Adjusting Journal Entries

Question 1

At the end of year 2, a major customer filed for bankruptcy.

Answer 1

DR: Operating expenses
CR: Allowance for doubtful accounts

Question 2

In the last week of year 2, the company recorded revenue for services rendered to some clients in year 3.

Answer 2

DR: Revenue
CR: Accounts Receivables

Question 3

Employee overtime pay for hours worked before year-end, but paid in the following year, were not recorded in year 2.

Answer 3

DR: Operating Expense
CR: Accrued Liabilities

Question 4

During year 2, a former client sued the company for inappropriate work. Legal counsel has advised that it is “reasonably possible” that the company will be assessed damages. An amount can be estimated.

Answer 4

Disclosure but No Entry

Question 5

The bank’s confirmation reply regarding the company’s line of credit indicated that the December, year 2, interest was unpaid at year-end. Accruals for monthly interest expense have been made for 11 months in year 2 by the company.

Answer 5

DR: Interest Expense
CR: Accrued Liabilities

Question 6

The company shipped merchandise (FOB destination) on December 30, year 2, and recorded the sale, but not the relief of inventory, on that date. The customer received the merchandise on January 3, year 3.

Answer 6

Sales (dr.)
    Accounts receivable (cr.)

Question 7

The company shipped merchandise (FOB shipping point) on December 29, year 2, and recorded relief of inventory, but not the sale, on that date. The customer has not received the merchandise and the company has not recorded the sale as of January 3, year 3.

Answer 7

Accounts receivable (dr.)
    Sales (cr.)

Question 8

The company shipped merchandise to a consignee on December 16, year 2, and did not record the transaction. The consignee returned the merchandise on December 28, year 2. Upon receipt of the goods, the company made the following entry: Inventory (dr.), Sales (cr.)

Answer 8

Sales (dr.)

Inventory (cr.)

Question 9

The company shipped merchandise (FOB shipping point) on December 3, year 2, to a customer, and recorded the sale and relief of inventory. The customer, unhappy with the merchandise, returned the goods on December 29, year 2. The company records the following entry upon receipt of the goods: Inventory (dr.), Cost of Sales (cr.)

Answer 9

Sales (dr.)
    Accounts receivable (cr.)

Question 10

The company shipped merchandise (FOB destination) to a customer on December 29, year 2, and recorded the sale but not the relief of inventory. The customer received the merchandise on December 31, year 2.

Answer 10

Cost of sales (dr.)

Inventory (cr.)