker Company accumulates the following adjustment data at December 31. Indicate (1) the type of adjustment (prepaid expense, accrued revenue, and so on) and (2) the status of the accounts before adjustment (overstated or understated).

(a)	Supplies of $400 are on hand. Supplies account shows $1,600 balance.
(b)	Service Revenue earned but unbilled total $700.

(c)	Interest of $300 has accumulated on a note payable.
(d)	Rent collected in advance totaling $1,100 has been earned.

BE4-4

Prepare adjusting entry for supplies. (SO 4), AP Stagg Advertising Company's trial balance at December 31 shows Supplies $8,800 and Supplies Expense $0. On December 31 there are $1,100 of supplies on hand. Prepare the adjusting entry at December 31 and, using T accounts, enter the balances in the accounts, post the adjusting entry, and indicate the adjusted balance in each account.

BE4-6	Prepare adjusting entry for prepaid expense. (SO 4), AP On July 1, 2012, Ryhn Co. pays $12,400 to Craig Insurance Co. for a 2-year insurance contract. Both companies have fiscal years ending December 31. For Ryhn Co., journalize and post the entry on July 1 and the adjusting entry on December 31.
BE4-7	Prepare adjusting entry for unearned revenue. (SO 4), AP Using the data in BE4-6, journalize and post the entry on July 1 and the adjusting entry on December 31 for Craig Insurance Co. Craig uses the accounts Unearned Service Revenue and Service Revenue.

BE4-8

Prepare adjusting entries for accruals.

(SO 5), AP

The bookkeeper for Forseth Company asks you to prepare the following accrual adjusting entries at December 31.

(a)	Interest on notes payable of $300 is accrued.
(b)	Service revenue earned but unbilled totals $1,700.

(c)	Salaries of $780 earned by employees have not been recorded. Use these account titles: Service Revenue, Accounts Receivable, Interest Expense, Interest Payable, Salaries and Wages Expense, and Salaries and Wages Payable.

E4-2

Identify accounting assumptions, principles, and constraints.

(SO 1), K

These are the assumptions, principles, and constraints discussed in this and previous chapters.

1.	Economic entity assumption.
2.	Expense recognition principle.
3.	Monetary unit assumption.
4.	Periodicity assumption.
5.	Cost principle.
6.	Materiality constraint.
7.	Full disclosure principle.
8.	Going concern assumption.
9.	Revenue recognition principle.
10.	Cost constraint.

Instructions

Identify by number the accounting assumption, principle, or constraint that describes each situation below. Do not use a number more than once.

a.	Is the rationale for why plant assets are not reported at liquidation value. (Do not use the cost principle.)
b.	Indicates that personal and business record-keeping should be separately maintained.
c.	Ensures that all relevant financial information is reported.
d.	Assumes that the dollar is the measuring stick used to report on financial performance.
e.	Requires that accounting standards be followed for all significant items.
f.	Separates financial information into time periods for reporting purposes.
g.	Requires recognition of expenses in the same period as related revenues.
h.	Indicates that fair value changes subsequent to purchase are not recorded in the accounts.

E4-8

Identify types of adjustments and accounts before adjustment.

(SO 3, 4, 5), AN

Peng Company accumulates the following adjustment data at December 31.

a.	Service Revenue earned but unbilled totals $600.
b.	Store supplies of $160 are on hand. Supplies account shows $1,900 balance.
c.	Utility expenses of $275 are unpaid.
d.	Service revenue of $490 collected in advance has been earned.
e.	Salaries of $620 are unpaid.
f.	Prepaid insurance totaling $400 has expired.

Instructions

For each item, indicate (1) the type of adjustment (prepaid expense, unearned revenue, accrued revenue, or accrued expense) and (2) the status of the accounts before adjustment (overstated or understated).

E4-9

Prepare adjusting entries from selected account data.

(SO 4, 5), AP

The ledger of Sagovic Rental Agency on March 31 of the current year includes the selected accounts before adjusting entries have been prepared.

	Debits	Credits
Prepaid Insurance	$ 3,600
Supplies	3,000
Equipment	25,000
Accumulated DepreciationEquipment		$ 8,400
Notes Payable		20,000
Unearned Rent Revenue		12,400
Rent Revenue		60,000
Interest Expense	0
Salaries and Wages Expense	14,000

An analysis of the accounts shows the following.

1.	The equipment depreciates $280 per month.
2.	Half of the unearned rent revenue was earned during the quarter.
3.	Interest of $400 is accrued on the notes payable.
4.	Supplies on hand total $850.
5.	Insurance expires at the rate of $400 per month.

Instructions

Prepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly. Additional accounts are: Depreciation Expense, Insurance Expense, Interest Payable, and Supplies Expense.

E4-10

Prepare adjusting entries.

(SO 4, 5), AP

Adam Singh, D.D.S., opened an incorporated dental practice on January 1, 2012. During the first month of operations the following transactions occurred:

1.	Performed services for patients who had dental plan insurance. At January 31, $760 of such services was earned but not yet billed to the insurance companies.
2.	Utility expenses incurred but not paid prior to January 31 totaled $450.
3.	Purchased dental equipment on January 1 for $80,000, paying $20,000 in cash and signing a $60,000, 3-year note payable (Interest is paid each December 31). The equipment depreciates $400 per month. Interest is $500 per month.
4.	Purchased a 1-year malpractice insurance policy on January 1 for $24,000.
5.	Purchased $1,750 of dental supplies (recorded as increase to Supplies). On January 31 determined that $550 of supplies were on hand.

Instructions

Prepare the adjusting entries on January 31. Account titles are: Accumulated Depreciation Equipment, Depreciation Expense, Service Revenue, Accounts Receivable, Insurance Expense, Interest Expense, Interest Payable, Prepaid Insurance, Supplies, Supplies Expense, Utilities Expense, and Utilities Payable.

E4-17	Prepare financial statements from adjusted trial balance. (SO 6), AP The adjusted trial balance for Amit Company is given in E4-16. Instructions Prepare the income and retained earnings statements for the year and the classified balance sheet at August 31.
E4-18	Prepare closing entries. (SO 7), AP The adjusted trial balance for Amit Company is given in E4-16. Instructions Prepare the closing entries for the temporary accounts at August 31.

P4-3A

Prepare adjusting entries, adjusted trial balance, and financial statements.

(SO 4, 5, 6, 7), AP

The Vang Hotel opened for business on May 1, 2012. Here is its trial balance before adjustment on May 31.

VANG HOTEL
Trial Balance
May 31, 2012
	Debit	Credit
Cash	$2,500
Prepaid Insurance	1,800
Supplies	2,600
Land	15,000
Buildings	70,000
Equipment	16,800
Accounts Payable		$ 4,700
Unearned Rent Revenue		3,300
Mortgage Payable		36,000
Common Stock		60,000
Rent Revenue		9,000
Salaries and Wages Expense	3,000
Utilities Expense	800
Advertising Expense	500
	$113,000	$113,000

Other data:

1.	Insurance expires at the rate of $450 per month.
2.	A count of supplies shows $1,050 of unused supplies on May 31.
3.	Annual depreciation is $3,600 on the building and $3,000 on equipment.
4.	The mortgage interest rate is 6%. (The mortgage was taken out on May 1.)
5.	Unearned rent of $2,500 has been earned.
6.	Salaries of $900 are accrued and unpaid at May 31.

Instructions

(a)	Journalize the adjusting entries on May 31.
(b)	Prepare a ledger using T accounts. Enter the trial balance amounts and post the adjusting entries.

(c)

Prepare an adjusted trial balance on May 31.

(c) Rent revenue	$11,500
Tot. adj. trial balance	$114,630

(d)

Prepare an income statement and a retained earnings statement for the month of May and a classified balance sheet at May 31.

(d) Net income

$3,570

(e)	Identify which accounts should be closed on May 31.