AJE

Question 1

a bank has a loan outstanding on which payment is not due for some time. During the accounting period just ended, the bank has earned $200 of interest income on the loan as a result of the passage of time. If the bank does nothing, their income and assets will both be understated. To correct this, they record the following adjusting entry:

Answer 1

DR Interest Receivable (A) 200

CR Interest Revenue (R) 200

Question 2

a landlord who earned $500 for last month’s rent that has not yet been paid as of the end of the accounting period.

Answer 2

DR Rent Receivable (A) 500

CR Rent Revenue (R) 500

Question 3

utility company that has earned $80 for electricity provided but not yet billed or paid for as of the last day of the accounting period.

Answer 3

DR AR (A) 80
CR Revenue (R) 80

Question 4

assume that a landlord received $1,000 for rent for the months of December and January on December 1. Upon receipt of the cash the landlord records:

At the end of December, prior to preparing financial statements, the landlord records the following adjusting entry:

Answer 4

DR Cash (A) 1000
CR Deferred Rent Revenue (L) 1000

DR Deferred Rent Revenue (L) 500
CR Rent Revenue (R) 500

Question 5

Another example is an insurance company that receives a $1,200 insurance payment in advance on November 1 for a six-month insurance policy. The coverage period begins on November 1. They record the following journal entry for this cash transaction:

Answer 5

DR Cash (A) 1200
CR Deferred Revenue (L) 1200

Question 6

Now, assume the insurance company closes its books and prepares financial statements at the end of each calendar quarter, on March 31, June 30, September 30 and December 31. Thus, even though as of November 30, one month has passed and they have earned a month’s worth of revenue, they do not record anything because they are not preparing financial statements. However, on December 31 they record the following adjusting entry to record revenue for both November and December:

Answer 6

DR Deferred Revenue (L) 400
CR Revenue (R) 400

Question 7

Assume a company consumes $100 worth of electricity in one accounting period and receives and pays the bill in the next accounting period. At the end of the last day of the first accounting period they record the following adjusting entry that accounts for the electricity they have consumed and the amount they owe:

Answer 7

DR Electricity Expense (E) 100

CR Electricity Payable (L) 100

Question 8

When they pay the bill in the next period they would record:

Answer 8

DR Electricity Payable (L) 100

Cash (A) 100

Question 9

assume that the company usually pays their monthly rent on the fifth day of the next month. If their rent is $1,500, then on the last day of the accounting period they record the following adjusting entry for that month’s rent:

Answer 9

DR Rent Expense (E) 1500

CR Rent Payable (L) 1500

Question 10

Another common example is when a company’s accounting period ends in the middle of a pay period. In this case, as of the last day of the accounting period the company owes the employee’s wages that will be paid early in the next accounting period. To record unpaid wages of $2,000, the company would record the following adjusting entry at the end of the period:

Answer 10

DR Wages Expense (E) 2000

CR Wages Payable (L) 2000

Question 11

The most common examples of adjusting entries for these are items that are paid for in advance and then are consumed as time passes. For example, assume that on November 1 the company pays $2,400 for six months’ rent in advance, and the six months begins on November 1. On November 1, they record:

Answer 11

DR Prepaid Rent (A) 2400
CR Cash (A) 2400

Question 12

Now, assume the company makes adjusting entries and prepares financial statements at the end of each calendar quarter. Since financial statements are not prepared at the end of November, no entry is made for rent expense at that time. However, at the end of December the records must be brought up to date by recording the following adjusting entry to record rent expense for November and December and the amount of the prepaid rent that was consumed:

Answer 12

DR Rent Expense (E) 800

CR Prepaid Rent (A) 800

Question 13

A company ends the period owing its employees $10,000 for work already performed.

Answer 13

DR Wage Expense (E) 10000

CR Wages Payable (L) 10000

Question 14

A company paid $18,000 for one year of rent beginning on October 1st. The company prepares financial statements at the end of each calendar quarter.

Answer 14

DR Rent Expense (E) 4500

CR Prepaid Rent (A) 4500

Question 15

A company ends the period owing its landlord $2,500 for the last month’s rent. The rent was based on sales the company generated last month in its rented space.

Answer 15

DR Rent Expense (E) 2500

CR Rent Payable (L) 2500

Question 16

As of the end of the period, a company has consumed $450 worth of electricity that it has not yet paid for.

Answer 16

DR Electricity Expense (E) 450

CR Electricity Payable (L) 450

Question 17

On October 1st a law firm received an advance payment of $36,000 to serve as a retainer (they stand ready to provide services on an as-needed basis) for a corporation for one year. The firm prepares financial statements at the end of each calendar quarter.

Answer 17

DR Deferred Revenue (L) 9000

CR Sales Revenue (R) 9000

Question 18

As of the end of the period, a car rental company has cars currently rented that have incurred $35,000 of charges that have not yet been invoiced or paid.

Answer 18

DR AR (A) 35000
CR Sales Revenue (R) 35000

Question 19

A corporation has employees at job sites with unpaid wages of $35,000 as of the end of the year.

Answer 19

DR Wages Expense (E) 35000

CR Wages Payable (L) 35000

Question 20

An insurance company collects $2,400 for a six-month policy on December 1st that begins on December 1st, and they prepare financial statements at the end of each calendar quarter.

Answer 20

DR Deferred Revenue (L) 400

CR Sales Revenue (R) 400

Question 21

A company pays an insurance company $2,400 for a six month policy on December 1st that begins on December 1st, and they prepare financial statements at the end of each calendar quarter.

Answer 21

DR Insurance Expense (E) 400

CR Prepaid Insurance (A) 400

Question 22

A florist pays $12,000 for a delivery van on October 1st that they expect to last for six years and have no value at the end of six years. They prepare financial statements at the end of each calendar quarter.

Answer 22

DR Depreciation Expense (E) 500
CR Accumulated Depreciation (a contra-asset) 500

Depreciation expense for 3 of 72 months (24,000 x 3 / 72 = 500)

Question 23

Assume that Starbucks provided coffee service to HomeAway’s corporate headquarters in Austin during the month of September 2019, but that as of the end of the month HomeAway had not paid the $15,000 charge. What adjusting entry did Starbucks record on September 29, 2019 (the last day of the fiscal year) when they closed their books to prepare financial statements, and what entry did they record when they received payment from HomeAway later in October of 2019.

Answer 23

September 29, 2019
DR AR (A) 15000
CR Sales Revenue (R)

October X, 2019
DR Cash (A) 15000
CR AR (A) 15000

Question 24

Refer to the same transactions as in the previous question. What journal entries did HomeAway record at the end of September, assuming they close their books and prepare financial statements at that time, and in October when they made payment.

Answer 24

September 29, 2019
DR Coffee Expense (E) 15000
CR Coffee Payable (L) 15000

October X, 2019
DR Coffee Payable (L) 15000
CR Cash (A) 15000

Question 25

Assume that Bazaarvoice paid Starbucks for coffee service at their corporate headquarters in Austin one year in advance, paying $180,000 on January 1, 2020. Also assume that Starbucks records adjusting entries each month in order to prepare internal financial statements. What journal entry did Starbucks record for the receipt of cash on January 1, 2020 and what adjusting entry did they record on January 31, 2020?

Answer 25

January 1, 2020
DR Cash (A) 180000
CR Deferred Revenue (L) 180000

January 31, 2020
DR Deferred Revenue (L) 15000
CR Sales Revenue (R) 15000

Question 26

Refer to the same transactions as in the previous question. What journal entries did Bazaarvoice record on January 1, 2020, and at the end of January, assuming they close their books and prepare financial statements monthly.

Answer 26

January 1, 2020
DR Prepaid Expense (A) 180000
CR Cash (A) 180000

January 31, 2020
DR Coffee Expense (E) 15000
CR Prepaid Expense (A) 15000