CHAPTER 3 — PRACTICE WORKSHEET

Adjusting Entries · work it on paper, then check yourself

Try every exercise on paper BEFORE you check the answers. The attempt is where it sticks.

The exercises

1. Exercise 1 — Name the adjustment pattern

Classify each situation as one of the four patterns.

a
A 12-month insurance policy paid in advance is one month older.
a) Prepaid expense (deferral) b) Accrued revenue c) Unearned revenue (deferral) d) Accrued expense
b
A client paid in advance and you've now done part of the work.
a) Accrued revenue b) Unearned revenue (deferral) c) Prepaid expense (deferral) d) Accrued expense
c
You performed services this month but won't bill until next month.
a) Prepaid expense (deferral) b) Accrued expense c) Accrued revenue d) Unearned revenue (deferral)
d
Employees have earned wages not yet paid at period end.
a) Prepaid expense (deferral) b) Accrued revenue c) Unearned revenue (deferral) d) Accrued expense

2. Exercise 2 — Prepaid insurance

On June 1, Fernwood Clinic paid $2,400 for a 12-month insurance policy and recorded Prepaid Insurance. It now prepares its June 30 adjustment.

a
Insurance expired in June (one month)
b
Record the June 30 adjusting entry.
Accounts available: Cash · Accounts Receivable · Supplies · Prepaid Insurance · Prepaid Rent · Equipment · Accumulated Depreciation · Accounts Payable · Salaries and Wages Payable · Interest Payable · Unearned Revenue · Notes Payable · Owner's Capital · Service Revenue · Supplies Expense · Insurance Expense · Rent Expense · Depreciation Expense · Salaries and Wages Expense · Interest Expense · Utilities Expense
c
Prepaid Insurance remaining after the adjustment

3. Exercise 3 — Supplies used

Talia's Studio began the month with $4,000 of Supplies. A count on the last day finds $1,500 still on hand.

a
Supplies used during the month
b
Record the adjusting entry for supplies used.
Accounts available: Cash · Accounts Receivable · Supplies · Prepaid Insurance · Prepaid Rent · Equipment · Accumulated Depreciation · Accounts Payable · Salaries and Wages Payable · Interest Payable · Unearned Revenue · Notes Payable · Owner's Capital · Service Revenue · Supplies Expense · Insurance Expense · Rent Expense · Depreciation Expense · Salaries and Wages Expense · Interest Expense · Utilities Expense

4. Exercise 4 — Depreciation and book value

Crestline Delivery owns equipment that cost $24,000, with a 5-year useful life and no salvage value. It records depreciation for a full year.

a
Annual straight-line depreciation
b
Record the annual depreciation adjusting entry.
Accounts available: Cash · Accounts Receivable · Supplies · Prepaid Insurance · Prepaid Rent · Equipment · Accumulated Depreciation · Accounts Payable · Salaries and Wages Payable · Interest Payable · Unearned Revenue · Notes Payable · Owner's Capital · Service Revenue · Supplies Expense · Insurance Expense · Rent Expense · Depreciation Expense · Salaries and Wages Expense · Interest Expense · Utilities Expense
c
Book value of the equipment after one year

5. Exercise 5 — Unearned revenue earned

On March 1, Beacon Advisors received $6,000 for six months of service and recorded Unearned Revenue. By March 31 it has provided one month of service.

a
Revenue earned by March 31 (one of six months)
b
Record the March 31 adjusting entry.
Accounts available: Cash · Accounts Receivable · Supplies · Prepaid Insurance · Prepaid Rent · Equipment · Accumulated Depreciation · Accounts Payable · Salaries and Wages Payable · Interest Payable · Unearned Revenue · Notes Payable · Owner's Capital · Service Revenue · Supplies Expense · Insurance Expense · Rent Expense · Depreciation Expense · Salaries and Wages Expense · Interest Expense · Utilities Expense
c
Unearned Revenue still owed after the adjustment

6. Exercise 6 — Accrued revenue

By the last day of the month, Harper Consulting has performed $1,500 of work it will not invoice until next month.

a
Record the adjusting entry for the unbilled work.
Accounts available: Cash · Accounts Receivable · Supplies · Prepaid Insurance · Prepaid Rent · Equipment · Accumulated Depreciation · Accounts Payable · Salaries and Wages Payable · Interest Payable · Unearned Revenue · Notes Payable · Owner's Capital · Service Revenue · Supplies Expense · Insurance Expense · Rent Expense · Depreciation Expense · Salaries and Wages Expense · Interest Expense · Utilities Expense
b
When the client pays next month, the entry will be:
a) Debit Cash, Credit Accounts Receivable b) Debit Cash, Credit Service Revenue c) Debit Accounts Receivable, Credit Cash d) Debit Service Revenue, Credit Cash

7. Exercise 7 — Accrued salaries

Northgate Repair pays its staff $600 per day. The period ends on a Wednesday, three days after the last Friday payday.

a
Salaries accrued but unpaid at period end
b
Record the adjusting entry.
Accounts available: Cash · Accounts Receivable · Supplies · Prepaid Insurance · Prepaid Rent · Equipment · Accumulated Depreciation · Accounts Payable · Salaries and Wages Payable · Interest Payable · Unearned Revenue · Notes Payable · Owner's Capital · Service Revenue · Supplies Expense · Insurance Expense · Rent Expense · Depreciation Expense · Salaries and Wages Expense · Interest Expense · Utilities Expense

8. Exercise 8 — Accrued interest

Meridian Cafe signed a $20,000 note payable at 6% annual interest. Three months of interest have accrued by period end.

a
Interest accrued (Principal × Rate × Time)
b
Record the adjusting entry for accrued interest.
Accounts available: Cash · Accounts Receivable · Supplies · Prepaid Insurance · Prepaid Rent · Equipment · Accumulated Depreciation · Accounts Payable · Salaries and Wages Payable · Interest Payable · Unearned Revenue · Notes Payable · Owner's Capital · Service Revenue · Supplies Expense · Insurance Expense · Rent Expense · Depreciation Expense · Salaries and Wages Expense · Interest Expense · Utilities Expense

9. Exercise 9 — Prepaid rent

On April 1, Lumen Design paid $12,000 for six months of rent in advance and recorded Prepaid Rent. It adjusts on April 30.

a
Rent expired in April (one month)
b
Record the April 30 adjusting entry.
Accounts available: Cash · Accounts Receivable · Supplies · Prepaid Insurance · Prepaid Rent · Equipment · Accumulated Depreciation · Accounts Payable · Salaries and Wages Payable · Interest Payable · Unearned Revenue · Notes Payable · Owner's Capital · Service Revenue · Supplies Expense · Insurance Expense · Rent Expense · Depreciation Expense · Salaries and Wages Expense · Interest Expense · Utilities Expense
c
Prepaid Rent remaining after the adjustment

10. Exercise 10 — What if you skip an adjustment?

Decide the effect of omitting each adjusting entry.

a
If the adjustment for supplies used is NOT made, then:
a) Assets and net income are understated b) Assets and net income are overstated c) Liabilities are overstated d) There is no effect
b
If accrued salaries are NOT recorded, then:
a) Expenses are overstated b) Assets are understated c) Liabilities and expenses are understated (net income overstated) d) There is no effect
c
If accrued (unbilled) revenue is NOT recorded, then:
a) Revenues and assets are overstated b) Liabilities are overstated c) There is no effect d) Revenues and assets are understated

11. Exercise 11 — Adjusted trial balance totals

After posting its adjustments, Solaris Studio has these balances: Cash $12,000; Accounts Receivable $4,500; Supplies $1,300; Prepaid Insurance $1,800; Equipment $24,000; Owner's Drawings $2,000; Salaries and Wages Expense $9,400; Supplies Expense $2,700; Insurance Expense $600; Depreciation Expense $4,800; Rent Expense $3,600; Accumulated Depreciation $4,800; Accounts Payable $3,200; Salaries and Wages Payable $1,100; Unearned Revenue $2,500; Notes Payable $10,000; Owner's Capital $20,000; Service Revenue $25,100.

a
Total of the DEBIT column
b
Total of the CREDIT column
c
Net income (Service Revenue minus all expenses)

12. Exercise 12 — Four adjustments in a row

Journalize four independent period-end adjustments for Vesta Marketing.

a
$700 of supplies were used this month.
Accounts available: Cash · Accounts Receivable · Supplies · Prepaid Insurance · Prepaid Rent · Equipment · Accumulated Depreciation · Accounts Payable · Salaries and Wages Payable · Interest Payable · Unearned Revenue · Notes Payable · Owner's Capital · Service Revenue · Supplies Expense · Insurance Expense · Rent Expense · Depreciation Expense · Salaries and Wages Expense · Interest Expense · Utilities Expense
b
$3,000 of previously unearned revenue has now been earned.
Accounts available: Cash · Accounts Receivable · Supplies · Prepaid Insurance · Prepaid Rent · Equipment · Accumulated Depreciation · Accounts Payable · Salaries and Wages Payable · Interest Payable · Unearned Revenue · Notes Payable · Owner's Capital · Service Revenue · Supplies Expense · Insurance Expense · Rent Expense · Depreciation Expense · Salaries and Wages Expense · Interest Expense · Utilities Expense
c
Depreciation on equipment for the month is $400.
Accounts available: Cash · Accounts Receivable · Supplies · Prepaid Insurance · Prepaid Rent · Equipment · Accumulated Depreciation · Accounts Payable · Salaries and Wages Payable · Interest Payable · Unearned Revenue · Notes Payable · Owner's Capital · Service Revenue · Supplies Expense · Insurance Expense · Rent Expense · Depreciation Expense · Salaries and Wages Expense · Interest Expense · Utilities Expense
d
Interest of $100 has accrued on a note payable.
Accounts available: Cash · Accounts Receivable · Supplies · Prepaid Insurance · Prepaid Rent · Equipment · Accumulated Depreciation · Accounts Payable · Salaries and Wages Payable · Interest Payable · Unearned Revenue · Notes Payable · Owner's Capital · Service Revenue · Supplies Expense · Insurance Expense · Rent Expense · Depreciation Expense · Salaries and Wages Expense · Interest Expense · Utilities Expense

13. Exercise 13 — Cash basis vs. accrual basis

In 2017, Larkspur Design collected $120,000 cash from customers and paid $78,000 cash for expenses. Of the cash collected, $20,000 was for services performed in 2016. Larkspur also performed $45,000 of services in 2017 that will not be collected until 2018. Of the cash paid, $16,000 was for expenses incurred in 2016; and $23,000 of 2017 expenses will not be paid until 2018.

a
Cash-basis net income (cash received − cash paid)
b
Revenue EARNED in 2017 (accrual basis)
c
Expenses INCURRED in 2017 (accrual basis)
d
Accrual-basis net income

14. Exercise 14 — Work backward to the adjusting entry

Tidewater Rentals' account balances before and after its month-end adjustments were: Prepaid Insurance $3,600 before / $3,000 after; Supplies $2,800 before / $1,900 after; Salaries and Wages Payable $0 before / $1,400 after. Reconstruct each adjusting entry.

a
Insurance that expired (the Prepaid Insurance adjustment)
b
Journalize the insurance adjustment.
Accounts available: Cash · Accounts Receivable · Supplies · Prepaid Insurance · Prepaid Rent · Equipment · Accumulated Depreciation · Accounts Payable · Salaries and Wages Payable · Interest Payable · Unearned Revenue · Notes Payable · Owner's Capital · Service Revenue · Supplies Expense · Insurance Expense · Rent Expense · Depreciation Expense · Salaries and Wages Expense · Interest Expense · Utilities Expense
c
Supplies used (the Supplies adjustment)
d
Journalize the supplies adjustment.
Accounts available: Cash · Accounts Receivable · Supplies · Prepaid Insurance · Prepaid Rent · Equipment · Accumulated Depreciation · Accounts Payable · Salaries and Wages Payable · Interest Payable · Unearned Revenue · Notes Payable · Owner's Capital · Service Revenue · Supplies Expense · Insurance Expense · Rent Expense · Depreciation Expense · Salaries and Wages Expense · Interest Expense · Utilities Expense
e
Salaries accrued (the rise in Salaries and Wages Payable)
f
Journalize the accrued-salaries adjustment.
Accounts available: Cash · Accounts Receivable · Supplies · Prepaid Insurance · Prepaid Rent · Equipment · Accumulated Depreciation · Accounts Payable · Salaries and Wages Payable · Interest Payable · Unearned Revenue · Notes Payable · Owner's Capital · Service Revenue · Supplies Expense · Insurance Expense · Rent Expense · Depreciation Expense · Salaries and Wages Expense · Interest Expense · Utilities Expense

15. Exercise 15 — Compute backward from adjusted data

Work out each original amount for Cypress Studio.

a
Supplies shows $1,400 at Jan 31 (after adjustment). Supplies Expense for January was $2,300, and $3,200 of supplies were purchased in January. What was the Supplies balance on January 1?
b
Insurance Expense is $150 per month for a one-year policy. What total premium was paid?
c
Salaries and Wages Expense was $9,400 and Salaries and Wages Payable rose from $0 to $1,100. How much cash was actually paid to employees?

16. Exercise 16 — Build the statements from the adjusted trial balance

Use Solaris Studio's adjusted balances: Service Revenue $25,100; Salaries and Wages Expense $9,400; Supplies Expense $2,700; Insurance Expense $600; Depreciation Expense $4,800; Rent Expense $3,600. Owner's Capital $20,000; Owner's Drawings $2,000. Assets: Cash $12,000; Accounts Receivable $4,500; Supplies $1,300; Prepaid Insurance $1,800; Equipment $24,000 less Accumulated Depreciation $4,800. Liabilities: Accounts Payable $3,200; Salaries and Wages Payable $1,100; Unearned Revenue $2,500; Notes Payable $10,000.

a
Income statement — total expenses
b
Income statement — net income
c
Owner's equity statement — ending capital (beginning + net income − drawings)
d
Balance sheet — total assets (show Equipment net of accumulated depreciation)
e
Balance sheet — total liabilities + owner's equity

Answers

Part of the free Accounting 1 course — Chapter 3: Adjusting Entries

ANSWERS — do not read these until you have finished

1. Exercise 1 — Name the adjustment pattern

a
Prepaid expense (deferral)
Cash was paid and an asset recorded; part is now used up — a prepaid (deferred) expense.
b
Unearned revenue (deferral)
Cash came in early as a liability; earning part of it is an unearned-revenue deferral.
c
Accrued revenue
Earned but not yet recorded or received — an accrued revenue.
d
Accrued expense
A cost incurred but not yet paid or recorded — an accrued expense.

Solution: Prepaid insurance = prepaid expense; advance payment partly earned = unearned revenue; unbilled work = accrued revenue; unpaid wages = accrued expense.

2. Exercise 2 — Prepaid insurance

a
200
2,400 ÷ 12 = 200 per month.
b
Account Debit Credit
Insurance Expense 200
Prepaid Insurance 200
The used-up asset becomes an expense: debit Insurance Expense 200, credit Prepaid Insurance 200.
c
2,200
2,400 − 200 = 2,200 still prepaid.

Account	Debit	Credit
Insurance Expense	200
Prepaid Insurance		200

Solution: Expired 200. Debit Insurance Expense 200; Credit Prepaid Insurance 200. Prepaid Insurance now 2,200.

3. Exercise 3 — Supplies used

a
2,500
4,000 − 1,500 = 2,500 used.
b
Account Debit Credit
Supplies Expense 2,500
Supplies 2,500
Debit Supplies Expense 2,500; credit Supplies 2,500, leaving the $1,500 that remains.

Account	Debit	Credit
Supplies Expense	2,500
Supplies		2,500

Solution: Used 2,500. Debit Supplies Expense 2,500; Credit Supplies 2,500.

4. Exercise 4 — Depreciation and book value

a
4,800
24,000 ÷ 5 = 4,800 per year.
b
Account Debit Credit
Depreciation Expense 4,800
Accumulated Depreciation 4,800
Debit Depreciation Expense; credit the contra-asset Accumulated Depreciation. Equipment's cost stays at 24,000.
c
19,200
24,000 − 4,800 = 19,200 (cost minus accumulated depreciation).

Account	Debit	Credit
Depreciation Expense	4,800
Accumulated Depreciation		4,800

Solution: Depreciation 4,800. Debit Depreciation Expense 4,800; Credit Accumulated Depreciation 4,800. Book value 19,200.

5. Exercise 5 — Unearned revenue earned

a
1,000
6,000 ÷ 6 = 1,000 per month.
b
Account Debit Credit
Unearned Revenue 1,000
Service Revenue 1,000
The liability becomes revenue: debit Unearned Revenue 1,000, credit Service Revenue 1,000.
c
5,000
6,000 − 1,000 = 5,000 of service still to be provided.

Account	Debit	Credit
Unearned Revenue	1,000
Service Revenue		1,000

Solution: Earned 1,000. Debit Unearned Revenue 1,000; Credit Service Revenue 1,000. Liability now 5,000.

6. Exercise 6 — Accrued revenue

a
Account Debit Credit
Accounts Receivable 1,500
Service Revenue 1,500
Accrued revenue: debit Accounts Receivable 1,500, credit Service Revenue 1,500.
b
Debit Cash, Credit Accounts Receivable
Debit Cash, credit Accounts Receivable — no new revenue, since it was already recorded when earned.

Account	Debit	Credit
Accounts Receivable	1,500
Service Revenue		1,500

Solution: Debit Accounts Receivable 1,500; Credit Service Revenue 1,500. Collection later: Debit Cash / Credit Accounts Receivable.

7. Exercise 7 — Accrued salaries

a
1,800
3 days × $600 = 1,800 earned but not yet paid.
b
Account Debit Credit
Salaries and Wages Expense 1,800
Salaries and Wages Payable 1,800
Accrued expense: debit Salaries and Wages Expense 1,800, credit Salaries and Wages Payable 1,800.

Account	Debit	Credit
Salaries and Wages Expense	1,800
Salaries and Wages Payable		1,800

Solution: Accrued 1,800. Debit Salaries and Wages Expense 1,800; Credit Salaries and Wages Payable 1,800.

8. Exercise 8 — Accrued interest

a
300
20,000 × 6% × 3/12 = 300.
b
Account Debit Credit
Interest Expense 300
Interest Payable 300
Debit Interest Expense 300; credit Interest Payable 300.

Account	Debit	Credit
Interest Expense	300
Interest Payable		300

Solution: Interest 300. Debit Interest Expense 300; Credit Interest Payable 300.

9. Exercise 9 — Prepaid rent

a
2,000
12,000 ÷ 6 = 2,000 per month.
b
Account Debit Credit
Rent Expense 2,000
Prepaid Rent 2,000
Debit Rent Expense 2,000; credit Prepaid Rent 2,000.
c
10,000
12,000 − 2,000 = 10,000 still prepaid.

Account	Debit	Credit
Rent Expense	2,000
Prepaid Rent		2,000

Solution: Expired 2,000. Debit Rent Expense 2,000; Credit Prepaid Rent 2,000. Prepaid Rent now 10,000.

10. Exercise 10 — What if you skip an adjustment?

a
Assets and net income are overstated
Supplies (asset) stays too high and Supplies Expense is missing, so expenses are too low and net income too high.
b
Liabilities and expenses are understated (net income overstated)
Salaries Payable and Salaries Expense are both missing, so liabilities and expenses are too low and net income too high.
c
Revenues and assets are understated
The receivable and the revenue are both missing, so assets and revenues are understated.

Solution: Skip supplies: assets & net income overstated. Skip accrued salaries: liabilities & expenses understated (income overstated). Skip accrued revenue: assets & revenues understated.

11. Exercise 11 — Adjusted trial balance totals

a
66,700
12,000 + 4,500 + 1,300 + 1,800 + 24,000 + 2,000 + 9,400 + 2,700 + 600 + 4,800 + 3,600 = 66,700.
b
66,700
4,800 + 3,200 + 1,100 + 2,500 + 10,000 + 20,000 + 25,100 = 66,700. The two must match.
c
4,000
Revenue 25,100 − expenses (9,400 + 2,700 + 600 + 4,800 + 3,600 = 21,100) = 4,000.

Solution: Debit column 66,700 = credit column 66,700. Net income = 25,100 − 21,100 = 4,000.

12. Exercise 12 — Four adjustments in a row

a
Account Debit Credit
Supplies Expense 700
Supplies 700
Prepaid expense used: debit Supplies Expense 700, credit Supplies 700.
b
Account Debit Credit
Unearned Revenue 3,000
Service Revenue 3,000
Liability becomes revenue: debit Unearned Revenue 3,000, credit Service Revenue 3,000.
c
Account Debit Credit
Depreciation Expense 400
Accumulated Depreciation 400
Debit Depreciation Expense 400; credit Accumulated Depreciation 400.
d
Account Debit Credit
Interest Expense 100
Interest Payable 100
Accrued expense: debit Interest Expense 100, credit Interest Payable 100.

Account	Debit	Credit
Supplies Expense	700
Supplies		700

Account	Debit	Credit
Unearned Revenue	3,000
Service Revenue		3,000

Account	Debit	Credit
Depreciation Expense	400
Accumulated Depreciation		400

Account	Debit	Credit
Interest Expense	100
Interest Payable		100

Solution: 1) Dr Supplies Expense 700 / Cr Supplies 700. 2) Dr Unearned Revenue 3,000 / Cr Service Revenue 3,000. 3) Dr Depreciation Expense 400 / Cr Accumulated Depreciation 400. 4) Dr Interest Expense 100 / Cr Interest Payable 100.

13. Exercise 13 — Cash basis vs. accrual basis

a
42,000
120,000 − 78,000 = 42,000.
b
145,000
Cash for 2017 services (120,000 − 20,000 = 100,000) + performed but uncollected 45,000 = 145,000.
c
85,000
Cash for 2017 expenses (78,000 − 16,000 = 62,000) + incurred but unpaid 23,000 = 85,000.
d
60,000
145,000 − 85,000 = 60,000.

Solution: Cash basis: 120,000 − 78,000 = 42,000. Accrual basis: revenue 145,000 − expenses 85,000 = 60,000.

14. Exercise 14 — Work backward to the adjusting entry

a
600
3,600 − 3,000 = 600 of the asset was used up.
b
Account Debit Credit
Insurance Expense 600
Prepaid Insurance 600
Debit Insurance Expense 600; credit Prepaid Insurance 600.
c
900
2,800 − 1,900 = 900 used.
d
Account Debit Credit
Supplies Expense 900
Supplies 900
Debit Supplies Expense 900; credit Supplies 900.
e
1,400
0 → 1,400, so 1,400 of salaries were accrued.
f
Account Debit Credit
Salaries and Wages Expense 1,400
Salaries and Wages Payable 1,400
Debit Salaries and Wages Expense 1,400; credit Salaries and Wages Payable 1,400.

Account	Debit	Credit
Insurance Expense	600
Prepaid Insurance		600

Account	Debit	Credit
Supplies Expense	900
Supplies		900

Account	Debit	Credit
Salaries and Wages Expense	1,400
Salaries and Wages Payable		1,400

Solution: Insurance: Dr Insurance Expense 600 / Cr Prepaid Insurance 600. Supplies: Dr Supplies Expense 900 / Cr Supplies 900. Salaries: Dr Salaries and Wages Expense 1,400 / Cr Salaries and Wages Payable 1,400.

15. Exercise 15 — Compute backward from adjusted data

a
500
Beginning = ending 1,400 + expense 2,300 − purchases 3,200 = 500.
b
1,800
150 × 12 months = 1,800.
c
8,300
Cash paid = expense 9,400 − increase in payable 1,100 = 8,300.

Solution: Beginning supplies 500; total premium 1,800; cash paid to employees 8,300.

16. Exercise 16 — Build the statements from the adjusted trial balance

a
21,100
9,400 + 2,700 + 600 + 4,800 + 3,600 = 21,100.
b
4,000
Revenue 25,100 − expenses 21,100 = 4,000.
c
22,000
20,000 + 4,000 − 2,000 = 22,000.
d
38,800
12,000 + 4,500 + 1,300 + 1,800 + (24,000 − 4,800 = 19,200) = 38,800.
e
38,800
Liabilities 3,200 + 1,100 + 2,500 + 10,000 = 16,800, plus ending capital 22,000 = 38,800 — it matches total assets.

Solution: Total expenses 21,100; net income 4,000; ending capital 22,000; total assets 38,800 = total liabilities + equity 38,800.

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