Chapter 3

The Adjusting Process

Review Questions

Cash basis accounting records revenues only when cash is received and expenses only when cash is paid. Accrual basis accounting records revenues when earned and
1.
expenses when incurred.

Accrual basis accounting is consistent with generally accepted accounting principles.

2.
The time period concept requires companies to divide its activities into small time segments such as months, quarters, or years.
3.
A fiscal year is an accounting year of any 12 consecutive months. A company might choose to use a fiscal year that is not a calendar year, if the low point in business activity
4.
is other than December 31.

Under the revenue recognition principle, revenue is determined using a five step process:
5.

Step 1: Identify the contract with the customer.

Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies each performance obligation.
In essence, the company records revenue when the entity satisfies each performance obligation.

Under the matching principle, expenses are linked to the revenues they generate. Expenses are recorded in the same period as the revenues generated by the expenses.
6.
Adjusting entries are completed at the end of the accounting period to record revenues in the period in which they are earned and expenses in the period in which they are
7.
incurred. Adjusting entries also update asset and liability accounts. Adjustments are needed to properly measure net income (loss) on the income statement and assets and
liabilities on the balance sheet.

The two basic categories of adjusting entries are deferrals and accruals.
8.

 Two examples of deferrals are prepaid expenses (such as Prepaid Rent and Office Supplies) and unearned revenues (such as Unearned Service Revenue).

 Two examples of accruals are accrued expenses (such as Accrued Salaries Expense) and accrued revenues (such as Accrued Service Revenue).

A deferred expense is an advance payment of a future expense, and is considered an asset rather than an expense. When the prepayment is used up, the used portion of the
9.
asset becomes an expense via an adjusting entry. An example of a deferred expense is Prepaid Insurance.

© 2021 Pearson Education, Inc. 3-1

10. The process of allocating the cost of a plant asset over its useful life is called depreciation.

11. A contra account is an account that is paired with and listed immediately after its related account in the chart of accounts and associated financial statement, and whose
normal balance is the opposite of the balance of the related account.

12. When recording depreciation expense, the Accumulated Depreciation account is credited.

13. Accumulated depreciation is the sum of all depreciation expense recorded to date for a depreciable asset.

14. Book value is a depreciable asset’s cost minus accumulated depreciation. Book value represents the cost invested in the asset that the company has not yet expensed.

15. Deferred revenue is a liability created when a company collects cash from customers in advance of doing work. For example, an example of a deferred revenue is the
collection of cash for services to be provided by the company in the future.

16. An accrued expense is an expense that a company has incurred but not yet paid. For example, salaries expense is incurred by a company as employees work, even though the
company might not pay the employees until a later period.

17. An accrued revenue is a revenue that a company has earned but not yet collected in cash. For example, service revenue is earned by a company as it provides services to a
customer, even though the company might not collect cash from the customer until a later period.

18. The two rules to remember about adjusting entries are:

1. Adjusting entries never involve the Cash account.
2. Adjusting entries either
a. Increase a revenue account (credit revenue) or
b. Increase an expense account (debit expense).

19. An adjusted trial balance is prepared after adjustments have been journalized and posted. An adjusted trial balance is a list of all of the accounts with their adjusted balances,
and its purpose is to ensure that total debits equal total credits of all accounts. The adjusted trial balance is used to prepare the final financial statements.

20. If an accrued expense is not recorded at the end of the year, the financial statements will be inaccurate. On the balance sheet, liabilities will be understated and equity will be
overstated. On the income statement, expenses will be understated (thus net income will be overstated).

21. A worksheet is an internal document that helps summarize data for the preparation of the financial statements. As a summary device, it helps identify the accounts that
need adjustments. On a worksheet, accounts are listed, the unadjusted balances in the accounts are copied directly from the ledger (the unadjusted trial balance),
adjustments are entered, and the adjusted trial balance is completed (from which the financial statements can be prepared).

Short Exercises
S-F:3-1
a. $3,000 advertising expense using cash basis

b. $600 * advertising expense using accrual basis

* Calculations:
$3,000 Advertising prepaid on January 1 for 10 months
© 2021 Pearson Education, Inc. 3-2
  10 Months
$300 Advertising expense per month

Thus,
$300 Advertising expense per month
× 2 months
$600 Advertising expense for January and February

© 2021 Pearson Education, Inc. 3-3

S-F:3-2

a. $ 900 service revenue using cash basis

b. $2,200 * service revenue using accrual basis

* Calculations:
$900 + $1,300 = $2,200 service revenue

S-F:3-3
a. Movies Online should record revenue when each performance obligation has been satisfied –
i.e. when the company provides access to the unlimited movies each month (not when the
cash is collected in advance). The company should record revenue monthly.
b. Movies Online should record $16 of revenue for eight months.

Calculations:
$36 collected in advance for 18 months / 18 months = $2 revenue earned per month

Thus,
$2 revenue per month × 8 months = $16 revenue earned for 8 months

S-F:3-4

At November 30, rent expense of $15,400 should be recorded.

Calculations:
$16,800 Rent prepaid on January 1 for 1 year
 12 Months
$ 1,400 Rent expense per month

Thus,
$ 1,400 Rent expense per month
× 11 Months
$15,400 Rent expense for January through November

© 2021 Pearson Education, Inc. 3-4

S-F:3-5

April 1: Deferred expense

10: Deferred revenue
15: Deferred expense
18: Deferred expense
30: Accrued revenue
30: Accrued expense

S-F:3-6
Requirement 1

Date Accounts and Explanation Debit Credit

Sep. 1 Prepaid Rent 3,300
Cash 3,300
To record rent paid in advance.

Requirement 2

Date Accounts and Explanation Debit Credit

Sep. 30 Rent Expense 550 *
Prepaid Rent 550 *
To record rent expense.

* Calculations:
$3,300 Rent prepaid on September 1 for 6 months
 6 months
$ 550 Rent expense for September

Requirement 3

Prepaid Rent Rent Expense

Sep. 1 3,300 550 Sep. 30 Sep. 30 550
Bal. 2,750 Bal. 550

© 2021 Pearson Education, Inc. 3-5

S-F:3-7
Requirement 1

Office Supplies
Nov. 1 600
2,300

Requirement 2

Date Accounts and Explanation Debit Credit

Nov. 30 Supplies Expense 2,400*
Office Supplies 2,400*
To record office supplies used.

* Calculations:
$ 600 Office supplies beginning balance
2,300 Office supplies purchased during the month
2,900 Office supplies balance before adjustment
(500) Office supplies on hand
$2,400 Office supplies used

Requirement 3

Office Supplies Supplies Expense

Nov. 1 600 2,400 Nov. 30 Nov. 30 2,400
2,300 Bal. 2,400
Bal. 500

S-F:3-8
Requirement 1

Straight-line depreciation per month = (Cost – Residual Value) / Useful Life

= ($57,600 – $0)  3 years

= $19,200 per year / 12 months

= $1,600

© 2021 Pearson Education, Inc. 3-6

S-F:3-8, cont.
Requirement 2

Date Accounts and Explanation Debit Credit

Oct. 31 Depreciation Expense—Computer Equipment 1,600
Accumulated Depreciation—Computer Equipment 1,600
To record depreciation on computer equipment.

Requirement 3

Accumulated Depreciation—
Computer Equipment Computer Equipment
Oct. 1 57,600 1,600 Oct. 31
Bal. 57,600 1,600 Bal.

Depreciation Expense—
Computer Equipment
Oct. 31 1,600
Bal. 1,600

Requirement 4

Computer Equipment $ 57,600

Less: Accumulated Depreciation—Computer Equipment (1,600)
Book value of computer equipment $ 56,000

© 2021 Pearson Education, Inc. 3-7

S-F:3-9
Requirement 1

Date Accounts and Explanation Debit Credit

Cash 180,00
0
Unearned Revenue 180,000
To record unearned subscription revenue.

Requirement 2

Date Accounts and Explanation Debit Credit

Unearned Revenue 8,000
Subscription Revenue 8,000
To record subscription revenue earned that
was collected in advance.

Requirement 3

Unearned Revenue Subscription Revenue

8,000 180,000 8,000
172,000 Bal. 8,000 Bal.

© 2021 Pearson Education, Inc. 3-8

S-F:3-10
Requirement 1

Date Accounts and Explanation Debit Credit

Dec. 31 Salaries Expense 7,500*
Salaries Payable 7,500*
To accrue salaries expense.

* Calculations:
$12,500 Payroll for a 5-day work week
 5 work days
$2,500 Salaries expense per work day

Thus,
$2,500 Salaries expense per work day
×3 work days
$7,500 Salaries expense for Monday through Wednesday

Requirement 2

Salaries Payable Salaries Expense

7,500 Dec. 31 620,000
7,500 Bal. Dec 31. 7,500
Bal. 627,500

© 2021 Pearson Education, Inc. 3-9

S-F:3-10, cont.
Requirement 3

Date Accounts and Explanation Debit Credit

Jan. 5 Salaries Expense 5,000*
Salaries Payable 7,500
Cash 12,500
To record payment of salaries.

* Calculations:
$2,500 Salaries expense per work day
×2 work days
$5,000 Salaries expense for Thursday through Friday

S-F:3-11
Requirement 1

Interest Expense = Principal × Interest rate × Time

= $33,000 × 0.06 × (4/12)

= $660

Requirement 2

Date Accounts and Explanation Debit Credit

Dec. 31 Interest Expense 660
Interest Payable 660
To accrue interest expense.

Requirement 3

Interest Payable Interest Expense

660 Dec. 31 Dec. 31 660
660 Bal. Bal. 660

S-F:3-12

Date Accounts and Explanation Debit Credit

June 30 Accounts Receivable 9,000
Service Revenue 9,000
To accrue service revenue.

© 2021 Pearson Education, Inc. 3-10

S-F:3-13

WALKER’S TAX SERVICES

Adjusted Trial Balance
December 31, 2024
Account Title Balance
Debit Credit
Cash $ 37,250
Accounts Receivable 4,950
Office Supplies 700
Land 26,000
Equipment 11,000
Accumulated Depreciation—Equipment $ 1,800
Accounts Payable 3,700
Utilities Payable 150
Unearned Revenue 900
Walker, Capital 22,600
Walker, Withdrawals 14,000
Service Revenue 75,000
Salaries Expense 5,600
Depreciation Expense—Equipment 1,900
Supplies Expense 1,100
Utilities Expense 1,650
Total $ 104,150 $ 104,150

S-F:3-14

Adjustment Balance Sheet Income Statement

Not Recorded Assets Liabilities Equity Revenue Expenses
a. Overstated Overstated Understated
b. Understated Understated Understated
c. Understated Overstated Understated
d. Overstated Overstated Understated
e. Overstated Understated Understated

© 2021 Pearson Education, Inc. 3-11

S-F:3-15

JUST RIGHT HAIR STYLISTS

Worksheet
December 31, 2024
Unadjusted Adjusted
Account Names Trial Balance Adjustments Trial Balance
Debit Credit Debit Credit Debit Credit
Cash $ 300 $ 300
Office Supplies 900 $ 600 a. 300
Equipment 20,600 20,600
Accumulated Depreciation—Equipment $ 700 700 b. $ 1,400
Accounts Payable 500 500
Interest Payable 800 c. 800
Note Payable 2,800 2,800
Benoit, Capital 4,200 4,200
Service Revenue 17,500 17,500
Rent Expense 3,200 3,200
Supplies Expense a. $ 600 600
Depreciation Expense—Equipment b. 700 700
Interest Expense 700 c. 800 1,500
Total $ 25,700 $ 25,700 $ 2,100 $ 2,100 $ 27,200 $ 27,200

© 2021 Pearson Education, Inc. 3-12

S-F:3A-16
Requirement 1

Date Accounts and Explanation Debit Credit

Oct. 1 Rent Expense 15,000
Cash 15,000
To record rent paid in advance.

Requirement 2

Date Accounts and Explanation Debit Credit

Dec. 31 Prepaid Rent 7,500 *
Rent Expense 7,500 *
To record prepaid rent.

* Calculations:
$15,000 Rent prepaid on October 1 for 6 months
 6 Months
$ 2,500 Rent expense per month

Thus,
$ 2,500
×3 Months
$7,500 Rent still prepaid on December 31

© 2021 Pearson Education, Inc. 3-13

S-F:3A-17
Requirement 1

Date Accounts and Explanation Debit Credit

Sep. 1 Cash 24,000
Service Revenue 24,000
To record cash collected for future services.

Requirement 2

Date Accounts and Explanation Debit Credit

Dec. 31 Service Revenue 16,000 *
Unearned Revenue 16,000 *
To record unearned revenue.

* Calculations:
$24,000 Collected in advance on September 1 for 12 months
 12 Months
$ 2,000 Revenue earned per month

Thus,
$ 2,000
× 8 Months Remaining
$16,000 Revenue still unearned on December 31

© 2021 Pearson Education, Inc. 3-14

Exercises
E-F:3-18

a. Considering the $1,000 paid by the freshman class, the revenue was recognized on April 2.
The revenue (April 2) was not recognized on the same date as cash was received (March 3).
b. Considering the $4,100 paid by the sophomore class, the revenue was recognized on
February 28. The revenue was recognized on the same date as cash was received.

E-F:3-19
Requirement 1

Amount of Revenue (Expense) for May

Cash Basis Amount of Accrual Basis Amount of
Date Revenue (Expense) Revenue (Expense)
May 1 $(2,400) $ (0)
5 (700) (700)
9 2,600 2,600
14 (3,000) 0
23 0 2,800
31 0 (800) *
31 0 (1,600)
31 0 (50)

* Calculations:
$2,400 Rent prepaid on May 1 for 3 months
 3 Months
$ 800 Rent expense for May

Requirement 2

Net income (loss) under cash basis is ($3,500).

Calculations:
Net Income (Loss) = Total Revenues – Total Expenses
= $2,600 – [$2,400 + $700 + $3,000]
= $2,600 – $6,100
= ($3,500)

© 2021 Pearson Education, Inc. 3-15

 E-F:3-19, cont.

Net income (loss) under accrual basis is $2,250.

Calculations:
Net Income (Loss) = Total Revenues – Total Expenses
= [$2,600 + $2,800] – [$700 + $800 + $1,600 + $50]
= $5,400 – $3,150
= $2,250

Requirement 3

Accrual basis accounting gives the best picture of the true earnings of Chef’s Catering, because revenues are
recorded when the company satisfies each performance obligation and expenses are recorded when
incurred, as dictated by the revenue recognition principle and the matching principle.

E-F:3-20

Answers are marked in italics. Situation

A B C
Beginning Prepaid Rent $ 1,400 $ 1,000 (c) $ 700
Payments for Prepaid Rent during the year 700 600 900
Total amount to account for 2,100 1,600 1,600
Subtract: Ending Prepaid Rent 800 (b) 700 600
Rent Expense (a) $ 1,300 $ 900 $ 1,000

© 2021 Pearson Education, Inc. 3-16

E-F:3-21

Date Accounts and Explanation Debit Credit

Jan. 31 Unearned Revenue 320*
(a) Service Revenue 320*
To record service revenue earned that
was collected in advance.

* Calculations:
$3,200 Collected in advance on January 1 for 10 months
 10 Months
$ 320 Revenue earned during January

Date Accounts and Explanation Debit Credit

Jan. 31 Salaries Expense 1,800*
(b) Salaries Payable 1,800*
To accrue salaries expense.

* Calculations:
$3,600 Salaries expense per month
2
$1,800 Salaries expense for the second half of January

Date Accounts and Explanation Debit Credit

Jan. 31 Accounts Receivable 1,600
(c) Service Revenue 1,600
To accrue service revenue.

Date Accounts and Explanation Debit Credit

Jan. 31 Interest Expense 53
(d) Interest Payable 53
To accrue interest expense.

© 2021 Pearson Education, Inc. 3-17

E-F:3-22

Date Accounts and Explanation Debit Credit

a. Dec. 31 Unearned Revenue 750*
Rent Revenue 750*
To record rent revenue earned that was collected
in advance.

b. Dec. 31 Salaries Expense 7,200*

Salaries Payable 7,200*
To accrue salaries expense.

c. Dec. 31 Supplies Expense 1,100*

Office Supplies 1,100*
To record office supplies used.

d. Dec. 31 Depreciation Expense—Equipment 500

Accumulated Depreciation—Equipment 500
To record depreciation on equipment.

e. Dec. 31 Insurance Expense 1,620*

Prepaid Insurance 1,620*
To record insurance expense.

* Calculations:

Situation a:
$3,000 Rent collected in advance on October 1 for 1 year
 12 Months
$ 250 Rent revenue earned per month

Thus,
$ 250 Rent revenue earned per month
× 3 Months
$750 Rent revenue earned during October through December

Situation b:
$1,800 Salaries expense per day
× 4 Days
$7,200 Salaries expense for Monday through Thursday

Situation c:
$ 3,000 Office supplies prior to adjustment
(1,900) Office supplies on hand
$ 1,100 Supplies expense (cost of office supplies used)

© 2021 Pearson Education, Inc. 3-18

E-F:3-22, cont.

Situation e:
$4,320 Insurance prepaid on April 1 for 2 years
 24 Months
$ 180 Insurance expense per month

Thus,
$ 180 Insurance expense per month
× 9 Months
$1,620 Insurance expense for April through December

E-F:3-23

Date Accounts and Explanation Debit Credit

a. Depreciation Expense—Equipment 2,100
Accumulated Depreciation—Equipment 2,100
To record depreciation on equipment.

b. Salaries Expense 800*

Salaries Payable 800*
To accrue salaries expense.

c. Supplies Expense 4,300*

Office Supplies 4,300*
To record office supplies used.

d. Insurance Expense 1,500*

Prepaid Insurance 1,500*
To record insurance expense.

e. Unearned Revenue 2,800

Service Revenue 2,800
To record service revenue earned that was
collected in advance.

f. Interest Expense 200

Interest Payable 200
To accrue interest expense.

© 2021 Pearson Education, Inc. 3-19

E-F:3-23, cont.

g. Accounts Receivable 3,000

Service Revenue 3,000
To accrue service revenue.

* Calculations:

Situation b:
$1,400 Payroll for a 7-day work week
 7 work days
$ 200 Salaries expense per work day

Thus,
$ 200 Salaries expense per work day
× 4 work days
$800 Salaries expense for Monday through Thursday

Situation c:
$ 2,300 Beginning balance of office supplies
3,000 Office supplies purchased
(1,000) Office supplies on hand
$ 4,300 Supplies expense (cost of office supplies used)

Situation d:
$6,000 Insurance for two years
 24 Months
$ 250 Insurance expense per month

Thus,
$ 250 Insurance expense per month
× 6 Months
$1,500 Insurance expense for July through December

© 2021 Pearson Education, Inc. 3-20

E-F:3-24
Requirement 1
Accounts Receivable Salaries Payable Service Revenue
Bal. 1,500 0 Bal. 4,100 Bal.

Office Supplies Unearned Revenue Salaries Expense

Bal. 700 900 Bal. Bal. 800

Prepaid Rent Supplies Expense

Bal. 2,240 Bal. 0

Equipment Rent Expense

Bal. 8,000 Bal. 0

Accumulated Depreciation— Depreciation Expense—

Equipment Equipment
0 Bal. Bal. 0

© 2021 Pearson Education, Inc. 3-21

E-F:3-24, cont.
Requirement 2

Date Accounts and Explanation Debit Credit

a. Mar. 31 Accounts Receivable 700
Service Revenue 700
To accrue service revenue.

b. Mar. 31 Unearned Revenue 100

Service Revenue 100
To record service revenue earned that was collected in
advance.

c. Mar. 31 Supplies Expense 400*

Office Supplies 400*
To record office supplies used.

d. Mar. 31 Salaries Expense 200

Salaries Payable 200
To accrue salaries expense.

e. Mar. 31 Rent Expense 560

Prepaid Rent 560
To record rent expense.

f. Mar. 31 Depreciation Expense—Equipment 120

Accumulated Depreciation—Equipment 120
To record depreciation on equipment.

* Calculations:

$ 700 Office supplies prior to adjustment

(300) Office supplies on hand
$ 400 Supplies expense (cost of office supplies used)

© 2021 Pearson Education, Inc. 3-22

E-F:3-24, cont.
Requirement 3

Accounts Receivable Salaries Payable Service Revenue

Bal. 0 Bal 4,100 Bal.
1,500
.
a. 700 200 d. 700 a.
Bal. 200 Bal 100 b.
2,200
.
4,900 Bal.

Office Supplies Unearned Revenue Salaries Expense

Bal. 400 c. b. 10 900 Bal Bal.
700 800
0 .
Bal. 800 Bal d.
300 200
.
Bal. 1,000

Prepaid Rent Supplies Expense

Bal. 2,240 560 e. Bal. 0
Bal. 1,680 c. 400
Bal. 400

Equipment Rent Expense

Bal. 8,000 Bal. 0
Bal. 8,000 e. 560
Bal. 560

Accumulated Depreciation— Depreciation Expense—

Equipment Equipment
0 Bal. Bal. 0
120 f. f. 120
120 Bal. Bal. 120

© 2021 Pearson Education, Inc. 3-23

E-F:3-25
Requirement 1

Cash Accounts Payable Service Revenue

Bal. 800 2,400 Bal. 25,000 Bal.

Office Supplies Salaries Payable Salaries Expense

Bal. 2,000 Bal. 7,000

Prepaid Insurance Unearned Revenue Supplies Expense

Bal. 600 700 Bal.

Depreciation Expense—
Equipment Jane, Capital Equipment
Bal. 30,000 15,300 Bal.

Accumulated Depreciation
—Equipment Jane, Withdrawals Insurance Expense
2,000 Bal. Bal. 5,000

© 2021 Pearson Education, Inc. 3-24

E-F:3-25, cont.
Requirement 2

Date Accounts and Explanation Debit Credit

a. Dec. 31 Supplies Expense 1,700
Office Supplies 1,700
To record office supplies used.

b. Dec. 31 Insurance Expense 580

Prepaid Insurance 580
To record insurance expense.

c. Dec. 31 Depreciation Expense—Equipment 500

Accumulated Depreciation—Equipment 500
To record depreciation on equipment.

d. Dec. 31 Salaries Expense 310

Salaries Payable 310
To accrue salaries expense.

e. Dec. 31 Unearned Revenue 400

Service Revenue 400
To record service revenue earned that was
collected in advance.

© 2021 Pearson Education, Inc. 3-25

E-F:3-25, cont.
Requirement 3

Cash Accounts Payable Service Revenue

Bal. 800 2,400 Bal. 25,000 Bal.
Bal. 800 2,400 Bal. 400 e.
25,400 Bal

Office Supplies Salaries Payable Salaries Expense

Bal. 2,000 1,700 a. 310 d. Bal. 7,000
Bal. 300 310 Bal. d. 310
Bal. 7,310

Prepaid Insurance Unearned Revenue Supplies Expense

Bal. 600 580 b. e. 400 700 Bal. a. 1,700
Bal. 20 300 Bal. Bal. 1,700

Depreciation Expense—
Equipment Jane, Capital Equipment
Bal. 30,000 15,300 Bal. c. 500
Bal. 30,000 15,300 Bal. Bal. 500

Accumulated Depreciation—
Equipment Jane, Withdrawals Insurance Expense
2,000 Bal. Bal. 5,000 b. 580
500 c. Bal. 5,000 Bal. 580
2,500 Bal.

© 2021 Pearson Education, Inc. 3-26

E-F:3-26

ALL MOPPED UP COMPANY

Adjusted Trial Balance
December 31, 2024
Account Title Balance
Debit Credit
Cash $ 800
Office Supplies 300
Prepaid Insurance 20
Equipment 30,000
Accumulated Depreciation—Equipment $ 2,500
Accounts Payable 2,400
Salaries Payable 310
Unearned Revenue 300
Jane, Capital 15,300
Jane, Withdrawals 5,000
Service Revenue 25,400
Salaries Expense 7,310
Supplies Expense 1,700
Depreciation Expense—Equipment 500
Insurance Expense 580
Total $ 46,210 $ 46,210

© 2021 Pearson Education, Inc. 3-27

E-F:3-27

Adjusting Specific Category Specific Category

Over / Over /
Item Entry of Accounts on the of Accounts on the
Understated Understated
Needed? Balance Sheet Income Statement
a. Yes Liability Over Revenue Under
Equity Under
b. Yes Liability Under Expense Under
Equity Over
c. Yes Asset Over Expense Under
Equity Over
d. Yes Asset Over Expense Under
Equity Over
e. Yes Asset Over Expense Under
Equity Over
f. Yes Liability Under Expense Under
Equity Over
g. Yes Asset Under Expense Over
Equity Under

© 2021 Pearson Education, Inc. 3-28

E-F:3-28
Requirement 1

Date Accounts and Explanation Debit Credit

a. Jul. 31 Depreciation Expense 600
Accumulated Depreciation 600
To record depreciation.

b. Jul. 31 Rent Expense 200

Prepaid Rent 200
To record rent expense.

c. Jul. 31 Interest Expense 700

Interest Payable 700
To accrue interest expense.

d. Jul. 31 Salaries Expense 6,400*

Salaries Payable 6,400*
To accrue salaries expense.

e. Jul. 31 Unearned Revenue 1,000

Service Revenue 1,000
To record service revenue earned that was
collected in advance.

f. Jul. 31 Supplies Expense 150

Office Supplies 150
To record office supplies used.

* Calculations:
$8,000 Payroll for a 5-day work week
 5 work days
$ 1,600 Salaries expense per work day

Thus,
$ 1,600 Salaries expense per work day
× 4 work days
$6,400 Salaries expense for Monday through Thursday

© 2021 Pearson Education, Inc. 3-29

E-F:3-28, cont.
Requirement 2

If the adjustments in Requirement 1 were not made, net income would be overstated by $7,050 overall.

Calculations:

If Not Made:
Net Income
Overstated
Adjustment (Understated)
a. $

b.

c.

d.

e.

f.

Overall $

© 2021 Pearson Education, Inc. 3-30

E-F:3-29
Requirements 1 and 2

BEST JOBS EMPLOYMENT SERVICES

Worksheet
April 30, 2024
Unadjusted Adjusted
Account Names Trial Balance Adjustments Trial Balance
Debit Credit Debit Credit Debit Credit
Cash $ 1,100 $ 1,100
Accounts Receivable 4,100 a. $ 700 4,800
Office Supplies 1,200 $ 300 b. 900
Equipment 32,700 32,700
Accumulated Depreciation—Equipment $ 13,900 1,300 c. $ 15,200
Salaries Payable 1,400 d. 1,400
Kubota, Capital 25,200 25,200
Kubota, Withdrawals 5,300 5,300
Service Revenue 9,000 700 a. 9,700
Salaries Expense 2,200 d. 1,400 3,600
Rent Expense 1,500 1,500
Depreciation Expense—Equipment c. 1,300 1,300
Supplies Expense b. 300 300
Total $ 48,100 $ 48,100 $ 3,700 $ 3,700 $ 51,500 $ 51,500

© 2021 Pearson Education, Inc. 3-31

E-F:3-29, cont.
Requirement 3

Date Accounts and Explanation Debit Credit

a. Apr. 30 Accounts Receivable 700
Service Revenue 700
To accrue service revenue.

b. Apr. 30 Supplies Expense 300

Office Supplies 300
To record office supplies used.

c. Apr. 30 Depreciation Expense—Equipment 1,300

Accumulated Depreciation—Equipment 1,300
To record depreciation on equipment.

d. Apr. 30 Salaries Expense 1,400

Salaries Payable 1,400
To accrue salaries expense.

© 2021 Pearson Education, Inc. 3-32

E-F:3-30
Requirement 1

MACEY’S LANDSCAPING SERVICES

Worksheet
December 31, 2024
Unadjusted Adjusted
Account Names Trial Balance Adjustments Trial Balance
Debit Credit Debit Credit Debit Credit
Cash $ 27,400 $ 27,400
Accounts Receivable 6,700 h. $ 3,500 10,200
Office Supplies 500 $ 350 b. 150
Prepaid Rent 2,300 1,150 a. 1,150
Equipment 50,000 50,000
Accumulated Depreciation—Equipment 1,300 c. $ 1,300
Trucks 114,000 114,000
Accumulated Depreciation—Trucks 1,900 d. 1,900
Accounts Payable $ 3,800 3,800
Utilities Payable 300 300
Salaries Payable 7,200 f. 7,200
Interest Payable 300 g. 300
Unearned Revenue 4,500 e. 3,200 1,300
Notes Payable 25,000 25,000
Macey, Capital 141,900 141,900
Macey, Withdrawals 21,000 21,000
Service Revenue 84,000 6,700 e., h. 90,700
Rent Expense 9,200 a. 1,150 10,350
Salaries Expense 23,800 f. 7,200 31,000
Supplies Expense b. 350 350
Utilities Expense 4,600 4,600
Depreciation Expense – Equipment c. 1,300 1,300
Depreciation Expense – Trucks d. 1,900 1,900
Interest Expense g. 300 300
Total $ 259,500 $ 259,500 $ 18,900 $ 18,900 $ 273,700 $ 273,700

© 2021 Pearson Education, Inc. 3-33

E-F:3-30, cont.
Requirement 2

a. Prepaid rent expired, $1,150

b. Office supplies used, $350
c. Depreciation on equipment, $1,300
d. Depreciation on trucks, $1,900
e. Unearned revenue earned, $3,200
f. Salaries owed to employees, $7,200
g. Interest expense accrued, $300
h. Service revenue accrued, $3,500

E-F:3A-31
Requirement 1

Date Accounts and Explanation Debit Credit

Supplies Expense 4,400*
Office Supplies 4,400*
To record office supplies used.

* Calculations:
$ 1,200 Beginning balance of office supplies
4,000 Office supplies purchased
(800) Office supplies on hand
$ 4,400 Supplies expense (cost of office supplies used)

Office Supplies Supplies Expense

Bal. 1,200 4,400 Adj. Adj. 4,400
4,000 Bal. 4,400
Bal. 800

Requirement 2

Date Accounts and Explanation Debit Credit

Supplies Expense 400
Office Supplies 400
To record additional supplies expense.

Office Supplies Supplies Expense

Bal. 1,200 400 Adj. 4,000
Bal. 800 Adj. 400
Bal. 4,400

© 2021 Pearson Education, Inc. 3-34

E-F:3A-31, cont.
Requirement 3

The ending balances in the Office Supplies account and the Supplies Expense account are the same,
regardless of which of the two approaches is used.

E-F:3A-32
Requirement 1

Date Accounts and Explanation Debit Credit

Unearned Revenue 5,100*
Service Revenue 5,100*
To record service revenue earned that
was collected in advance.

* Calculations:
$ 2,100 Unearned Revenue at the beginning of the year
6,100 Cash collected for future services
(3,100) Unearned Revenue still unearned
$ 5,100 Service Revenue earned

Unearned Revenue Service Revenue

Adj. 5,100 2,100 Bal. 20,000
6,100 5,100 Adj.
3,100 Bal. 25,100 Bal.

Requirement 2

Date Accounts and Explanation Debit Credit

Service Revenue 1,000*
Unearned Revenue 1,000*
To record additional unearned revenue.

* Calculations:
$ 3,100 Unearned Revenue still unearned
(2,100) Unearned Revenue prior to adjustment
$ 1,000 Additional Unearned Revenue to be recorded

Unearned Revenue Service Revenue

2,100 Bal. 20,000
1,000 Adj. Adj. 1,000 6,100
3,100 Bal. 25,100 Bal.

© 2021 Pearson Education, Inc. 3-35

 E-F:3A-32, cont.
Requirement 3

The ending balances in the Unearned Revenue account and the Service Revenue account are the same,
regardless of which of the two approaches is used.

Problems (Group A)
P-F:3-33A
Requirement 1

Date Accounts and Explanation Debit Credit

a. Dec. 31 Salaries Expense 3,200*
Salaries Payable 3,200*
To accrue salaries expense.

b. Dec. 31 Insurance Expense 4,000*

Prepaid Insurance 4,000*
To record insurance expense.

c. Dec. 31 Supplies Expense 8,400*

Office Supplies 8,400*
To record office supplies used.

d. Dec. 31 Unearned Revenue 2,600*

Service Revenue 2,600*
To record service revenue earned that was
collected in advance.

e. Dec. 31 Accounts Receivable 3,000

Service Revenue 3,000
To accrue service revenue.

f. Dec. 31 Depreciation Expense—Equipment 3,000

Depreciation Expense—Trucks 2,200
Accumulated Depreciation—Equipment 3,000
Accumulated Depreciation—Trucks 2,200
To record depreciation on equipment and trucks.

g. Dec. 31 Interest Expense 250

Interest Payable 250
To accrue interest expense.

© 2021 Pearson Education, Inc. 3-36

P-F:3-33A, cont.

* Calculations:

a:
$8,000 Payroll for a 5-day work week
 5 work days
$1,600 Salaries expense per work day

Thus,
$1,600 Salaries expense per work day
× 2 work days
$3,200 Salaries expense for Monday through Tuesday

b:
$8,000 Insurance prepaid on January 1 for two years
 2 Years
$4,000 Insurance expense for one year

c:
$4,300 Beginning balance of office supplies
5,600 Office supplies purchased
(1,500) Office supplies on hand
$8,400 Supplies expense (cost of office supplies used)

d:
$6,500 Collected in advance during December
× 40% Percentage earned during December
$2,600 Revenue earned during December

© 2021 Pearson Education, Inc. 3-37

P-F:3-33A, cont.
Requirement 2

Date Accounts and Explanation Debit Credit

a. Jan. 3 Salaries Expense 4,800*
Salaries Payable 3,200
Cash 8,000
To record payment of salaries.

d. Unearned Revenue 3,900*

Service Revenue 3,900*
To record service revenue earned that was collected in
advance.

g. Jan. 15 Interest Expense 300

Interest Payable 250
Cash 550
To record payment of interest.

* Calculations:
a:
$8,000 Payroll for a 5-day work week
 5 work days
$1,600 Salaries expense per work day

Thus,
$1,600 Salaries expense per work day
× 3 work days
$4,800 Salaries expense for Wednesday through Friday of the current week

d:
$6,500 Collected in advance during December
(2,600) Revenue earned during December (see requirement 1)
$3,900 Revenue earned after December

g:
$550 Total interest paid on January 15
(250) Interest expense previously accrued on December 31
$300 Interest expense for January 1 through January 15

© 2021 Pearson Education, Inc. 3-38

P-F:3-34A
Requirement 1

Date Accounts and Explanation Debit Credit

a. Dec. 31 Utilities Expense 375
Utilities Payable 375
To accrue utilities expense.

b. Dec. 31 Insurance Expense 800*

Prepaid Insurance 800*
To record insurance expense.

c. Dec. 31 Accounts Receivable 3,000

Service Revenue 3,000
To accrue service revenue.

d. Dec. 31 Depreciation Expense—Boat 3,000*

Accumulated Depreciation—Boat 3,000*
To record depreciation on boat.

e. Dec. 31 Unearned Revenue 9,000

Service Revenue 9,000
To record service revenue earned that was collected in
advance.

* Calculations:

b:
$1,200 Insurance prepaid on November 1 for 3 months
 3 months
$ 400 Insurance expense per month

Thus,
$400 Insurance expense per month
× 2 months
$800 Insurance expense for November and December

© 2021 Pearson Education, Inc. 3-39

P-F:3-34A, cont.
d:
Straight-line
= (Cost – Residual Value) / Useful Life in Years
depreciation per year

= ($33,500 – $3,500) / 10 years

= $30,000 / 10 years

= $3,000

Requirement 2

Specific Category Specific Category

Adjusting Over / Over /
of Accounts on the of Accounts on the
Entry Understated Understated
Balance Sheet Income Statement
a. Liability Understated Expense Understated
Equity Overstated
b. Asset Overstated Expense Understated
Equity Overstated
c. Asset Understated Revenue Understated
Equity Understated
d. Asset Overstated Expense Understated
Equity Overstated
e. Liability Overstated Revenue Understated
Equity Understated

© 2021 Pearson Education, Inc. 3-40

P-F:3-35A
Requirement 1

Date Accounts and Explanation Debit Credit

a. Dec. 31 Unearned Revenue 2,100
Service Revenue 2,100
To record service revenue earned that was collected in
advance.

b. Dec. 31 Rent Expense 1,450*

Prepaid Rent 1,450*
To record rent expense.

c. Dec. 31 Supplies Expense 750

Office Supplies 750
To record office supplies used.

d. Dec. 31 Depreciation Expense—Equipment 850

Accumulated Depreciation—Equipment 850
To record depreciation on equipment.

e. Dec. 31 Advertising Expense 1,100

Accounts Payable 1,100
To accrue advertising expense.

f. Dec. 31 Salaries Expense 2,100*

Salaries Payable 2,100*
To accrue salaries expense.

g. Dec. 31 Accounts Receivable 2,550*

Service Revenue 2,550*
To accrue service revenue.

© 2021 Pearson Education, Inc. 3-41

P-F:3-35A, cont.

* Calculations:

b:
$2,900 Rent prepaid on December 1 for two months
 2 months
$1,450 Rent Expense for December
f:
$5,250 Payroll for a 5-day work week
 5 work days
$ 1,050 Salaries Expense per work day

Thus,
$ 1,050 Salaries Expense per work day
× 2 work days
$2,100 Salaries Expense for Monday and Tuesday

g:
$3,400 Service Revenue to be earned October through January
 4 months
$ 850 Service Revenue earned per month

Thus,
$ 850 Service Revenue earned per month
× 3 months
$2,550 Service Revenue earned October through December

© 2021 Pearson Education, Inc. 3-42

P-F:3-35A, cont.
Requirement 2

Cash Accounts Payable Service Revenue

Bal. 7,600 2,900 Bal. 15,300 Bal.
Bal. 7,600 1,100 e. 2,100 a.
4,000 Bal. 2,550 g.
19,950 Bal.

Accounts Receivable Salaries Payable Salaries Expense

Bal. 19,700 2,100 f. Bal. 3,300
g. 2,550 2,100 Bal. f. 2,100
Bal. 22,250 Bal. 5,400

Prepaid Rent Unearned Revenue Rent Expense

Bal. 2,900 1,450 b. a. 2,100 3,100 Bal. b. 1,450
Bal. 1,450 1,000 Bal. Bal. 1,450

Office Supplies Anniston, Capital Depreciation Expense—Equipment

Bal. 1,800 750 c. 43,800 Bal. d. 850
Bal. 1,050 43,800 Bal. Bal. 850

Equipment Anniston, Withdrawals Advertising Expense

Bal. 22,000 Bal. 9,900 Bal. 1,800
Bal. 22,000 Bal. 9,900 e. 1,100
Bal. 2,900

Accumulated Depreciation—
Equipment Supplies Expense
3,900 Bal. c. 750
850 d. Bal. 750
4,750 Bal.

© 2021 Pearson Education, Inc. 3-43

P-F:3-35A, cont.
Requirement 3

ANNISTON AIR PURIFICATION SYSTEM

Adjusted Trial Balance
December 31, 2024
Account Title Balance
Debit Credit
Cash $ 7,600
Accounts Receivable 22,250
Prepaid Rent 1,450
Office Supplies 1,050
Equipment 22,000
Accumulated Depreciation—Equipment $ 4,750
Accounts Payable 4,000
Salaries Payable 2,100
Unearned Revenue 1,000
Anniston, Capital 43,800
Anniston, Withdrawals 9,900
Service Revenue 19,950
Salaries Expense 5,400
Rent Expense 1,450
Depreciation Expense—Equipment 850
Advertising Expense 2,900
Supplies Expense 750
Total $ 75,600 $ 75,600

Requirement 4

Anniston will use the adjusted trial balance to prepare its financial statements. (Additionally, the purpose
of any trial balance is to ensure that total debits equal total credits.)

© 2021 Pearson Education, Inc. 3-44

P-F:3-36A
Requirement 1

Date Accounts and Explanation Debit Credit

a. Dec. 31 Insurance Expense 3,900*
Prepaid Insurance 3,900*
To record insurance expense.

b. Dec. 31 Supplies Expense 300*

Office Supplies 300*
To record office supplies used.

c. Dec. 31 Depreciation Expense—Building 1,200

Accumulated Depreciation—Building 1,200
To record depreciation on building.

d. Dec. 31 Salaries Expense 1,080*

Salaries Payable 1,080*
To accrue salaries expense.

e. Dec. 31 Unearned Revenue 2,000*

Service Revenue 2,000*
To record service revenue earned that was collected in
advance.

* Calculations:

a:
$4,600 Prepaid Insurance prior to adjustment
(700) Prepaid Insurance remaining
$3,900 Insurance Expense

b:
$800 Office Supplies prior to adjustment
(500) Office Supplies remaining
$300 Supplies Expense (cost of office supplies used)

© 2021 Pearson Education, Inc. 3-45

P-F:3-36A, cont.

d:
$2,700 Salaries for a five-day work week
 5 work days
$ 540 Salaries Expense per work day

Thus,

$ 540 Salaries Expense per work day

× 2 work days
$1,080 Salaries Expense for Monday and Tuesday

e:
$3,600 Unearned Revenue prior to adjustment
(1,600) Unearned Revenue still unearned
$2,000 Service Revenue earned

Requirement 2

CASH Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 13,500

ACCOUNTS RECEIVABLE Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 15,100

PREPAID INSURANCE Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 4,600
Dec. 31 a. 3,900 700

© 2021 Pearson Education, Inc. 3-46

P-F:3-36A, cont.

OFFICE SUPPLIES Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 800
Dec. 31 b. 300 500

BUILDING Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 530,000

ACCUMULATED DEPRECIATION—BUILDING Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 260,000
Dec. 31 c. 1,200 261,200

ACCOUNTS PAYABLE Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 1,710

SALARIES PAYABLE Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 d. 1,080 1,080

UNEARNED REVENUE Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 3,600
Dec. 31 e. 2,000 1,600

© 2021 Pearson Education, Inc. 3-47

P-F:3-36A, cont.

GUTHRIE, CAPITAL Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 288,950

GUTHRIE, WITHDRAWALS Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 2,340

SERVICE REVENUE Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 15,500
Dec. 31 e. 2,000 17,500

SALARIES EXPENSE Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 2,800
Dec. 31 d. 1,080 3,880

INSURANCE EXPENSE Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 a. 3,900 3,900

DEPRECIATION EXPENSE—BUILDING Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 c. 1,200 1,200

© 2021 Pearson Education, Inc. 3-48

P-F:3-36A, cont.

ADVERTISING EXPENSE Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 620

SUPPLIES EXPENSE Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 b. 300 300

Requirement 3

GUTHRIE INN COMPANY

Adjusted Trial Balance
December 31, 2024
Account Title Balance
Debit Credit
Cash $ 13,500
Accounts Receivable 15,100
Prepaid Insurance 700
Office Supplies 500
Building 530,000
Accumulated Depreciation—Building $ 261,200
Accounts Payable 1,710
Salaries Payable 1,080
Unearned Revenue 1,600
Guthrie, Capital 288,950
Guthrie, Withdrawals 2,340
Service Revenue 17,500
Salaries Expense 3,880
Insurance Expense 3,900
Depreciation Expense—Building 1,200
Advertising Expense 620
Supplies Expense 300
Total $ 572,040 $ 572,040

© 2021 Pearson Education, Inc. 3-49

P-F:3-36A, cont.
Requirement 4

No. Even if total debits equals total credits on the adjusted trial balance, this does not mean that the
adjusting entries have been recorded correctly. For example, an adjusting entry could have been
recorded for the incorrect amount (even though the debit and the credit amount is the same, the amount
is incorrect). Or an adjusting entry could have been omitted entirely.

© 2021 Pearson Education, Inc. 3-50

P-F:3-37A
Requirement 1

GREAVY THEATER PRODUCTION COMPANY

Worksheet
December 31, 2024
Unadjusted Adjusted
Account Trial Balance Adjustments Trial Balance
Debit Credit Debit Credit Debit Credit
Cash $ 4,300 $ 4,300
Accounts Receivable 5,900 a. $ 500 6,400
Office Supplies 1,900 $ 1,200 b. 700
Prepaid Insurance 4,550 650 c. 3,900
Equipment 30,000 30,000
Accumulated Depreciation—Equipment $ 7,600 4,000 d. $ 11,600
Accounts Payable 3,600 3,600
Salaries Payable 200 e. 200
Greavy, Capital 21,950 21,950
Greavy, Withdrawals 30,500 30,500
Service Revenue 77,000 500 a. 77,500
Depreciation Expense—Equipment d. 4,000 4,000
Supplies Expense b. 1,200 1,200
Utilities Expense 5,500 5,500
Salaries Expense 27,500 e. 200 27,700
Insurance Expense c. 650 650
Total $ 110,150 $ 110,150 $ 6,550 $ 6,550 $ 114,850 $ 114,850

© 2021 Pearson Education, Inc. 3-51

P-F:3-37A, cont.
Requirement 2

Date Accounts and Explanation Debit Credit

a. Dec. 31 Accounts Receivable 500
Service Revenue 500
To accrue service revenue.

b. Dec. 31 Supplies Expense 1,200

Office Supplies 1,200
To record office supplies used.

c. Dec. 31 Insurance Expense 650

Prepaid Insurance 650
To record insurance expense.

d. Dec. 31 Depreciation Expense—Equipment 4,000

Accumulated Depreciation—Equipment 4,000
To record depreciation on equipment.

e. Dec. 31 Salaries Expense 200

Salaries Payable 200
To accrue salaries expense.

© 2021 Pearson Education, Inc. 3-52

P-F:3A-38A
Requirement 1

Date Accounts and Explanation Debit Credit

Nov. 1 Prepaid Rent 9,600
Cash 9,600
To record rent paid in advance.

Nov. 1 Prepaid Insurance 6,000

Cash 6,000
To record insurance paid in advance.

Dec. 1 Cash 9,000

Unearned Revenue 9,000
To record cash collected for future services.

Dec. 1 Cash 7,200

Unearned Revenue 7,200
To record cash collected for future services.

© 2021 Pearson Education, Inc. 3-53

P-F:3A–38A, cont.
Requirement 2

Date Accounts and Explanation Debit Credit

Dec. 31 Rent Expense 3,200*
Prepaid Rent 3,200*
To record rent expense.

Dec. 31 Insurance Expense 2,400*

Prepaid Insurance 2,400*
To record insurance expense.

Dec. 31 Unearned Revenue 1,800

Service Revenue 1,800
To record service revenue earned that was collected in
advance.

Dec. 31 Unearned Revenue 2,400

Service Revenue 2,400
To record service revenue earned that was collected in
advance.

* Calculations:

Adjusting Journal Entry One:

$9,600 Rent prepaid on November 1 for 6 months
 6 months
$1,600 Rent expense per month

Thus,
$1,600 Rent expense per month
× 2 months
$3,200 Rent expense for November and December

© 2021 Pearson Education, Inc. 3-54

P-F:3A–38A, cont.

Adjusting Journal Entry Two:

$6,000 Insurance prepaid on November 1 for 5 months
 5 Months
$1,200 Insurance expense per month

Thus,
$1,200 Insurance expense per month
× 2 Months
$2,400 Insurance expense for November and December

Requirement 3

Prepaid Rent Rent Expense

Nov. 1 9,600 3,200 Dec. 31 Dec. 31 3,200
Bal. 6,400 Bal. 3,200

Prepaid Insurance Insurance Expense

Nov. 1 6,000 2,400 Dec. 31 Dec. 31 2,400
Bal. 3,600 Bal. 2,400

Unearned Revenue Service Revenue

Dec. 31 1,800 9,000 Dec. 1 1,800 Dec. 31
Dec. 31 2,400 7,200 Dec. 1 2,400 Dec. 31
12,000 Bal. 4,200 Bal.

© 2021 Pearson Education, Inc. 3-55

P-F:3A-38A, cont.
Requirement 4

Date Accounts and Explanation Debit Credit

Nov. 1 Rent Expense 9,600
Cash 9,600
To record rent paid in advance.

Nov. 1 Insurance Expense 6,000

Cash 6,000
To record insurance paid in advance.

Dec. 1 Cash 9,000

Service Revenue 9,000
To record cash collected for future services.

Dec. 1 Cash 7,200

Service Revenue 7,200
To record cash collected for future services.

Dec. 31 Prepaid Rent 6,400*

Rent Expense 6,400*
To record prepaid rent.

Dec. 31 Prepaid Insurance 3,600*

Insurance Expense 3,600*
To record prepaid insurance.

Dec. 31 Service Revenue 7,200*

Unearned Revenue 7,200*
To record unearned revenue.

Dec. 31 Service Revenue 4,800*

Unearned Revenue 4,800*
To record unearned revenue.

© 2021 Pearson Education, Inc. 3-56

P-F:3A–38A, cont.

* Calculations:

Adjusting Journal Entry One:

$9,600 Rent prepaid on November 1 for 6 months
 6 Months
$1,600 Rent expense per month

Thus,
$1,600 Rent expense per month
× 4 Months
$6,400 Rent still prepaid on December 31

Adjusting Journal Entry Two:

$6,000 Insurance prepaid on November 1 for 5 months

 5 Months
$1,200 Insurance expense per month

Thus,
$1,200 Insurance expense per month
× 3 Months
$3,600 Insurance still prepaid on December 31

Adjusting Journal Entry Three:

$ 9,000 Collected in advance on December 1 for 5 months

(1,800) Revenue earned during December
$ 7,200 Revenue still unearned on December 31

Adjusting Journal Entry Four:

$ 7,200 Collected in advance on December 1 for 3 months

(2,400) Revenue earned during December
$ 4,800 Revenue still unearned on December 31

© 2021 Pearson Education, Inc. 3-57

P-F:3A–38A, cont.

Prepaid Rent Rent Expense

Dec. 31 6,400 Nov. 1 9,600 6,400 Dec. 31
Bal. 6,400 Bal. 3,200

Prepaid Insurance Insurance Expense

Dec. 31 3,600 Nov. 1 6,000 3,600 Dec. 31
Bal. 3,600 Bal. 2,400

Unearned Revenue Service Revenue

7,200 Dec. 31 Dec. 31 7,200 9,000 Dec. 1
4,800 Dec. 31 Dec. 31 4,800 7,200 Dec. 1
12,000 Bal. 4,200 Bal.

Requirement 5

The ending balances in the accounts are the same, regardless of which of the two approaches is used.

© 2021 Pearson Education, Inc. 3-58

Problems (Group B)
P-F:3-39B
Requirement 1

Date Accounts and Explanation Debit Credit

a. Dec. 31 Salaries Expense 3,900*
Salaries Payable 3,900*
To accrue salaries expense.

b. Dec. 31 Insurance Expense 3,750*

Prepaid Insurance 3,750*
To record insurance expense.

c. Dec. 31 Supplies Expense 6,500*

Office Supplies 6,500*
To record office supplies used.

d. Dec. 31 Unearned Revenue 4,200*

Service Revenue 4,200*
To record service revenue earned that was
collected in advance.

e. Dec. 31 Accounts Receivable 7,500

Service Revenue 7,500
To accrue service revenue.

f. Dec. 31 Depreciation Expense—Equipment 3,800

Depreciation Expense—Trucks 1,400
Accumulated Depreciation—Equipment 3,800
Accumulated Depreciation—Trucks 1,400
To record depreciation on equipment and trucks.

g. Dec. 31 Interest Expense 250

Interest Payable 250
To accrue interest expense.

© 2021 Pearson Education, Inc. 3-59

P-F:3-39B, cont.

* Calculations:

a:
$6,500 Payroll for a 5-day work week
 5 work days
$1,300 Salaries expense per work day

Thus,
$1,300 Salaries expense per work day
× 3 work days
$3,900 Salaries expense for Monday through Wednesday

b:
$7,500 Insurance prepaid on January 1 for two years
 2 years
$3,750 Insurance expense for one year

c:
$3,700 Beginning balance of office supplies
5,800 Office supplies purchased
(3,000) Office supplies on hand
$6,500 Supplies expense (cost of office supplies used)

d:
$6,000 Collected in advance during December
× 70% Percentage earned during December
$4,200 Revenue earned during December

© 2021 Pearson Education, Inc. 3-60

P-F:3-39B, cont.
Requirement 2

Date Accounts and Explanation Debit Credit

a. Jan. 2 Salaries Expense 2,600*
Salaries Payable 3,900
Cash 6,500
To record payment of salaries.

d. Unearned Revenue 1,800*

Service Revenue 1,800*
To record service revenue earned that was collected in
advance.

g. Jan. 15 Interest Expense 100*

Interest Payable 250
Cash 350
To record payment of interest.

* Calculations:
a:
$6,500 Payroll for a 5-day work week
 5 work days
$1,300 Salaries expense per work day

Thus,
$1,300 Salaries expense per work day
× 2 work days
$2,600 Salaries expense for Thursday and Friday of the current week

d:
$6,000 Collected in advance during December
(4,200) Revenue earned during December (see requirement 1)
$1,800 Revenue earned after December

g:
$350 Total interest paid on January 15
(250) Interest expense previously accrued on December 31
$100 Interest expense for January 1 through January 15

© 2021 Pearson Education, Inc. 3-61

P-F:3-40B
Requirement 1

Date Accounts and Explanation Debit Credit

a. Dec. 31 Utilities Expense 375
Utilities Payable 375
To accrue utilities expense.

b. Dec. 31 Insurance Expense 2,400*

Prepaid Insurance 2,400*
To record insurance expense.

c. Dec. 31 Accounts Receivable 1,000

Service Revenue 1,000
To accrue service revenue.

d. Dec. 31 Depreciation Expense—Boat 10,000*

Accumulated Depreciation—Boat 10,000*
To record depreciation on boat.

e. Dec. 31 Unearned Revenue 5,000

Service Revenue 5,000
To record service revenue earned that was collected in
advance.

* Calculations:

b:
$3,600 Insurance prepaid on November 1 for 3 months
 3 months
$1,200 Insurance expense per month

Thus,
$1,200 Insurance expense per month
× 2 months
$2,400 Insurance expense for November and December

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P-F:3-40B, cont.
d:
Straight-line
= (Cost – Residual Value) / Useful Life in Years
depreciation per year

= ($56,500 – $6,500) / 5 years

= $50,000 / 5 years

= $10,000

Requirement 2

Specific Category Specific Category

Adjusting Over / Over /
of Accounts on the of Accounts on the
Entry Understated Understated
Balance Sheet Income Statement
a. Liability Understated Expense Understated
Equity Overstated
b. Asset Overstated Expense Understated
Equity Overstated
c. Asset Understated Revenue Understated
Equity Understated
d. Asset Overstated Expense Understated
Equity Overstated
e. Liability Overstated Revenue Understated
Equity Understated

© 2021 Pearson Education, Inc. 3-63

P-F:3-41B
Requirement 1

Date Accounts and Explanation Debit Credit

a. Dec. 31 Unearned Revenue 2,100
Service Revenue 2,100
To record service revenue earned that was collected in
advance.

b. Dec. 31 Rent Expense 1,200*

Prepaid Rent 1,200*
To record rent expense.

c. Dec. 31 Supplies Expense 750

Office Supplies 750
To record office supplies used.

d. Dec. 31 Depreciation Expense—Equipment 800

Accumulated Depreciation—Equipment 800
To record depreciation on equipment.

e. Dec. 31 Advertising Expense 500

Accounts Payable 500
To accrue advertising expense.

f. Dec. 31 Salaries Expense 1,200*

Salaries Payable 1,200*
To accrue salaries expense.

g. Dec. 31 Accounts Receivable 2,100*

Service Revenue 2,100*
To accrue service revenue.

* Calculations:

b:
$2,400 Rent prepaid on December 1 for two months
 2 months
$1,200 Rent expense for December

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P-F:3-41B, cont.

f:
$3,000 Payroll for a 5-day work week
 5 work days
$ 600 Salaries expense per work day

Thus,
$ 600 Salaries expense per work day
× 2 work days
$1,200 Salaries expense for Monday and Tuesday

g:
$2,800 Service revenue to be earned October through January
 4 months
$ 700 Service revenue earned per month

Thus,
$ 700 Service revenue earned per month
× 3 months
$2,100 Service revenue earned October through December

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P-F:3-41B, cont.
Requirement 2

Cash Accounts Payable Service Revenue

Bal. 7,100 3,500 Bal. 15,900 Bal.
Bal. 7,100 500 e. 2,100 a.
4,000 Bal. 2,100 g.
20,100 Bal.

Accounts Receivable Salaries Payable Salaries Expense

Bal. 19,100 1,200 f. Bal. 3,900
g. 2,100 1,200 Bal. f. 1,200
Bal. 21,200 Bal. 5,100

Prepaid Rent Unearned Revenue Rent Expense

Bal. 2,400 1,200 b. a. 2,100 2,700 Bal. b. 1,200
Bal. 1,200 600 Bal. Bal. 1,200

Depreciation Expense—
Office Supplies Avery, Capital Equipment
Bal. 1,400 750 c. 39,300 Bal. d. 800
Bal. 650 39,300 Bal. Bal. 800

Equipment Avery, Withdrawals Advertising Expense

Bal. 20,000 Bal. 9,400 Bal. 1,900
Bal. 20,000 Bal. 9,400 e. 500
Bal. 2,400

Accumulated Depreciation—
Equipment Supplies Expense
3,800 Bal. c. 750
800 d. Bal. 750
4,600 Bal.

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P-F:3-41B, cont.
Requirement 3

AVERY AIR PURIFICATION SYSTEM

Adjusted Trial Balance
December 31, 2024
Account Title Balance
Debit Credit
Cash $ 7,100
Accounts Receivable 21,200
Prepaid Rent 1,200
Office Supplies 650
Equipment 20,000
Accumulated Depreciation—Equipment $ 4,600
Accounts Payable 4,000
Salaries Payable 1,200
Unearned Revenue 600
Avery, Capital 39,300
Avery, Withdrawals 9,400
Service Revenue 20,100
Salaries Expense 5,100
Rent Expense 1,200
Depreciation Expense—Equipment 800
Advertising Expense 2,400
Supplies Expense 750
Total $ 69,800 $ 69,800

Requirement 4

Avery will use the adjusted trial balance to prepare its financial statements. (Additionally, the purpose of
any trial balance is to ensure that total debits equal total credits.)

© 2021 Pearson Education, Inc. 3-67

P-F:3-42B
Requirement 1

Date Accounts and Explanation Debit Credit

a. Dec. 31 Insurance Expense 600*
Prepaid Insurance 600*
To record insurance expense.

b. Dec. 31 Supplies Expense 200*

Office Supplies 200*
To record office supplies used.

c. Dec. 31 Depreciation Expense—Building 2,100

Accumulated Depreciation—Building 2,100
To record depreciation on building.

d. Dec. 31 Salaries Expense 780*

Salaries Payable 780*
To accrue salaries expense.

e. Dec. 31 Unearned Revenue 200*

Service Revenue 200*
To record service revenue earned that was collected in
advance.

* Calculations:

a:
$1,400 Prepaid Insurance prior to adjustment
(800) Prepaid Insurance remaining
$ 600 Insurance Expense

b:
$700 Office supplies prior to adjustment
(500) Office supplies remaining
$200 Supplies Expense (cost of office supplies used)

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P-F:3-42B, cont.

d:
$1,950 Salaries for a five-day work week
 5 Work days
$ 390 Salaries Expense per work day

Thus,

$390 Salaries Expense per work day

× 2 work days
$780 Salaries Expense for Monday and Tuesday

e:
$1,600 Unearned Revenue prior to adjustment
(1,400) Unearned Revenue still unearned
$ 200 Service Revenue earned

Requirement 2

CASH Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 14,500

ACCOUNTS RECEIVABLE Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 15,100

PREPAID INSURANCE Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 1,400
Dec. 31 a. 600 800

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P-F:3-42B, cont.

OFFICE SUPPLIES Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 700
Dec. 31 b. 200 500

BUILDING Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 518,000

ACCUMULATED DEPRECIATION—BUILDING Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 310,000
Dec. 31 c. 2,100 312,100

ACCOUNTS PAYABLE Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 4,210

SALARIES PAYABLE Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 d. 780 780

UNEARNED REVENUE Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 1,600
Dec. 31 e. 200 1,400

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P-F:3-42B, cont.

MIDWAY, CAPITAL Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 222,160

MIDWAY, WITHDRAWALS Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 1,890

SERVICE REVENUE Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 16,900
Dec. 31 e. 200 17,100

SALARIES EXPENSE Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 2,600
Dec. 31 d. 780 3,380

INSURANCE EXPENSE Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 a. 600 600

DEPRECIATION EXPENSE—BUILDING Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 c. 2,100 2,100

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P-F:3-42B, cont.

ADVERTISING EXPENSE Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 Balance 680

SUPPLIES EXPENSE Account No.

Balance
Date Item Post Ref. Debit Credit Debit Credit
2024
Dec. 31 b. 200 200

Requirement 3

MIDWAY INN COMPANY

Adjusted Trial Balance
December 31, 2024
Account Title Balance
Debit Credit
Cash $ 14,500
Accounts Receivable 15,100
Prepaid Insurance 800
Office Supplies 500
Building 518,000
Accumulated Depreciation—Building $ 312,100
Accounts Payable 4,210
Salaries Payable 780
Unearned Revenue 1,400
Midway, Capital 222,160
Midway, Withdrawals 1,890
Service Revenue 17,100
Salaries Expense 3,380
Insurance Expense 600
Depreciation Expense—Building 2,100
Advertising Expense 680
Supplies Expense 200
Total $ 557,750 $ 557,750

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P-F:3-42B, cont.
Requirement 4

No. Even if total debits equals total credits on the adjusted trial balance, this does not mean that the
adjusting entries have been recorded correctly. For example, an adjusting entry could have been
recorded for the incorrect amount (even though the debit and the credit amount is the same, the amount
is incorrect). Or an adjusting entry could have been omitted entirely.

© 2021 Pearson Education, Inc. 3-73

P-F:3-43B
Requirement 1

GALAXY THEATER PRODUCTION COMPANY

Worksheet
December 31, 2024
Unadjusted Adjusted
Account Trial Balance Adjustments Trial Balance
Debit Credit Debit Credit Debit Credit
Cash $ 3,600 $ 3,600
Accounts Receivable 5,700 a. $ 900 6,600
Office Supplies 1,500 $ 1,000 b. 500
Prepaid Insurance 900 300 c. 600
Equipment 23,000 23,000
Accumulated Depreciation—Equipment $ 8,500 4,200 d. $ 12,700
Accounts Payable 4,600 4,600
Salaries Payable 150 e. 150
Galaxy, Capital 9,900 9,900
Galaxy, Withdrawals 26,000 26,000
Service Revenue 72,000 900 a. 72,900
Depreciation Expense—Equipment d. 4,200 4,200
Supplies Expense b. 1,000 1,000
Utilities Expense 4,300 4,300
Salaries Expense 30,000 e. 150 30,150
Insurance Expense c. 300 300
Total $95,000 $95,000 $ 6,550 $ 6,550 $100,250 $100,250

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P-F:3-43B, cont.
Requirement 2

Date Accounts and Explanation Debit Credit

a. Dec. 31 Accounts Receivable 900
Service Revenue 900
To accrue service revenue.

b. Dec. 31 Supplies Expense 1,000

Office Supplies 1,000
To record office supplies used.

c. Dec. 31 Insurance Expense 300

Prepaid Insurance 300
To record insurance expense.

d. Dec. 31 Depreciation Expense—Equipment 4,200

Accumulated Depreciation—Equipment 4,200
To record depreciation on equipment.

e. Dec. 31 Salaries Expense 150

Salaries Payable 150
To accrue salaries expense.

P-F:3A-44B
Requirement 1

Date Accounts and Explanation Debit Credit

Nov. 1 Prepaid Rent 6,000
Cash 6,000
To record rent paid in advance.

Nov. 1 Prepaid Insurance 7,800

Cash 7,800
To record insurance paid in advance.

Dec. 1 Cash 12,000

Unearned Revenue 12,000
To record cash collected for future services.

Dec. 1 Cash 7,500

Unearned Revenue 7,500
To record cash collected for future services.

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P-F:3-44B, cont.

Adjusting Journal Entry Three:

$12,000 Collected in advance on December 1 for 5 months

(2,400) Revenue earned during December
$9,600 Revenue still unearned on December 31

Adjusting Journal Entry Four:

$7,500 Collected in advance on December 1 for 5 months

(1,500) Revenue earned during December
$6,000 Revenue still unearned on December 31

Prepaid Rent Rent Expense

Dec. 31 3,000 Nov. 1 6,000 3,000 Dec. 31
Bal. 3,000 Bal. 3,000

Prepaid Insurance Insurance Expense

Dec. 31 5,200 Nov. 1 7,800 5,200 Dec. 31
Bal. 5,200 Bal. 2,600

Unearned Revenue Service Revenue

9,600 Dec. 31 Dec. 31 9,600 12,000 Dec. 1
6,000 Dec. 31 Dec. 31 6,000 7,500 Dec. 1
15,600 Bal. 3,900 Bal.

Requirement 5

The ending balances in the accounts are the same, regardless of which of the two approaches is used.

© 2021 Pearson Education, Inc. 3-76