Balance Day Adjustments

Class work

Tutorial

Question 1 Prepaid Expenses

(a) Martins Medical Centre purchases medical supplies in bulk. The last
purchase on 1 March 2014 was for $990 worth of bandages,
dressings and vaccinations which were recorded as an asset. A count
of medical supplies on 30 June 2014 revealed only $220 worth left in
stock.
Required
Prepare the adjusting entry required at 30 June 2014.
MEDICAL SUPPLIES
1
Mar
Cash
990

Date

SUPPLIES EXPENSE

Details

Debit

Credit

30
June

Adjusting entry for supplies consumed.

An adjusting entry is needed at 30 June to recognise that some of the
medical supplies have been consumed. The asset account, medical
supplies, must be reduced. The expense account, supplies expense, must
be increased.

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(b) ABC Company paid $12,000 for 12 months advertising in the Yellow
Pages on 1 March 2014. The amount was recorded as prepaid
advertising.
Required
Prepare the adjusting entry required at 30 June 2014.
PREPAID ADVERTISING
1
Mar
Cash
12,000

Date

ADVERTISING EXPENSE

Details

Debit

Credit

30
June

Adjusting
entry
for
advertising consumed.

months

An adjusting entry is needed at 30 June to recognise that some of the

prepaid advertising has been consumed. The asset account, prepaid
advertising, must be reduced. The expense account, advertising, must be
increased.
(c) A business has a motor vehicle which cost $25,000 on 1 January 2014,
with an estimated residual value of $5,000. It has an expected useful
life of 5 years.
Required
Calculate depreciation for the half year ended 30th June 2014 using the
straight line method.
DEPRECIATION
VEHICLE

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EXPENSE

ACCUMULATED
VEHICLE

DEPRECIATION

Date

Details

Debit

Credit

30
June

Adjusting
vehicle.

entry

for

depreciation

of

An adjusting entry is needed at 30 June to recognise that some of the

asset has been consumed.
The expense account, depreciation expense, must be increased. The
negative asset account, accumulated depreciation, must be increased
(to reflect the overall reduction in benefits.)

Question 2 Unearned Revenue

(a) A customer paid a $1,000 in advance on 1 May 2014 fora computer to
be supplied on 15 June 2014. This was recorded as a liability. The
computer was supplied as planned.
Required
Prepare the adjusting entry to record the revenue earned at 30 June 2014.
UNEARNED REVENUE
1 May
1,000

Date

SALES REVENUE
Cash

Details

Debit

Credit

30
June

Adjusting entry for revenue earned.

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An adjusting entry is needed at 30 June to recognise that the liability has

been reduced as income has been earned for the month ending 30 June.
The liability account, unearned income, must be reduced.
The income account, sales revenue, must be increased.
(b) Several customers paid deposits on 3 June to secure a copy of a soon
to be released paperback novel. Total deposits were $450. By the 30
June (balance day), books had been supplied to half of the customers
who had pre-ordered.
Required
Prepare the adjusting entry to record the revenue earned.
UNEARNED REVENUE
3 June
450

Date

SALES REVENUE
Cash

Details

Debit

Credit

30
June

Adjusting entry for revenue earned.

An adjusting entry is needed at 30 June to recognise that some of the
liability has been reduced as income has been earned. The liability
account, unearned income, must be reduced. The income account, sales,
must be increased.
Question 3 Accrued Revenue
A business has invested in shares to earn extra income through dividends.
For the period just ended 30 June 2009, dividends of $8,500 are due but
have not been received.
Required
Prepare the entry required to record the accrued revenue.
DIVIDENDS RECEIVABLE

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DIVIDEND REVENUE

Date

Details

Debit

Credit

30
June

Adjusting entry for revenue accrued.

An adjusting entry is needed at 30 June to recognise that income has
been earned and an asset is created. The asset account, dividends
receivable, must be increased. The income account, dividend income,
must be increased.

Question 4 Accrued Expenses

A company received and paid its electricity and gas accounts in May, for
the three months of February, March and April. The consumption was
$330 per month.
Required
Estimate and record the amount owing at 30 June 2014.
UTILITIES EXPENSE

Date

UTILITIES PAYABLE

Details

Debit

Credit

30
June

Adjusting entry for expense accrued.

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An adjusting entry is needed at 30 June to recognise that an expense has

been incurred and to create a liability. The expense account, utilities,
must be increased. The liability account, utilities payable, must be
increased.

Question 5 Adjustments from a Trial Balance

The following trial balance was prepared by Zahra & Co., a merchandise
business, for the three months ended 30 September 2014:

Petty cash
Accounts receivable
Inventory
Prepaid insurance
Stationery supplies on hand
Machinery
Accumulated depreciation - machinery
Accounts payable
GST/VAT collected
Bank overdraft
Loan
Contributed capital, Zahra
Unearned Revenue
Drawings, Zahra
Sales
Sales returns
Cost of goods sold
Rent expense
Salaries expense
Telephone
Utility expense
Interest expense
Total
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Debit ($)
280
62,500
82,600
2,800
500
112,000

Credit
($)

21,000
60,000
7,900
6,300
41,500
112,000
800
11,200
145,500
1,120
87,500
4,900
21,000
1,400
3,500
3,700
395,000

395,000
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Additional information provided

The following events have not yet been considered in the preparation of
this trial balance:
(i) Salaries owing and not yet paid amounted to $450.
(ii) A physical stock-take revealed that the inventory on hand as at 30
September 2014 amounted to $82,000.
(iii) The machinery has a useful life of 5 years and a residual value of $7,000. It
is depreciated using the straight line method.
(iv) Prepaid insurance as at 30 September 2014 amounts to $1,960.
(v) Stationery supplies on hand $200.
(vi) $400 of sales previously recorded as unearned revenue was delivered on the
28th September.

Required
1) Prepare general journal entries for the balance-day adjustments based on the
additional information given above (Ignore narrations.)
2) Prepare an Adjusted Trial Balance as at 30 September 2014.
3) Calculate the Profit after the adjustments (no formal Income Statement
required)
4) Calculate Closing Capital (no formal Statement of changes in equity required)
5) Prepare a fully classified Balance sheet after the adjustments
6) Two of the fundamental qualitative characteristics of financial information are
relevance and faithful representation. These two characteristics are affected
by the recording of adjusting entries. Explain how this occurs.

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(1) General Journal entries

30 Sep
(salaries owing at balance day)

(inventory loss )

(depreciation
period)

calculation

for

the

(insurance consumed)

(recording stationery used)

(recognising
earned)

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revenue

has

been

(2) Zahra & Co. Adjusted Trial Balance as at 30 September 2014

Debit ($)

Credit ($)

Petty cash
Accounts receivable
Inventory
Prepaid insurance
Stationery supplies on hand
Machinery
Accumulated depreciation - machinery
Accounts payable
GST/VAT payable
Bank overdraft
Unearned revenue
Loan
Contributed capital, Zahra
Drawings, Zahra
Sales
Sales returns
Cost of goods sold
Rent expense
Salaries expense
Telephone
Insurance expense
Utility expense
Interest expense
Stationery expense
Depreciation of machinery
Inventory loss
Accrued salaries
Total

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Question 6

Balance Day adjustments

(a) Handy Andy paid rent of $ 18,000 for the twelve month period from 1 March
2014 to 28 Feb 2015 and recorded the amount in the Prepaid Rent account.
An adjustment entry is to be made at balance day, 30 June 2014.
(b) Handy Andy buys stationery for office use from wholesalers, and accounts for
all purchases as Stationery supplies on hand. There was an opening stock of
supplies worth $600 as on 1 July 2013. Subsequently there were two further
purchases of supplies of $650 and $ 865 during the year, to replace supplies
used up. On 30th June 2014, the closing stock of supplies amounted to $ 570.
Record the journal entry as on 30th June 2014.
(c) Handy Andy bought a welding machine to be used for repair jobs for clients,
on 1 Feb 2014.
The machine was brand new and cost $ 22,000. The
estimated useful life of the machine was 10 years with a residual value of $
2,000. Record the depreciation entry for the year ended 30 June 2014 using
the straight line method.
(d) Handy Andy had received an amount of $15,000 on 25 th June 2014, for work
expected to be commenced and completed in July 2014. The accountant has
treated this cash inflow as unearned fees income. Record the necessary
balance day journal entry for 31 July 2014, assuming the work was
completed.
(e) Handy Andys previous balance sheet as on 30 th June 2013 shows a computer
(non-current asset) with original cost of $ 6000, and accumulated
depreciation of $1,800. Reducing balance depreciation method is applied for
computers and the rate is 30% per year. Record the necessary journal entry
to account for depreciation for the period ended 30 June 2014.
(f) On 1 January 2014, Handy Andy deposited $40,000 into a 12 month fixed
deposit account with the National Bank, at an annual interest rate of 6.00%,
with the interest and principal payable on 31 December 2014. Are there any
entries required to be passed on 30th June 2014 for this transaction? If so,
what entry should be recorded in the general journal?
(g) The salaries of administrative staff are paid by Handy Andy on the 1 st of each
month, for the previous month. The salaries unpaid for the month of June
2014 amounted to $20,000, and this was paid on 1 July 2014. Record the
necessary entry to record unpaid salaries as on 30 th June 2014
Required
Record the necessary Journal entries as required in the books of Handy Andy for
the above.

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Question 7
Unadjusted Trial balance of Office Enterprises as at 30 June 2013
Dr
Cr
Bank
3,000
Accounts receivable
100,000
Drawings
300
Prepaid insurance
12,000
Inventory
50,000
Plant and equipment
100,000
Accumulated depreciation of plant and equipment
30,000
Accounts payable
75,000
Revenue received in advance
2,000
Capital
114,300
Sales
500,000
Cost of goods sold
330,000
Salaries
70,00
0
Rent
36,000
Telephone
5,000
Sundry expenses
15,000
533,000
908,700
(a) Prepare a corrected Unadjusted Trial balance. The incorrect trial balance
above was prepared by the owner who had no understanding of
Accounting.
(b) As at 30th June record the following adjustments in a General Journal:
(i) The plant and equipment, which has an estimated useful life of five
years, was purchased for $100,000 on 1 July 2011. Depreciation is
calculated at the rate of 30% using the reducing balance method.
(ii) One years insurance premium ($12,000) was paid in advance on 1
November 2012.
(iii)Balance-day falls on a Tuesday. Wages and salaries are paid on
Thursday for a five-day week (Friday to Thursday). The weekly amount
of wages and salaries is $2,000.
(iv)
On 1 April 2013, a customer paid $2,000 deposit on a $20,000
order. The goods were delivered on 30 June but no entry to record the
sale had been made.
(c) If the above adjustments had not been recorded what would be the effect
on the profit of the company would it be over or understated and by how
much?
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Question 8

Balance Day adjustments

The following unadjusted trial balance has been prepared for Gippsland Trailer
Services (proprietor M. Chang) as at 31 May 2014:

Petty cash
Bank
Accounts receivable
Prepaid rent
Office supplies on hand (1 May, 2014)
Equipment
Accounts payable
Fees received in advance
Bank loan (due 31 December 2016)
Capital M. Chang
Drawings
Fees earned
Wages expense
Advertising
Totals

Debit($)
150
6,660
15,100
1,800
320
11,520

Credit ($)

1,000
1,900
5,700
23,000
700
8,400
3,150
600
$40,000

$40,000

Additional information provided

(i) Four months rent was paid in advance on 1 May 2014.

(ii) A physical count of supplies on 31 May disclosed office supplies on
hand of $250.
(iii) Equipment was purchased on 1 Jan 2010. The useful life was
estimated to be six years, and its residual value was estimated to be
$1,080. Gippsland Trailers uses the straight line method of
depreciation
(iv) An amount of $1,300 had been earned at 31 May 2014 for the fees
previously paid in advance.
(v) The bank loan was borrowed on 1 March 2014 at an interest rate
of 8.0% per annum with the first interest payment due on 31
August 2014.
(vi)
Wages earned by employees for May, but not paid amounted
to $560.
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Required
Prepare general journal entries to record the above adjustments at 31 May 2014.
(Narrations are not required).

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