Type of Adjustment

Adjusting Entry

Accounts Before Adjustment

Prepaid expenses
Expenses

Assets overstated.
Expenses understated.

Unearned revenues
Liabilities

Dr.
Cr. Assets

Liabilities overstated.
Revenues understated.
Revenues

Accrued revenues
Assets

Dr.
Cr.

Assets understated.
Revenues understated.
Revenues

Accrued expenses
Expenses

Dr.
Cr.

Expenses understated.
Liabilities understated.

Dr.
Cr. Liabilities

Practice Question 1
Andrew Chambers operates a private investigating business called Andrew
Chamber Investigation. The accounts are closed on monthly basis. Following
is the trail Balance at the end of the month March 31, 2006.

Andrew Chamber Investigation

Trail Balance
For the Month Ended March 31, 2006
Details
Cash
Prepaid Insurance
Prepaid Rent
Equipment
Accumulated Depreciation Equipment
Notes Payable
Un-earned Investigation Fee
Andrews Capital
Andrews Drawings
Investigation Fee Earned
Salaries Expense
Utility Expense

Rs.
20,900
7,200
18,000
24,000

Rs.

7,600
10,000
6,400
38,200
5,900
26,400
8,600
1,200

Advertising Expense
Repair and Maintenance Expenses
Miscellaneous Expenses
Total

600
1,500
700
88,600

88,600

Adjustments:
1. Insurance expired during the month Rs.800
2. Rent expense for the month is Rs.6,000
3. Equipment is being depreciated by straight line method over a period
of 10 years.
4. Investigation Services provided against the amount received in
advance, Rs.2,200.
5. Outstanding Salaries for the month Rs.1,900.
6. Accrued interest on notes payable for the month Rs.100.
Required:
1. Pass adjusting entries
2. Income Statement for the month ended March 31, 2006
3. Balance Sheet as on March 31, 2006.
Question 2
Andrew Chambers operates a private investigating business called Andrew
Chamber Investigation. The accounts are closed on monthly basis. Following is the
trail Balance at the end of the month March 31, 2006.
Andrew Chamber Investigation
Trail Balance
For the Month Ended March 31, 2006
Details
Cash
Prepaid Insurance
Prepaid Rent
Equipment
Accumulated Depreciation Equipment
Notes Payable
Un-earned Investigation Fee
Andrews Capital
Andrews Drawings
Investigation Fee Earned
Salaries Expense
Utility Expense
Advertising Expense

Rs.
20,900
7,200
18,000
24,000

Rs.

7,600
10,000
6,400
38,200
5,900
26,400
8,600
1,200
600

Repair and Maintenance Expenses

Miscellaneous Expenses
Total

1,500
700
88,600

88,600

Adjustments:
1. Insurance expired during the month Rs.800
2. Rent expense for the month is Rs.6,000
3. Equipment is being depreciated by straight line method over a period of 10
years.
4. Investigation Services provided against the amount received in advance,
Rs.2,200.
5. Outstanding Salaries for the month Rs.1,900.
6. Accrued interest on notes payable for the month Rs.100.
Required:
Pass adjusting entries

Practice Question 3
The ledger of Hammond, Inc., on March 31, 2014, includes these
accounts before
adjusting entries are prepared.
Debit
Prepaid Insurance
$ 3,600
Supplies
2,800
Equipment
25,000
Accumulated DepreciationEquipment
Unearned Service Revenue

selected
Credit

$5,000
9,200

An analysis of the accounts shows the following.

1. Insurance expires at the rate of $100 per month.
2. Supplies on hand total $800.
3. The equipment depreciates $200 a month.
4. One-half of the unearned service revenue was recognized in March.
Prepare the adjusting entries for the month of March.
Practice Question 4

Micro Computer Services Inc. began operations on August 1, 2014. At the

end of August
2014, management attempted to prepare monthly financial statements. The
following
information relates to August.
1. At August 31, the company owed its employees $800 in salaries and
wages that will be
paid on September 1.
2. On August 1, the company borrowed $30,000 from a local bank on a
15-year mortgage.
The annual interest rate is 10%.
3. Revenue for services performed but unrecorded for August totaled
$1,100.
Prepare the adjusting entries needed at August 31, 2014.
Practice Question 5
The Green Thumb Lawn Care Inc. began on April 1. At April 30, the trial
balance shows
the following balances for selected accounts.
Prepaid Insurance
Equipment
Notes Payable
Unearned Service Revenue
Service Revenue

$ 3,600
28,000
20,000
4,200
1,800

Analysis reveals the following additional data.

1. Prepaid insurance is the cost of a 2-year insurance policy, effective
April 1.
2. Depreciation on the equipment is $500 per month.
3. The note payable is dated April 1. It is a 6-month, 12% note.
4. Seven customers paid for the companys 6 months lawn service
package of $600
beginning in April. The company performed services for these
customers in April.
5. Lawn services provided other customers but not recorded at April 30
totaled $1,500.

Instructions
Prepare the adjusting entries for the month of April. Show computations.
Practice Question 6
Waverly Corporation encounters the following situations:
1. Waverly collects $1,750 from a customer in 2014 for services to be
performed in 2015.
2. Waverly incurs utility expense which is not yet paid in cash or
recorded.
3. Waverly employees worked 3 days in 2014 but will not be paid until
2015.
4. Waverly performs services for a customer but has not yet received
cash or recorded
the transaction.
5. Waverly paid $2,400 rent on December 1 for the 4 months starting
December 1.
6. Waverly received cash for future services and recorded a liability
until the service was
performed.
7. Waverly performed consulting services for a client in December
2014. On December
31, it had not billed the client for services provided of $1,200.
8. Waverly paid cash for an expense and recorded an asset until the
item was used up.
9. Waverly purchased $750 of supplies in 2014; at year-end, $400 of
supplies remain
unused.
10. Waverly purchased equipment on January 1, 2014; the equipment
will be used for
5 years.

11. Waverly borrowed $10,000 on October 1, 2014, signing an 8% oneyear note payable.
Instructions
Identify what type of adjusting entry (prepaid expense, unearned revenue,
accrued
expense, or accrued revenue) is needed in each situation, at December 31,
2014.

Question 1
Suhrab Ltd purchased a machine on 1 st March 2001 worth Rs.1,000,000. The
estimated residual value of machine after its useful life of 10 years is Rs.35,000 . On
April 1st, 2007, the machine was sold for Rs.280,000. The accounting period of the
company starts from January 1st and ends at December 31st each year.

Required:
Prepare following using:
a) Straight line method
b) Reducing balance method (Rate of Depreciation is 30% per year)
1. Pass Journal entries
2. Prepare Machinery Account
3. Prepare Accumulated Depreciation Account
Question 2
ABC Ltd. purchased a machinery on 1st of June 2004 for Rs.250,000. The estimated
useful life of machinery is to be 5 years with estimated salvage value of Rs.25,000.
The company sold the machine for Rs. 80,000 on 30 th of September 2007.
The accounts are closed on December 31st every year.

The company uses Diminishing Balance Method of Depreciation.

Required:
Prepare following using:
a) Straight line method
b) Reducing balance method (Rate of Depreciation is 30% per year)
1. Pass Journal entries
2. Prepare Machinery Account
3. Prepare Accumulated Depreciation Account