Financial Accounting: An Integrated Statements Approach, 2nd Edition

Account Answer

Interest Payable

Interest Receivable

Land

Office Equipment

Prepaid Insurance

Supplies Expense

Unearned Fees

Wages Expense

Answer each of the following independent questions concerning supplies and the adjustment

for supplies. (a) The balance in the supplies account, before adjustment at the end of the year, is

$2,100. What is the amount of the adjustment if the amount of supplies on hand at the end of

the year is $385? (b) The supplies account has a balance of $675, and the supplies expense ac-

count has a balance of $1,310 at December 31, 2007. If 2007 was the first year of operations, what

was the amount of supplies purchased during the year?

The prepaid insurance account had a balance of $2,750 at the beginning of the year. The account

was increased for $1,500 for premiums on policies purchased during the year. What is the ad-

justment required at the end of the year for each of the following independent situations: (a) the

amount of unexpired insurance applicable to future periods is $3,000? (b) the amount of insur-

ance expired during the year is $1,050? For (a) and (b), indicate each account affected, whether

the account is increased or decreased, and the amount of the increase or decrease.

The balance in the unearned fees account, before adjustment at the end of the year, is $9,750.

What is the adjustment if the amount of unearned fees at the end of the year is $5,600? Indicate

each account affected, whether the account is increased or decreased, and the amount of the in-

crease or decrease.

For the years ending June 30, 2004 and 2003, Microsoft Corporationreported short-term un-

earned revenue of $6,514 million and $7,225 million, respectively. For the year ending June 30,

2004, Microsoft also reported total revenues of $36,835 million. (a) What adjustment for un-

earned revenue did Microsoft make at June 30, 2004? Indicate each account affected, whether the

account is increased or decreased, and the amount of the increase or decrease. (b) What per-

centage of total revenues was the adjustment for unearned revenue?

At the end of February, the first month of the business year, the usual adjustment transferring

rent earned to a revenue account from the unearned rent account was omitted. Indicate which

items will be incorrectly stated, because of the error, on (a) the income statement for February

and (b) the balance sheet as of February 28. Also indicate whether the items in error will be over-

stated or understated.

Townes Realty Co. pays weekly salaries of $15,000 on Friday for a five-day week ending on that

day. What is the adjustment at the end of the accounting period, assuming that the period

ends (a) on Tuesday, (b) on Wednesday? Indicate each account affected, whether the account is

increased or decreased, and the amount of the increase or decrease.

132 Chapter 3 Accrual Accounting Concepts

Exercise 3-8

Adjustment for supplies

Goal 3

a. $1,715

Exercise 3-9

Adjustment for prepaid

insurance

Goal 3

Exercise 3-10

Adjustment for unearned fees

Goal 3

Exercise 3-11

Adjustment for unearned

revenue

Goal 3

Exercise 3-12

Effect of omitting adjustment

Goal 3

Exercise 3-13

Adjustment for accrued

salaries

Goal 3