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• Willamette Valley Vineyards, Inc. (the “Company”) was formed in May 1988 to produce and sell
premium, super premium and ultra premium varietal wines (i.e., wine which sells at retail prices of
$7 to $14, $14 to $20 and over $20 per 750 ml bottle, respectively).
• Willamette Valley Vineyards was originally established as a sole proprietorship by Oregon
winegrower Jim Bernau in 1983. The Company is headquartered in Turner, Oregon, where the
Company’s Turner Vineyard and Winery are located on 75 acres of Company-owned land adjacent
to Interstate 5, approximately two miles south of Salem, Oregon.
• The Company’s wines are made from grapes grown on the 592 acres of vineyard owned, leased or
contracted by the Company, and from grapes purchased from other nearby vineyards. The grapes
are crushed, fermented and made into wine at the Company’s Turner winery (the “Winery”) and the
wines are sold principally under the Company’s Willamette Valley Vineyards label. Willamette
Valley Vineyards is the owner of Tualatin Estate Vineyards and Winery located on approximately
120 acres near Forest Grove, Oregon, and leases an additional 114 acres of vineyard land at the
Forest Grove location.
• Willamette Valley (NASDAQ: WVVI) produced revenues of $12.53 million in 2012 versus $12.24
million in the prior year, an increase of 2.4%.
Assets are depreciated because they have a limited life and will be used up over time. Depreciation
is the allocation of the cost of the asset over its useful life.
1. Update supplies account at the end of a period to reflect amounts used.
2. Expense items that are acquired and paid for in advance of their use.
Supplies, prepaid rent, prepaid insurance, and prepaid advertising.
3. Debit Insurance Expense; credit Prepaid Insurance.
4. Debit Depreciation Expense—Machine, $400; Credit Accum. Depr. – Machine, $400.
5. a. none b. none c. none d. decrease
6. a. decrease b. none c. none d. decrease
7. To create a permanent record of any changes in account balances that are shown on the worksheet.
Note to instructor : These questions are designed to check students’ understanding of new terms,
concepts, and procedures presented in the chapter.
ADJUSTMENTS AND THE WORKSHEET
CHAPTER 5
If businesses are allowed to record revenues in one year and then postpone the recognition of their
expenses until the next year, then their reported net income would be too high in the first year and too low
in the second year when all of the expenses were recorded.
Fast Facts
Discussion Questions
Chapter Opener: Thinking Critically
Managerial Implications: Thinking Critically
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distribution in any manner. 5-1
Discussion Questions (cont.)
8 Asset cost, accumulated depreciation, book value.
9 Cost of asset less accumulated depreciation.
10. Contra asset accounts have a credit balance. Asset accounts have a debit balance.
11. To keep a record of total depreciation taken; to reduce the book value of asset.
12. b, d, f, g, and i are depreciated. Only long-term tangible assets are subject to depreciation.
13.
14.
EXERCISE 5.1
1. Rent Expense, $1,000 Dr.
Prepaid Rent, $1,000 Cr.
($7,000 ÷ 7 months = $1,000 per month)
2. Supplies Expense, $4,650 Dr.
Supplies, $4,650 Cr.
($7,950 - $3,300 = $4,650)
3. Depreciation Expense—Equipment, $600 Dr.
Accumulated Depreciation—Equipment, $600 Cr.
($64,800 ÷ 108 months = $600)
EXERCISE 5.2
1. Insurance Expense, $350 Dr.
Prepaid Insurance, $350 Cr.
($12,600 ÷ 36 months = $350)
2. Advertising Expense, $1,350 Dr.
Prepaid Advertising, $1,350 Cr.
($32,400 ÷ 24 months = $1,350)
Charges off an equal amount of cost of asset during each accounting period in asset’s useful life.
Equipment, buildings, and automobiles.
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distribution in any manner. 5-2
EXERCISE 5.3
1 Cash 63 0 0 0 00 63 0 0 0 00 1
2 Accounts Receivable 22 5 0 0 00 22 5 0 0 00 2
3 Supplies 9 0 0 0 00 (a) 5 7 0 0 00 3 3 0 0 00 3
4 Prepaid Insurance 8 2 0 0 00 (b) 2 0 5 0 00 6 1 5 0 00 4
5 Equipment 91 5 0 0 00 91 5 0 0 00 5
6 Accumulated Depreciation—Equipment (c) 1 8 2 5 00 1 8 2 5 00 6
7 Accounts Payable 16 7 0 0 00 16 7 0 0 00 7
8 Lorraine Meeks, Capital 81 9 5 0 00 81 9 5 0 00 8
9 Fees Income 117 0 0 0 00 117 0 0 0 00 9
10 Rent Expense 10 6 0 0 00 10 6 0 0 00 10
11 Salaries Expense 10 8 5 0 00 10 8 5 0 00 11
12 Supplies Expense (a) 5 7 0 0 00 5 7 0 0 00 12
13 Insurance Expense (b) 2 0 5 0 00 2 0 5 0 00 13
14 Depreciation Expense—Equipment (c ) 1 8 2 5 00 1 8 2 5 00 14
15 Totals 215 6 5 0 00 215 6 5 0 00 9 5 7 5 00 9 5 7 5 00 217 4 7 5 00 217 4 7 5 00 15
16 16
17 17
18 18
19 19
20 20
21 21
22 22
ADJUSTED TRIAL BALANCE
DEBIT CREDIT
Meeks Company
Worksheet (Partial)
Month Ended January 31, 2016
ACCOUNT NAME TRIAL BALANCE
DEBIT CREDIT
ADJUSTMENTS
DEBIT CREDIT
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distribution in any manner. 5-3
EXERCISE 5.4
Net Income Before Adjustments $90,000
Less Adjustments:
Rent Expense $7,000
Depreciation Expense 8,200
Supplies Expense 3,600
18,800
Corrected Net Income $71,200
If the adjusting entries are not made, total expenses will be understated by $18,800.
Net income will be overstated by $18,800.
EXERCISE 5.5
PAGE
POST.
REF.
1 1
2 2016 2
3 Dec. 31 Supplies Expense 523 11 0 0 0 00 3
4 Supplies 121 11 0 0 0 00 4
5 5
6 31 Insurance Expense 521 8 2 0 0 00 6
7 Prepaid Insurance 131 8 2 0 0 00 7
8 8
9 31 Depreciation Expense—Equipment 517 5 8 0 0 00 9
10 Accumulated Depreciation—Equipment 142 5 8 0 0 00 10
Adjusting Entries
Total Adjustments for Expenses Not
Made
3
DATE DESCRIPTION DEBIT CREDIT
GENERAL JOURNAL
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distribution in any manner. 5-4
EXERCISE 5.5 (continued)
ACCOUNT Supplies ACCOUNT NO.
2016
Dec. 1 J1 18 0 0 0 00 18 0 0 0 00
31 Adjusting J3 11 0 0 0 00 7 0 0 0 00
ACCOUNT Prepaid Insurance ACCOUNT NO.
2016
Dec. 1 J1 49 2 0 0 00 49 2 0 0 00
31 Adjusting J3 8 2 0 0 00 41 0 0 0 00
ACCOUNT Accumulated Depreciation—Equipment ACCOUNT NO.
2016
Dec. 31 Adjusting J3 5 8 0 0 00 5 8 0 0 00
ACCOUNT Depreciation Expense—Equipment ACCOUNT NO.
2016
Dec. 31 Adjusting J3 5 8 0 0 00 5 8 0 0 00
BALANCE
DEBIT CREDIT
CREDIT
CREDIT
CREDIT DEBITDATE
142
517
CREDIT
BALANCE
DEBIT CREDIT
DATE DESCRIPTION
POST.
REF. DEBIT
DATE DESCRIPTION
POST.
REF. DEBIT
GENERAL LEDGER
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT
121
CREDIT
DESCRIPTION
POST.
REF. DEBIT
BALANCE
131
© 2015 McGraw-Hill Education. This is proprietary material solely for authorized instrutor use. Not authorized for sale or
distribution in any manner. 5-5
EXERCISE 5.5 (continued)
ACCOUNT Insurance Expense ACCOUNT NO.
2016
Dec. 31 Adjusting J3 8 2 0 0 00 8 2 0 0 00
ACCOUNT Supplies Expense ACCOUNT NO.
2016
Dec. 31 Adjusting J3 11 0 0 0 00 11 0 0 0 00
GENERAL LEDGER
CREDITDATE
BALANCE
POST.
REF.
DESCRIPTION
DEBIT
DEBITCREDITDATE
POST.
REF.
DESCRIPTION
DEBIT
DEBIT
521
CREDIT
BALANCE
CREDIT
523
© 2015 McGraw-Hill Education. This is proprietary material solely for authorized instrutor use. Not authorized for sale or
distribution in any manner. 5-6
PROBLEM 5.1A
Nixon Company
Worksheet (Partial)
Month Ended January 31, 2016
1 Cash 105 0 0 0 00
2 Accounts Receivable 21 8 0 0 00
3 Supplies 39 4 0 0 00 (a) 35 2 0 0 00
4 Prepaid Insurance 66 0 0 0 00 (b) 5 5 0 0 00
5 Equipment 109 0 0 0 00
6 Accumulated Depn—Equipment (c ) 1 6 0 0 00
7 Accounts Payable 25 8 0 0 00
8 Robert Nixon, Capital 253 0 0 0 00
9 Robert Nixon, Drawing 15 4 0 0 00
10 Fees Income 114 2 0 0 00
11 Supplies Expense (a) 35 2 0 0 00
12 Insurance Expense (b) 5 5 0 0 00
13 Salaries Expense 32 2 0 0 00
14 Depreciation Expense—Equipment (c ) 1 6 0 0 00
15 Utilities Expense 4 2 0 0 00
16 Totals 393 0 0 0 00 393 0 0 0 00 42 3 0 0 00 42 3 0 0 00
17 Net Income
18
19
ACCOUNT NAME
ADJUSTMENTS
DEBIT CREDIT
TRIAL BALANCE
CREDITDEBIT
© 2015 McGraw-Hill Education. This is proprietary material solely for authorized instrutor use. Not authorized for sale or
distribution in any manner. 5-7
PROBLEM 5.1A (continued)
105 0 0 0 00 105 0 0 0 00 1
21 8 0 0 00 21 8 0 0 00 2
4 2 0 0 00 4 2 0 0 00 3
60 5 0 0 00 60 5 0 0 00 4
109 0 0 0 00 109 0 0 0 00 5
1 6 0 0 00 1 6 0 0 00 6
25 8 0 0 00 25 8 0 0 00 7
253 0 0 0 00 253 0 0 0 00 8
15 4 0 0 00 15 4 0 0 00 9
114 2 0 0 00 114 2 0 0 00 10
35 2 0 0 00 35 2 0 0 00 11
5 5 0 0 00 5 5 0 0 00 12
32 2 0 0 00 32 2 0 0 00 13
1 6 0 0 00 1 6 0 0 00 14
4 2 0 0 00 4 2 0 0 00 15
394 6 0 0 00 394 6 0 0 00 78 7 0 0 00 114 2 0 0 00 315 9 0 0 00 280 4 0 0 00 16
35 5 0 0 00 35 5 0 0 00 17
114 2 0 0 00 114 2 0 0 00 315 9 0 0 00 315 9 0 0 00 18
19
Analyze: The adjustment to Prepaid Insurance decreased the account balance.
ADJUSTED TRIAL BALANCE INCOME STATEMENT BALANCE SHEET
DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT
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distribution in any manner. 5-8
PROBLEM 5.2A
1 Cash 46 1 5 0 00
2 Accounts Receivable 7 6 2 4 00
3 Supplies 15 0 0 0 00 (a) 5 8 0 0 00
4 Prepaid Rent 49 0 0 0 00 (b) 7 0 0 0 00
5 Equipment 55 0 0 0 00
6 (c) 1 9 0 0 00
7 Accounts Payable 18 0 0 0 00
8 Randy Moss, Capital 83 6 7 4 00
9 Randy Moss, Drawing 8 0 0 0 00
10 Fees Income 97 1 0 0 00
11 (c) 1 9 0 0 00
12 Rent Expense (b) 7 0 0 0 00
13 Salaries Expense 17 0 0 0 00
14 Supplies Expense (a) 5 8 0 0 00
15 Utilities Expense 1 0 0 0 00
16 Totals 198 7 7 4 00 198 7 7 4 00 14 7 0 0 00 14 7 0 0 00
17
Worksheet (Partial)
The College Bookstore
Month Ended November 30, 2016
Depreciation Expense—Equipment
ACCOUNT NAME
TRIAL BALANCE ADJUSTMENTS
DEBIT CREDIT DEBIT CREDIT
Accumulated Depreciation-Equip.
© 2015 McGraw-Hill Education. This is proprietary material solely for authorized instrutor use. Not authorized for sale or
distribution in any manner. 5-9
PROBLEM 5.2A (continued)
46 1 5 0 00 1
7 6 2 4 00 2
9 2 0 0 00 3
42 0 0 0 00 4
55 0 0 0 00 5
1 9 0 0 00 6
18 0 0 0 00 7
83 6 7 4 00 8
8 0 0 0 00 9
97 1 0 0 00 10
1 9 0 0 00 11
7 0 0 0 00 12
17 0 0 0 00 13
5 8 0 0 00 14
1 0 0 0 00 15
200 6 7 4 00 200 6 7 4 00 16
17
Analyze: The balance of the Prepaid Rent account prior to the adjusting entry for expired
rent is $49,000.
ADJUSTED TRIAL BALANCE
INCOME STATEMENT BALANCE SHEET
DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT
© 2015 McGraw-Hill Education. This is proprietary material solely for authorized instrutor use. Not authorized for sale or
distribution in any manner. 5-10
PROBLEM 5.3A
115 5 0 0 00
17 8 0 0 00
2 8 0 0 00
7 0 0 0 00
3 4 0 0 00
1 7 0 0 00
32 7 0 0 00
82 8 0 0 00
109 0 0 0 00
82 8 0 0 00
8 2 0 0 00
74 6 0 0 00
183 6 0 0 00
Expenses
Salaries Expense
Utilities Expense
Vasquez Corporation
Income Statement
Month Ended December 31, 2016
Revenue
Fees Income
Supplies Expense
Month Ended December 31, 2016
Total Expenses
Net Income
Vasquez Corporation
Statement of Owner's Equity
Advertising Expense
Depreciation Expense—Equipment
Rosa Vasquez, Capital, December 1, 2016
Net income for December
Less Withdrawals for December
Increase in Capital
Rosa Vasquez, Capital, December 31, 2016
© 2015 McGraw-Hill Education. This is proprietary material solely for authorized instrutor use. Not authorized for sale or
distribution in any manner. 5-11
PROBLEM 5.3A (continued)
Cash 78 2 0 0 00
Accounts Receivable 13 0 0 0 00
Supplies 5 1 0 0 00
Prepaid Advertising 17 0 0 0 00
Equipment 85 0 0 0 00
Less Accumulated Depreciation—Equipment 1 7 0 0 00 83 3 0 0 00
Total Assets 196 6 0 0 00
Liabilities
Accounts Payable 13 0 0 0 00
Owner's Equity
Rosa Vasquez, Capital 183 6 0 0 00
Total Liabilities and Owner's Equity 196 6 0 0 00
Analyze: Net Income would be $48,900 ($51,300 - $2,400).Analyze: Net Income would be $79,400 ($82,800 - $3,400).
Vasquez Corporation
Balance Sheet
December 31, 2016
Assets
Liabilities and Owner's Equity
© 2015 McGraw-Hill Education. This is proprietary material solely for authorized instrutor use. Not authorized for sale or
distribution in any manner. 5-12
PROBLEM 5.4A
Judge Creative Designs
Worksheet
1 Cash 36 5 0 0 00
2 Accounts Receivable 13 6 0 0 00
3 Supplies 9 7 5 0 00 (a) 8 1 5 0 00
4 Prepaid Advertising 12 4 0 0 00 (b) 3 1 0 0 00
5 Prepaid Rent 25 2 0 0 00 (c )2 1 0 0 00
6 Equipment 33 6 0 0 00
7 (d) 2 8 0 00
8 Accounts Payable 16 5 5 0 00
9 Paula Judge, Capital 61 0 0 0 00
10 Paula Judge, Drawing 8 0 0 0 00
11 Fees Income 74 1 0 0 00
12 Advertising Expense (b) 3 1 0 0 00
13 (d) 2 8 0 00
14 Rent Expense (c )2 1 0 0 00
15 Salaries Expense 10 7 0 0 00
16 Supplies Expense (a) 8 1 5 0 00
17 Utilities Expense 1 9 0 0 00
18 Totals 151 6 5 0 00 151 6 5 0 00 13 6 3 0 00 13 6 3 0 00
19 Net Income
20
21
Month Ended January 31, 2016
Depreciation Expense—Equipment
Accumulated Depreciation—Equip.
ACCOUNT NAME
TRIAL BALANCE ADJUSTMENTS
DEBIT CREDIT DEBIT CREDIT
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distribution in any manner. 5-13
PROBLEM 5.4A (continued)
36 5 0 0 00 36 5 0 0 00 1
13 6 0 0 00 13 6 0 0 00 2
1 6 0 0 00 1 6 0 0 00 3
9 3 0 0 00 9 3 0 0 00 4
23 1 0 0 00 23 1 0 0 00 5
33 6 0 0 00 33 6 0 0 00 6
2 8 0 00 2 8 0 00 7
16 5 5 0 00 16 5 5 0 00 8
61 0 0 0 00 61 0 0 0 00 9
8 0 0 0 00 8 0 0 0 00 10
74 1 0 0 00 74 1 0 0 00 11
3 1 0 0 00 3 1 0 0 00 12
2 8 0 00 2 8 0 00 13
2 1 0 0 00 2 1 0 0 00 14
10 7 0 0 00 10 7 0 0 00 15
8 1 5 0 00 8 1 5 0 00 16
1 9 0 0 00 1 9 0 0 00 17
151 9 3 0 00 151 9 3 0 00 26 2 3 0 00 74 1 0 0 00 125 7 0 0 00 77 8 3 0 00 18
47 8 7 0 00 47 8 7 0 00 19
74 1 0 0 00 74 1 0 0 00 125 7 0 0 00 125 7 0 0 00 20
21
ADJUSTED TRIAL BALANCE INCOME STATEMENT BALANCE SHEET
DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT
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distribution in any manner. 5-14
PROBLEM 5.4A (continued)
74 1 0 0 00
10 7 0 0 00
1 9 0 0 00
8 1 5 0 00
3 1 0 0 00
2 1 0 0 00
2 8 0 00
26 2 3 0 00
47 8 7 0 00
61 0 0 0 00
47 8 7 0 00
8 0 0 0 00
39 8 7 0 00
100 8 7 0 00
Less Withdrawals for January
Increase in Capital
Paula Judge, Capital, January 31, 2016
Net Income
Judge Creative Designs
Paula Judge, Capital, January 1, 2016
Net income for January
Statement of Owner's Equity
Month Ended January 31, 2016
Expenses
Salaries Expense
Utilities Expense
Supplies Expense
Advertising Expense
Rent Expense
Depreciation Expense—Equipment
Total Expenses
Revenue
Fees Income
Judge Creative Designs
Income Statement
Month Ended January 31, 2016
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distribution in any manner. 5-15
PROBLEM 5.4A (continued)
Cash 36 5 0 0 00
Accounts Receivable 13 6 0 0 00
Supplies 1 6 0 0 00
Prepaid Advertising 9 3 0 0 00
Prepaid Rent 23 1 0 0 00
Equipment 33 6 0 0 00
Less Accumulated Depreciation—Equipment 2 8 0 00 33 3 2 0 00
Total Assets 117 4 2 0 00
Liabilities
Accounts Payable 16 5 5 0 00
Owner's Equity
Paula Judge, Capital 100 8 7 0 00
Total Liabilities and Owner's Equity 117 4 2 0 00
PAGE
POST.
REF.
P
O
1 1
2 2016 2
3 Jan. 31 Supplies Expense 517 8 1 5 0 00 3
4 Supplies 121 8 1 5 0 00 4
5 5
6 31 Advertising Expense 519 3 1 0 0 00 6
7 Prepaid Advertising 130 3 1 0 0 00 7
8 8
9 31 Rent Expense 520 2 1 0 0 00 9
10 Prepaid Rent 131 2 1 0 0 00 10
11 11
12 31 Depreciation Expense—Equipment 523 2 8 0 00 12
13 142 2 8 0 00 13
14 14
Judge Creative Designs
Balance Sheet
DEBIT CREDIT
Assets
Liabilities and Owner's Equity
DATE
GENERAL JOURNAL
Accumulated Depreciation—Equipment
DESCRIPTION
January 31, 2016
Adjusting Entries
3
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distribution in any manner. 5-16
PROBLEM 5.4A (continued)
ACCOUNT Supplies ACCOUNT NO.
2016
Jan. 1 J1 9 7 5 0 00 9 7 5 0 00
31 Adjusting J3 8 1 5 0 00 1 6 0 0 00
ACCOUNT Prepaid Advertising ACCOUNT NO.
2016
Jan. 1 J1 12 4 0 0 00 12 4 0 0 00
31 Adjusting J3 3 1 0 0 00 9 3 0 0 00
ACCOUNT Prepaid Rent ACCOUNT NO.
2016
Jan. 1 J1 25 2 0 0 00 25 2 0 0 00
31 Adjusting J3 2 1 0 0 00 23 1 0 0 00
ACCOUNT Accumulated Depreciation—Equipment ACCOUNT NO.
2016
Jan. 31 Adjusting J3 2 8 0 00 2 8 0 00
BALANCE
DEBIT CREDIT
CREDIT
CREDIT
CREDIT DEBITDATE
131
142
CREDIT
BALANCE
DEBIT CREDIT
DATE DESCRIPTION
POST.
REF. DEBIT
DATE DESCRIPTION
POST.
REF. DEBIT
GENERAL LEDGER
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT
121
CREDIT
DESCRIPTION
POST.
REF. DEBIT
BALANCE
130
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distribution in any manner. 5-17
PROBLEM 5.4A (continued)
ACCOUNT Supplies Expense ACCOUNT NO.
2016
Jan. 31 Adjusting J3 8 1 5 0 00 8 1 5 0 00
ACCOUNT Advertising Expense ACCOUNT NO.
2016
Jan. 31 Adjusting J3 3 1 0 0 00 3 1 0 0 00
ACCOUNT Rent Expense ACCOUNT NO.
2016
Jan. 31 Adjusting J3 2 1 0 0 00 2 1 0 0 00
ACCOUNT Depreciation Expense—Equipment ACCOUNT NO.
2016
Jan. 31 Adjusting J3 2 8 0 00 2 8 0 00
Analyze: If adjusting entries had not been made, net income would be overstated.
BALANCE
DEBIT
BALANCE
DEBIT
CREDIT
523
CREDIT
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
CREDITDATE DESCRIPTION
POST.
REF. DEBIT
DEBIT CREDIT
CREDIT
BALANCE
DEBIT
519
517
520
GENERAL LEDGER
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
© 2015 McGraw-Hill Education. This is proprietary material solely for authorized instrutor use. Not authorized for sale or
distribution in any manner. 5-18
PROBLEM 5.1B
1 Cash 73 0 0 0 00
2 Accounts Receivable 6 4 0 0 00
3 Supplies 4 2 0 0 00 (a) 2 0 0 0 00
4 Prepaid Rent 24 0 0 0 00 (b) 2 0 0 0 00
5 Equipment 46 0 0 0 00
6 (c) 1 0 0 0 00
7 Accounts Payable 12 0 0 0 00
8 Maria Sanchez, Capital 98 5 0 0 00
9 Maria Sanchez, Drawing 3 0 0 0 00
10 Fees Income 54 0 0 0 00
11 Salaries Expense 6 3 0 0 00
12 Utilities Expense 1 6 0 0 00
13 Supplies Expense (a) 2 0 0 0 00
14 Rent Expense (b) 2 0 0 0 00
15 Depreciation Expense-Equipment (c) 1 0 0 0 00
16 Totals 164 5 0 0 00 164 5 0 0 00 5 0 0 0 00 5 0 0 0 00
17 Net Income
18
19
20
21
CREDIT DEBIT
Worksheet
Sanchez Company
Month Ended February 29, 2016
Accumulated Depreciation—Equip.
CREDITACCOUNT NAME
TRIAL BALANCE ADJUSTMENTS
DEBIT
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distribution in any manner. 5-19
73 0 0 0 00 73 0 0 0 00 1
6 4 0 0 00 6 4 0 0 00 2
2 2 0 0 00 2 2 0 0 00 3
22 0 0 0 00 22 0 0 0 00 4
46 0 0 0 00 46 0 0 0 00 5
1 0 0 0 00 1 0 0 0 00 6
12 0 0 0 00 12 0 0 0 00 7
98 5 0 0 00 98 5 0 0 00 8
3 0 0 0 00 3 0 0 0 00 9
54 0 0 0 00 54 0 0 0 00 10
6 3 0 0 00 6 3 0 0 00 11
1 6 0 0 00 1 6 0 0 00 12
2 0 0 0 00 2 0 0 0 00 13
2 0 0 0 00 2 0 0 0 00 14
1 0 0 0 00 1 0 0 0 00 15
165 5 0 0 00 165 5 0 0 00 12 9 0 0 00 54 0 0 0 00 152 6 0 0 00 111 5 0 0 00 16
41 1 0 0 00 41 1 0 0 00 17
54 0 0 0 00 54 0 0 0 00 152 6 0 0 00 152 6 0 0 00 18
19
20
21
Analyze: No depreciation has been recorded for the fiscal period, or any previous fiscal period.
CREDIT
PROBLEM 5.1B (continued)
ADJUSTED TRIAL INCOME STATEMENT BALANCE SHEET
DEBIT CREDIT DEBIT CREDIT DEBIT
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distribution in any manner. 5-20
PROBLEM 5.2B
1 Cash 140 2 0 0 00
2 Accounts Receivable 34 0 0 0 00
3 Supplies 41 6 0 0 00 (a) 14 4 0 0 00
4 Prepaid Rent 176 8 0 0 00 (b) 13 6 0 0 00
5 Equipment 264 0 0 0 00
6 (c ) 2 2 0 0 00
7 Accounts Payable 68 0 0 0 00
8 Lisa Morgan, Capital 320 0 0 0 00
9 Lisa Morgan, Drawing 24 0 0 0 00
10 Fees Income 342 8 0 0 00
11 Salaries Expense 43 2 0 0 00
12 Utilities Expense 7 0 0 0 00
13 Supplies Expense (a) 14 4 0 0 00
14 Rent Expense (b) 13 6 0 0 00
15 Depreciation Expense—Equipment (c ) 2 2 0 0 00
16 Totals 730 8 0 0 00 730 8 0 0 00 30 2 0 0 00 30 2 0 0 00
17
18
19
DEBIT CREDIT
Worksheet (Partial)
Lisa Morgan, Attorney-at-Law
Month Ended November 30, 2016
Accumulated Depreciation—Equip.
ACCOUNT NAME
TRIAL BALANCE ADJUSTMENTS
DEBIT CREDIT
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distribution in any manner. 5-21
140 2 0 0 00 1
34 0 0 0 00 2
27 2 0 0 00 3
163 2 0 0 00 4
264 0 0 0 00 5
2 2 0 0 00 6
68 0 0 0 00 7
320 0 0 0 00 8
24 0 0 0 00 9
342 8 0 0 00 10
43 2 0 0 00 11
7 0 0 0 00 12
14 4 0 0 00 13
13 6 0 0 00 14
2 2 0 0 00 15
733 0 0 0 00 733 0 0 0 00 16
17
18
19
Analyze: Accumulated Depreciation—Equipment
PROBLEM 5.2B (continued)
ADJUSTED TRIAL
BALANCE INCOME STATEMENT BALANCE SHEET
DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT
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distribution in any manner. 5-22
PROBLEM 5.3B
31 3 3 0 00
18 6 0 0 00
6 0 0 00
1 0 8 0 00
3 5 0 0 00
8 0 0 00
3 0 0 00
24 8 8 0 00
6 4 5 0 00
30 0 0 0 00
6 4 5 0 00
3 0 0 0 00
3 4 5 0 00
33 4 5 0 00
Depreciation Expense—Fixtures
CJ's Accounting Services
Income Statement
Month Ended December 31, 2016
Revenue
Fees Income
Expenses
Salaries Expense
Supplies Expense
Utilities Expense
Advertising Expense
Net Income
CJ’s Accounting Services
Total Expenses
Rent Expense
Charlene Jordan, Capital, December 31, 2016
Charlene Jordan, Capital, December 1, 2016
Net income for December 2016
Less Withdrawals for Year
Increase in Capital
Statement of Owner's Equity
Month Ended December 31, 2016
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distribution in any manner. 5-23
PROBLEM 5.3B (continued)
Cash 16 9 5 0 00
Accounts Receivable 2 2 0 0 00
Supplies 9 0 0 00
Prepaid Advertising 3 2 0 0 00
Fixtures 18 0 0 0 00
Less Accumulated Depreciation 3 0 0 00 17 7 0 0 00
Total Assets 40 9 5 0 00
Liabilities
Accounts Payable 7 5 0 0 00
Owner's Equity
Charlene Jordan, Capital 33 4 5 0 00
Total Liabilities and Owner's Equity 40 9 5 0 00
Analyze: Adjusting entries decreased the assets of the company by $1,700.
December 31, 2016
Liabilities and Owner's Equity
Assets
CJ's Accounting Services
Balance Sheet
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distribution in any manner. 5-24
PROBLEM 5.4B
Nix Estate Planning and Investments
Worksheet
Month Ended June 30, 2016
1 Cash 39 4 0 0 00
2 Accounts Receivable 12 2 0 0 00
3 Supplies 15 2 0 0 00 (a) 9 2 0 0 00
4 Prepaid Advertising 28 8 0 0 00 (b) 7 2 0 0 00
5 Prepaid Rent 72 0 0 0 00 (c )6 0 0 0 00
6 Equipment 96 0 0 0 00
7 (d) 1 6 0 0 00
8 Accounts Payable 21 6 0 0 00
9 Sam Nix, Capital 120 2 0 0 00
10 Sam Nix, Drawing 8 0 0 0 00
11 Fees Income 147 6 0 0 00
12 Advertising Expense (b) 7 2 0 0 00
13 Depreciation Expense—Equipment (d) 1 6 0 0 00
14 Rent Expense (c ) 6 0 0 0 00
15 Salaries Expense 15 2 0 0 00
16 Supplies Expense (a) 9 2 0 0 00
17 Utilities Expense 2 6 0 0 00
18 Totals 289 4 0 0 00 289 4 0 0 00 24 0 0 0 00 24 0 0 0 00
19 Net Income
20
21
22
Accumulated Depreciation—Equip.
ACCOUNT NAME
TRIAL BALANCE ADJUSTMENTS
DEBIT CREDIT DEBIT CREDIT
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distribution in any manner. 5-25
PROBLEM 5.4B (continued)
39 4 0 0 00 39 4 0 0 00 1
12 2 0 0 00 12 2 0 0 00 2
6 0 0 0 00 6 0 0 0 00 3
21 6 0 0 00 21 6 0 0 00 4
66 0 0 0 00 66 0 0 0 00 5
96 0 0 0 00 96 0 0 0 00 6
1 6 0 0 00 1 6 0 0 00 7
21 6 0 0 00 21 6 0 0 00 8
120 2 0 0 00 120 2 0 0 00 9
8 0 0 0 00 8 0 0 0 00 10
147 6 0 0 00 147 6 0 0 00 11
7 2 0 0 00 7 2 0 0 00 12
1 6 0 0 00 1 6 0 0 00 13
6 0 0 0 00 6 0 0 0 00 14
15 2 0 0 00 15 2 0 0 00 15
9 2 0 0 00 9 2 0 0 00 16
2 6 0 0 00 2 6 0 0 00 17
291 0 0 0 00 291 0 0 0 00 41 8 0 0 00 147 6 0 0 00 249 2 0 0 00 143 4 0 0 00 18
105 8 0 0 00 105 8 0 0 00 19
147 6 0 0 00 147 6 0 0 00 249 2 0 0 00 249 2 0 0 00 20
21
22
ADJUSTED TRIAL
BALANCE INCOME STATEMENT BALANCE SHEET
DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT
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distribution in any manner. 5-26
PROBLEM 5.4B (continued)
147 6 0 0 00
15 2 0 0 00
2 6 0 0 00
9 2 0 0 00
7 2 0 0 00
6 0 0 0 00
1 6 0 0 00
41 8 0 0 00
105 8 0 0 00
120 2 0 0 00
105 8 0 0 00
8 0 0 0 00
97 8 0 0 00
218 0 0 0 00
Statement of Owner's Equity
Month Ended June 30, 2016
Sam Nix, Capital, June 1, 2016
Net income for June
Expenses
Nix Estate Planning and Investments
Depreciation Expense—Equipment
Total Expenses
Net Income
Salaries Expense
Utilities Expense
Supplies Expense
Advertising Expense
Rent Expense
Less Withdrawals for June
Increase in Capital
Sam Nix, Capital, June 30, 2016
Nix Estate Planning and Investments
Income Statement
Fees Income
Month Ended June 30, 2016
Revenue
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distribution in any manner. 5-27
PROBLEM 5.4B (continued)
Cash 39 4 0 0 00
Accounts Receivable 12 2 0 0 00
Supplies 6 0 0 0 00
Prepaid Advertising 21 6 0 0 00
Prepaid Rent 66 0 0 0 00
Equipment 96 0 0 0 00
Less Accumulated Depreciation—Equipment 1 6 0 0 00 94 4 0 0 00
Total Assets 239 6 0 0 00
Liabilities
Accounts Payable 21 6 0 0 00
Owner's Equity
Sam Nix, Capital 218 0 0 0 00
Total Liabilities and Owner's Equity 239 6 0 0 00
PAGE
POST.
REF.
P
O
1 1
2 2016 2
3 June 30 Supplies Expense 517 9 2 0 0 00 3
4 Supplies 121 9 2 0 0 00 4
5 5
6 30 Advertising Expense 519 7 2 0 0 00 6
7 Prepaid Advertising 130 7 2 0 0 00 7
8 8
9 30 Rent Expense 520 6 0 0 0 00 9
10 Prepaid Rent 131 6 0 0 0 00 10
11 11
12 30 Depreciation Expense—Equipment 523 1 6 0 0 00 12
13 142 1 6 0 0 00 13
14 14
Adjusting Entries
Assets
CREDIT
Accumulated Depreciation—Equipment
DATE DESCRIPTION DEBIT
Liabilities and Owner's Equity
GENERAL JOURNAL
Nix Estate Planning and Investments
Balance Sheet
June 30, 2016
3
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distribution in any manner. 5-28
PROBLEM 5.4B (continued)
ACCOUNT Supplies ACCOUNT NO.
2016
June 1 J1 15 2 0 0 00 15 2 0 0 00
30 Adjusting J3 9 2 0 0 00 6 0 0 0 00
ACCOUNT Prepaid Advertising ACCOUNT NO.
2016
June 1 J1 28 8 0 0 00 28 8 0 0 00
30 Adjusting J3 7 2 0 0 00 21 6 0 0 00
ACCOUNT Prepaid Rent ACCOUNT NO.
2016
June 1 J1 72 0 0 0 00 72 0 0 0 00
30 Adjusting J3 6 0 0 0 00 66 0 0 0 00
ACCOUNT Accumulated Depreciation—Equipment ACCOUNT NO.
2016
June 30 Adjusting J3 1 6 0 0 00 1 6 0 0 00
142
BALANCE
DEBIT CREDIT
BALANCE
DEBIT CREDIT
130
131
BALANCE
DEBIT CREDIT
GENERAL LEDGER
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
121
POST.
REF. DEBIT CREDIT
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
DATE DESCRIPTION
© 2015 McGraw-Hill Education. This is proprietary material solely for authorized instrutor use. Not authorized for sale or
distribution in any manner. 5-29
PROBLEM 5.4B (continued)
ACCOUNT Supplies Expense ACCOUNT NO.
2016
June 30 Adjusting J3 9 2 0 0 00 9 2 0 0 00
ACCOUNT Advertising Expense ACCOUNT NO.
2016
June 30 Adjusting J3 7 2 0 0 00 7 2 0 0 00
ACCOUNT Rent Expense ACCOUNT NO.
2016
June 30 Adjusting J3 6 0 0 0 00 6 0 0 0 00
ACCOUNT Depreciation Expense—Equipment ACCOUNT NO.
2016
June 30 Adjusting J3 1 6 0 0 00 1 6 0 0 00
Analyze: Generally accepted accounting principles require that the original cost of the asset
appear in the asset account until the asset has been used up or disposed.
A contra asset account is used to record depreciation costs.
517
GENERAL LEDGER
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DATE DESCRIPTION
POST.
REF. DEBIT
523
520
BALANCE
DEBIT CREDIT
CREDIT
CREDIT
BALANCE
DEBIT
DEBIT
CREDIT
519
BALANCE
DEBIT CREDITDESCRIPTION
POST.
REF. DEBITDATE
CREDITDATE DESCRIPTION
POST.
REF. DEBIT
CREDIT
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distribution in any manner. 5-30
CRITICAL THINKING PROBLEM 5.1
James Parkland, Owner
Student’s Name
Current Date
Effect on Financial Statements of Omitting Adjusting Entries
1. Expense of Rent for the year
($21,000 x 6/12 = $10,500 for 6 months) $10,500
2. Expense of supplies used during the year
7,250
3. Depreciation expense for the year ($210,000 ÷ 25 years = $8,400 per year) 8,400
Total increase in expenses $26,150
TO:
FROM:
DATE:
SUBJEC
In addition to overstating the net income, the balances of Prepaid Rent and Supplies on the balance
sheet would be overstated and the book value of Building would also be overstated.
Preparation of the adjusting entries would permit the financial statements to present a more accurate
measure of the company’s operations for the year and its financial condition at the end of the year.
Therefore, it is important and the time is well spent to prepare adjusting entries so that the financial
statements are up-to-date and present an accurate picture of the business.
(Total supplies of $9,000 - Ending Inventory of $1,750 = $7,250 supplies used)
Adjusting entries are recorded to update the accounts at the end of the accounting period for previously
unrecorded items that belong to that period. If these entries are omitted, the net income will not be an
accurate measure of the operation of the company for the year and certain accounts on the balance
sheet will not report correct end-of-year balances.
In particular, Parkland Industries' net income for the year will be overstated by $26,150; net income
should be $56,600 instead of $82,750. This amount represents a 32% decrease in net income over the
amount that would be reported if the adjusting entries were not made.
($26,150 ÷ $82,750 = 0.32).
This decrease in net income results from not making adjusting entries for the following unrecorded
expenses:
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distribution in any manner. 5-31
CRITICAL THINKING PROBLEM 5.2
Rogers International Company
Worksheet
1 Cash 18 4 7 5 00
2 Accounts Receivable 3 4 0 0 00
3 Supplies 2 1 5 0 00 (a) 1 0 5 0 00
4 Prepaid Insurance 15 0 0 0 00 (b) 2 5 0 0 00
5 Equipment 24 0 0 0 00
6 (c) 2 0 0 00
7 Accounts Payable 6 0 0 0 00
8 Maxine Rogers, Capital 40 0 0 0 00
9 Maxine Rogers, Drawing 2 0 0 0 00
10 Fees Income 30 9 2 5 00
11 Advertising Expense 1 5 0 0 00
12 Depreciation Expense—Equipment (c) 2 0 0 00
13 Insurance Expense (b) 2 5 0 0 00
14 Rent Expense 2 5 0 0 00
15 Salaries Expense 6 7 0 0 00
16 Supplies Expense (a) 1 0 5 0 00
17 Telephone Expense 3 5 0 00
18 Utilities Expense 8 5 0 00
19 Totals 76 9 2 5 00 76 9 2 5 00 3 7 5 0 00 3 7 5 0 00
20 Net Income
21
22
Month Ended January 31, 2016
Accumulated Depreciation—Equip.
ACCOUNT NAME
TRIAL BALANCE ADJUSTMENTS
DEBIT CREDIT DEBIT CREDIT
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distribution in any manner. 5-32
CRITICAL THINKING PROBLEM 5.2 (continued)
18 4 7 5 00 18 4 7 5 00 1
3 4 0 0 00 3 4 0 0 00 2
1 1 0 0 00 1 1 0 0 00 3
12 5 0 0 00 12 5 0 0 00 4
24 0 0 0 00 24 0 0 0 00 5
2 0 0 00 2 0 0 00 6
6 0 0 0 00 6 0 0 0 00 7
40 0 0 0 00 40 0 0 0 00 8
2 0 0 0 00 2 0 0 0 00 9
30 9 2 5 00 30 9 2 5 00 10
1 5 0 0 00 1 5 0 0 00 11
2 0 0 00 2 0 0 00 12
2 5 0 0 00 2 5 0 0 00 13
2 5 0 0 00 2 5 0 0 00 14
6 7 0 0 00 6 7 0 0 00 15
1 0 5 0 00 1 0 5 0 00 16
3 5 0 00 3 5 0 00 17
8 5 0 00 8 5 0 00 18
77 1 2 5 00 77 1 2 5 00 15 6 5 0 00 30 9 2 5 00 61 4 7 5 00 46 2 0 0 00 19
15 2 7 5 00 15 2 7 5 00 20
30 9 2 5 00 30 9 2 5 00 61 4 7 5 00 61 4 7 5 00 21
22
ADJUSTED TRIAL INCOME STATEMENT BALANCE SHEET
DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT
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distribution in any manner. 5-33
CRITICAL THINKING PROBLEM 5.2 (continued)
30 9 2 5 00
1 5 0 0 00
2 0 0 00
Insurance Expense 2 5 0 0 00
Rent Expense 2 5 0 0 00
6 7 0 0 00
1 0 5 0 00
3 5 0 00
8 5 0 00
15 6 5 0 00
15 2 7 5 00
40 0 0 0 00
15 2 7 5 00
2 0 0 0 00
13 2 7 5 00
53 2 7 5 00
Rogers International Company
Rogers International Company
Income Statement
Month Ended January 31, 2016
Depreciation Expense—Equipment
Salaries Expense
Supplies Expense
Telephone Expense
Revenue
Fees Income
Expenses
Advertising Expense
Utilities Expense
Total Expenses
Net Income
Less Withdrawals for January
Increase in Capital
Maxine Rogers, Capital, January 31, 2016
Net income for January
Statement of Owner’s Equity
Month Ended January 31, 2016
Maxine Rogers, Capital, January 1, 2016
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distribution in any manner. 5-34
CRITICAL THINKING PROBLEM 5.2 (continued)
18 4 7 5 00
3 4 0 0 00
1 1 0 0 00
12 5 0 0 00
24 0 0 0 00
2 0 0 00 23 8 0 0 00
59 2 7 5 00
6 0 0 0 00
53 2 7 5 00
59 2 7 5 00
PAGE
POST.
REF.
P
O
1 1
2 2016 2
3 Jan. 31 Supplies Expense 520 1 0 5 0 00 3
4 Supplies 121 1 0 5 0 00 4
5 5
6 31 Insurance Expense 517 2 5 0 0 00 6
7 Prepaid Insurance 131 2 5 0 0 00 7
8 8
9 30 Depreciation Expense—Equipment 514 2 0 0 00 9
10 142 2 0 0 00 10
11 11
Adjusting Entries
Total Liabilities and Owner's Equity
Supplies
Less Accumulated Depreciation—Equipment
Total Assets
Accumulated Depreciation—Equipment
GENERAL JOURNAL
DATE DESCRIPTION DEBIT
Accounts Receivable
Equipment
Prepaid Insurance
Maxine Rogers, Capital
CREDIT
3
Accounts Payable
Rogers International Company
Balance Sheet
January 31, 2016
Cash
Assets
Owner's Equity
Liabilities and Owner's Equity
Liabilities
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distribution in any manner. 5-35
CRITICAL THINKING PROBLEM 5.2 (continued)
ACCOUNT Supplies ACCOUNT NO.
2016
Jan. 1 Balance ✔ 2 1 5 0 00 2 1 5 0 00
31 Adjusting J3 1 0 5 0 00 1 1 0 0 00
ACCOUNT Prepaid Insurance ACCOUNT NO.
2016
Jan. 1 Balance ✔ 15 0 0 0 00 15 0 0 0 00
31 Adjusting J3 2 5 0 0 00 12 5 0 0 00
ACCOUNT Accumulated Depreciation—Equipment ACCOUNT NO.
2016
Jan. 31 Adjusting J3 2 0 0 00 2 0 0 00
ACCOUNT Depreciation Expense—Equipment ACCOUNT NO.
2016
Jan. 31 Adjusting J3 2 0 0 00 2 0 0 00
CREDIT
BALANCE
DEBIT CREDITDATE DESCRIPTION
POST.
REF. DEBIT
514
BALANCE
CREDIT
131
DEBIT
BALANCE
DEBITDATE DEBITDESCRIPTION CREDIT
DATE DESCRIPTION
POST.
REF. DEBIT
POST.
REF.
CREDIT
CREDIT
CREDIT
142
BALANCE
DEBIT DEBIT
GENERAL LEDGER
DATE DESCRIPTION
POST.
REF.
121
CREDIT
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distribution in any manner. 5-36
CRITICAL THINKING PROBLEM 5.2 (continued)
ACCOUNT Insurance Expense ACCOUNT NO.
2016
Jan. 31 Adjusting J3 2 5 0 0 00 2 5 0 0 00
ACCOUNT Supplies Expense ACCOUNT NO.
2016
Jan. 31 Adjusting J3 1 0 5 0 00 1 0 5 0 00
Analyze: If the useful life of the equipment had been 12 years instead of 10 years, depreciation
would have been $166.67 rather than $200. Net Income would have been $33.33 greater.
DESCRIPTION
POST.
REF. DEBIT
CREDIT
CREDIT
BALANCE
CREDIT
520
DEBIT
517
DATE
DEBIT
CREDIT
BALANCE
DEBIT
GENERAL LEDGER
DATE DESCRIPTION
POST.
REF.
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distribution in any manner. 5-37
SOLUTIONS TO BUSINESS CONNECTIONS
Managerial Focus:
1.
2.
3.
4.
Ethical Dilemma:
Financial Statement Analysis:
1. 4.1% ($1,319 ÷ $31,826)
2. 60% ($19,085 ÷ $31,826)
3. 9.7 years ($12,741 ÷ $1,319)
Analyze Online:
Answers will vary depending on the year.
Teamwork:
Internet Connection:
Professional liability, surety bonds, umbrella policies, errors and omissions, product liability, fire,
auto, dental, workers’ compensation, sexual harassment.
Accounting records generally reflect an asset’s historical or original cost, less accumulated
depreciation (not market value).
Depreciation Expense will offset income. Accumulated Depreciation will decrease the book value of
the asset.
Are necessary to present an accurate financial position of the firm.
Provides end-of-period adjusting entries and contains income statement and balance sheet accounts.
If the company wanted to donate to a nonprofit organization they would write a check and get a tax
deduction. It is unethical to record higher costs than are actually incurred.
Mr. Foster has expenses that will appear on the income statement. He needs to match these expenses
with revenue. He can record the revenue as a receivable for the amount that he has completed (40% -
25% = 15%). In this case, he can record $30,000 or 15% of the price of the job.
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distribution in any manner. 5-38
Part A True-False
1. FALSE
2. FALSE
3. TRUE
4. TRUE
5. TRUE
6. TRUE
7. TRUE
8. TRUE
9. FALSE
10. TRUE
Part B Matching
1. d
2. b
3. c
4. f
5. e
6. a
SOLUTIONS TO PRACTICE TEST
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