Adjusting Entries: Solved Problems (3-1B to 3-4B)

Problem 3-1B: Identifying Adjusting Entries with Explanations This problem asks you to match journal entries to appropriate explanations. Here’s a breakdown of the common adjusting entry types you may encounter: • • • • Prepaid Expense Adjustments: 1. To record the payment of a prepaid expense (e.g., insurance or supplies). 2. To record the usage of a prepaid expense during the current period. Depreciation: 3. To record depreciation expense, spreading the cost of an asset over its useful life. Unearned Revenue Adjustments: 4. To record the receipt of unearned revenue (payment received before services are provided). 5. To record the earning of previously unearned revenue (recognizing revenue as services are provided). Accrual Adjustments: 6. To record an accrued expense (expenses incurred but not yet paid). 7. To record the payment of an accrued expense. 8. To record an accrued revenue (revenue earned but not yet received). 9. To record the receipt of accrued revenue. Problem 3-2B: Preparing Adjusting and Subsequent Journal Entries The adjusting entries for Natsu Company as of October 31, based on the information provided, would be: 1. Office Supplies: o Initial Balance: $600 o Purchases during the year: $4,570 o Ending Balance: $800 o Adjustment: Supplies Expense=600+4,570−800=4,370 o Journal Entry: Debit: Office Supplies Expense, 4,370 2. Prepaid Insurance: o Initial Balance: $12,000 o Unexpired Insurance: $7,270 o Adjustment: Insurance Expense=12,000−7,270=4,730 o Journal Entry: Debit: Insurance Expense, 4,730 3. Salaries Accrual: o The employees work $1,000 per day, and since October 31 is a Monday, they are owed for one day of work. o Journal Entry: Debit: Salaries Expense, 1,000 4. Depreciation on Building: o Depreciation is $5,400 per year. o Journal Entry: Debit: Depreciation Expense—Building, 5,400 5. Rent Revenue: September rent was received on time. October rent was not paid yet but will be received on November 30. o Journal Entry for Accrued Revenue for October: Debit: Accounts Receivable, 1,000 6. Unearned Revenue: o The second tenant paid five months’ rent in advance ($725 per month). Two months (September and October) have been earned. o Journal Entry: Debit: Unearned Revenue, 1,450 o Problem 3-3B: Preparing Adjusting Entries, Adjusted Trial Balance, and Financial Statements You will need to prepare T-accounts, adjusting journal entries, and update the balances in the T-accounts for items (a) through (h). 1. Insurance Expense: Debit: Insurance Expense, 9,500 Teaching Supplies Expense: Debit: Supplies Expense, 20,000 2. Depreciation on Equipment: Debit: Depreciation Expense—Equipment, 5,000 3. Depreciation on Library: Debit: Depreciation Expense—Library, 2,400 4. Unearned Revenue for Special Training Course: Debit: Unearned Revenue, 14,300 5. Accrued Tuition Revenue: Debit: Accounts Receivable, 5,750 6. Accrued Salaries: Debit: Salaries Expense, 450 7. Prepaid Rent for December: No adjustment required since the rent is for the current period (December) Once these entries are posted, update the balances in the T-accounts and prepare the adjusted trial balance. From there, you can prepare the income statement, statement of retained earnings, and the balance sheet. Problem 3-4B: Preparing Financial Statements from Adjusted Trial Balance Using the adjusted trial balance for Speedy Courier as of December 31, prepare: 1. Income Statement o List all revenue and expenses to determine the net income. 2. Statement of Retained Earnings o Start with beginning retained earnings, add net income, and subtract any dividends to get ending retained earnings. 3. Balance Sheet o Classify assets, liabilities, and equity based on the adjusted trial balance to create the balance sheet as of December 31.