Completing the Accounting Cycle

Chapter 4

© 2009 The McGraw-Hill Companies, Inc.

Question 1
On January 01, 2015, the Moon company paid $9,000 as advance rent of
the head office building to Mr. X for the first quarter of the of year.
Entry on January 01 when the advance payment of rent is made:

If the company makes adjusting entries on monthly basis, the relevant journal
entries are given below:
Adjusting entry on January 31 to convert a portion of prepaid rent (an
asset) to rent expense:

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Question 2
The Moon company receives $180,000 cash from Mr.Y (a client of the
company) on January 01, 2015. At the end of January, the total value of
the services provided to Mr.Y is $15,000
Entry on January 01 when advance payment is received:

If accounts are adjusted at the end of each month, the relevant journal
entries are given below:
Adjusting entry on January 31 to convert a portion of unearned revenue
(a liability) to earned revenue:

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Question 3
 The Moon company pays salary to its employees on fifth day of every
month. The total salary payable for the month of January is $8,500. If
Moon company makes adjusting entries at the end of each month, it will
record the following adjusting entry on January 31:
 Adjusting entry on January 31:

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Question 4

The Moon company provides services valuing $34,000 to Mr. Z during the
month of December. Mr. Z will be billed next year.The company will
record this accrued revenue by making the following adjusting entry

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Question 5

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Question 5
Relevant information for the preparation of adjusting entries of
Company A
 Office supplies having original cost $4,320 were unused till the end
of the period. Office supplies having original cost of $22,800 are
shown on unadjusted trial balance.
 Prepaid rent of $36,000 was paid for the months January, February
and March.
 The equipment costing $80,000 has estimated Depreciation is
$1,100 monthly.
 The interest rate on $20,000 note payable is 9%. Accrue the interest
for one month.
 $3,000 worth of service has been provided to the customer who
paid advance amount of $4,000.
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adjusting entries

Slide 8
The following adjusted trial balance was prepared after posting the adjusting
entries of Company A to its general ledger and calculating new account balances:

Slide 9
The following example shows the closing entries based on the adjusted trial
balance of Company A.

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Question 6

May's Ltd. obtained a loan for $10,000 at the beginning of

October. As of the end of the October, May determined that
the interest expense incurred in October for this loan was
$100. What adjusting journal entry should May make at the
end of October?

A. Debit interest expense $100; Credit cash $100.

B. Debit interest expense $100; Credit interest payable $100.
C. Debit interest payable $100; Credit interest expense $100.
D. Debit interest expense $100; Credit notes payable $100..

Answer is B
McGraw-Hill/Irwin Slide 11
Question 7
Employees for Padrina's Pizza worked the last three days of
April, but their pay checks will not be issued until May.
Employee salaries are $350 per day. What is the adjusting
journal entry which should be recorded at the end of April to
record the wages owed to employees?

A. Debit wages expense $350; Credit wages payable $350.

B. Debit wages payable $350; Credit wages expense $350.
C. Debit wages payable $1,050; Credit wages expense
$1,050.
D. Debit wages expense $1,050; Credit wages payable
$1,050.

Answer is D
McGraw-Hill/Irwin Slide 12
Question 8
In January a company purchased equipment with a cost of
$36,000. The company determined that $100 represents the
cost of equipment use each month. What is the required
adjusting journal entry which should be made at the end of
each month?

A. Debit depreciation expense $100; Credit equipment $100.

B. Debit depreciation expense $100; Credit cash $100.
C. Debit depreciation expense $100; Credit accumulated
depreciation $100.
D. Debit equipment $100; Credit depreciation expense $100.

Answer is C
McGraw-Hill/Irwin Slide 13
Question 9
Samson and Sons purchased a 6-month insurance policy for
$1,200 which covers the months July through December.
Initially the entire cost of the insurance policy was recorded in
prepaid insurance. What is the adjusting journal entry
required at the end of July?
A. Debit prepaid insurance $1,200; Credit cash $1,200.
B. Debit insurance expense $1,200; Credit prepaid insurance
$1,200.
C. Debit prepaid insurance $200; Credit insurance expense
$200.
D. Debit insurance expense $200; Credit prepaid insurance
$200.

Answer is D
McGraw-Hill/Irwin Slide 14
Question 10
At the beginning of November Manny Co. had $500 worth of
supplies on hand. During the month of November Manny Co.
purchased $2,000 worth of supplies. On November 30,
Manny Co. counted supplies and found that $1,500 remained
on hand. What is the appropriate adjusting entry at the end of
November?
A. Debit supplies expense $500; Credit supplies $500.
B. Debit supplies expense $1,000; Credit supplies $1,000.
C. Debit supplies expense $2,000, Credit supplies $2,000.
D. Debit prepaid supplies $1,500; Credit supplies expense
$1,500.

Answer is B
McGraw-Hill/Irwin Slide 15
Question 11
Kennedy and Smith Law Firm collected advance payments
for customers of $5,000 during the month of May for future
legal services. These advance payments were recorded in
unearned revenue. During June, the firm performed $1,500 of
legal services related to these advance payments. Which is
the correct adjusting journal entry at the end of June?
A. Debit cash $5,000; credit unearned revenue $5,000.
B. Debit unearned revenue $1,500; credit legal services
revenue $1,500.
C. Debit legal services revenue $1,500; credit unearned
revenue $1,500.
D. Debit cash $3,500; credit unearned revenue $3,500.

Answer is B
McGraw-Hill/Irwin Slide 16
Question 12
Calico Corners had the following adjusted trial balance as of December
31, 2010. Required:
(a) Prepare a classified income statement for 2010.
(b) prepare the closing journal entries in good form.

McGraw-Hill/Irwin Slide 17
 a

McGraw-Hill/Irwin Slide 18
 b

McGraw-Hill/Irwin Slide 19
End of Chapter 4

© 2009 The McGraw-Hill Companies, Inc.