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Easy Method Institute


142, Jamela Mohol, China Building Lane, Azimpur, Dhaka-1205

Adjusting Entries
Problem 01
Before preparation of financial statement of Shuvo Ltd. the following adjustments were noted on December 31, 2007. 1. Ending Inventory valued tk. 20,000. 2. Salary accrued tk. 2,000. 3. Prepaid Insurance tk. 5,000. 4. Wages paid in advance tk. 7,000. 5. Bad debts written off tk. 2,000. 6. Allowance for doubtful debts estimated tk. 800. 7. Interest on loan outstanding tk. 530. 8. Goods distorted by fire tk. 6,000. 9. Commission received in advance tk. 1,200.

Problem 02
The following adjustments are seen in the books of Tanim Company at 31st December, 2004. (i) Stores supplies of tk. 3,000 have been used. (ii) Service provided but unbilled total tk. 6,000. (iii) Utilities expenses of tk. 3,000 are unpaid. (iv) Unearned revenue of tk. 2,600 has been earned. (v) Salaries of tk. 2,800 are unpaid. (vi) Unearned rent of tk. 40,000. Only tk. 10,000 has been earned during the current period. Prepare the adjusting entries on the above adjustments.

Problem 03
Kamal is the owner of Microland computer Service. At the end of June 2005, his first month of ownership, Kamal is trying to prepare a monthly financial statement. The following information relates to June of 2005. (i) At June 30, Kamal owed to employees tk. 1,800 that will be paid on August 01, 2005. (ii) On June 01, 2005 Kamal borrowed tk. 48,000 from a local Bank on a 10 years mortgage. The annual interest rate is 10%. (iii) Service revenue unrecorded on June totaled tk. 2,200. (iv) Utility service expenses of tk. 400 accrued. (v) Unexpired insurance premium totaling tk. 700 has expired. (vi) Store supplies of tk. 600 used. (vii) Unearned revenue of tk. 200 has been earned.

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Problem 04
The following 2009 information is available concerning the Alam Enterprise, which adjust and close its accounts every December 31: (i) Bad debts expense is estimated to be 1% of annual sales. The total sales of the year tk. 1,90,000. (ii) Salaries accrued and unpaid total tk. 8,000 on December 31, 2009and has not been paid or recorded. (iii) The utility bill of December 31, 2009 for tk. 2,900 and has not been paid or recorded. (iv) Account of supplies indicates that the store supplies account should be reduced by tk. 800 and the office supplies account reduced by tk. 1,600 for supplies used during the year. (v) The company holds a tk. 15,000, 12%, 6 months notes receivable dated September 1, 2009 from a customer. The interest is to be collected on the maturity date. (vi) An analysis of the company insurance policies indicated that the prepaid insurance accounts is to be reduced by tk. 2,500 for expired insurance. (vii) The income tax rate is 40% on current income of the company is tk. 40,000. (viii) Building with a cost of tk. 62,400, 30 years service life and a tk. 2,400 residual value are to be depreciated. The straight line is to be used. Instruction: Journalize the necessary adjusting entries at the end of 2009. Show supporting calculations in your journal entry explanations.

Problem 05
Terry Thomas opens the green thumb lawn care company on April 1, 2004. At April 30, the trial balance shows the following balances for selected accounts. Prepaid insurance 36,000 Equipment 2,80,000 Notes Payable 2,00,000 Unearned Revenue 42,000 Service Revenue 18,000 Analysis reveals the following additional data: (i) Prepaid insurance is the cost of a 2 year insurance policy, effective April 1, 2004. (ii) Depreciation on the equipment is tk. 5,000 per month. (iii) The notes payable is dated april 1, 2004. It is a 6 month, 10% note. (iv) Seven customers paid for the companys 6 months lawn service package of tk. 6,000 beginning in April 1, 2004. The customers were serviced in April. (v) Lawn service provided other customers but not billed at April 30, 2004 totaled tk. 15,000. You are required to prepare the adjusting entries for the month of April 30, 2004.

Problem 06
Banolota Motel opened for business on July 01, 2001. Its trial balance before adjustment on July 31 is as follows: Details Debit Credit Easy Method Institute

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Cash Supplies Prepaid insurance Land Building Furniture Accounts Payable Unearned Rent Mortgage Payable Capital Rent Revenue Advertising Expense Salaries Expense Utilities Expense

25,000 18,000 24,000 1,50,000 6,00,000 1,68,000 53,000 35,000 2,50,000 6,00,000 92,000 5,000 30,000 10,000 10,30,000

10,30,000

Adjustment data consist of: (i) Insurance expires at the rate of tk. 2,000 per month. (ii) A count of supplies shows tk. 9,000 as unused on July 31. (iii) Annual depreciation is tk. 36,000 on building and tk. 30,000 on furniture. (iv) The mortgage interest rate is 12% (The mortgage was taken out on July 1) (v) Unearned rent of tk. 15,000has been earned. (vi) Salaries tk. 3,000 are accrued and unpaid. Required: (a) Journalize the adjusting entries on July 31. (b) Prepare necessary ledger accounts showing three columns from of account. (c) Prepare an adjusted trial balance on July 31.

Problem 07
Mr. Habib is the owner of an internet service. He started the business on February 1, 2008 and wanted to prepare a financial statement on February 29. The following relating to the month of February:(i) Mr. Habib owed to the employee tk. 5,000 that should be paid in March 2008. (ii) Took loan from a local Bank tk. 50,000 at 16% interest rate. (iii) Service Revenue unrecorded tk. 10,000. (iv) Prepaid insurance tk. 18,000 paid for one year. (v) Store supplies used tk. 600. (vi) Utilities expense accrued tk. 400. (vii) Unearned revenue earned tk. 800. (viii) Depreciation on equipment for the month tk. 250. Journalize the adjusting entries on February 29.

Problem 08
Mr. Salam started a consulting business. The trial balance of his business at the end of first year was as follows: Easy Method Institute

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Details Cash Accounts Receivable Office Equipment Insurance Expense Salaries Expense Supplies expense Advertising Expense Rent Expense Utilities Expense Furniture

3,92,300 Adjustment: (i) Rent paid in advance tk. 8,000. (ii) Supplies on hand tk. 3,000. (iii) Apprenticeship premium was received for five year. (iv) Service revenue receivable but not yet received tk. 5,000. (v) Unearned revenue earned during the year tk. 4,000. (vi) Depreciation on fixed assets @ 10%. (vii) The notes payable was issued on 1 February 2009. It is a 12% one year notes. Required: (a) Adjusting Entries. (b) Adjusted trial balance.

Tk. 19,000 28,000 90,000 3,600 60,000 5,400 3,800 18,000 2,800 1,61,700 3,92,300

Details Accounts Payable Service Revenue Unearned Service Revenue Unearned Apprenticeship Premium Capital Notes Payable Salaries Payable

Tk. 34,000 71,600 21,300 10,000 2,00,000 42,600 12,800

Problem 09
The trial balance of Kohlers Diamonds shows among other items, the following balances on December 31, 2005. Details Tk. Tk. Accounts Receivable 2,25,000 9% Centure city bonds 1,50,000 Land 2,75,000 Building 3,00,000 Acc. Depreciation Buildings 1,73,250 8% First mortgage bonds 3,00,000 Payable Rent Revenue 71,500 Office Expense 7,500 The following facts are ascertained on this date upon inspection of the companys record: 1. It is estimated that approximately 2% of the accounts receivable may prove uncollectible. 2. Interest is receivable semiannually on the Centure City Bonds on March 1 and September 1. 3. Building are depreciated 5% a year, however there were buildings additions of tk. 50,000 during the year. The company computes depreciation on assets acquisitions during the year at 1.5%. 4. Interest on the first mortgage bonds is payable is semiannually on February 1 and august 1. 5. Rent revenue includes tk. 3,750 that was received on November 1, representing rent on part of the buildings for the period November 1, 2005 to October 31, 2006.

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6. Office supplies of tk. 2,000 are on December 31. Purchase of office supplies were debited to the office expense account. Instruction: (a) Prepare the journal entries to adjust the books on December 31, 2005.

Problem 10
Journalize the adjusting entry needed on 30 June 2010, the end of the current accounting period for each of the following independent cases affecting concord construction: (i) Concord pays its employees each Thursday. The amount of salaries is tk. 2,100 for a five day worksheet (from Sunday to Thursday) and the daily salary amounts are equal. The last week of the year ended 30 June 2010. Which was Wednesday. (ii) Concord has lent some money. During the current year. The entity has earned accrued interest revenue of tk. 750 that it will receive next year. (iii) The beginning balance of supplies was tk. 2,680. During the year the entity purchased supplies costing tk. 6,180 and at 30 June 2010 the inventory of supplies on hand is tk. 2,150. (iv) Concord is servicing the air conditioning system in a large building and the owner of the building paid concord tk. 12,900 as the annual service fee. Concord recorded this as unearned service revenue. Concord estimated that is has earned on quarter of the total fee during the current year.

Problem 11
Mr. Hasan closes his books on 31st December every year. The following matters are to be taken into consideration while preparing final accounts for the year ended 31.12.07. 1. Managers salary for the month of December amounting tk. 750 remains unpaid. 2. Tk. 900 was paid for insurance premium on 1-9-07 for the year ended 31-08-08. 3. 5% Govt. securities of the face value of tk. 6,000 were purchased for tk. 5,500 and recorded on 1-4-07 (interest is payable on 31st August and 31st March). 4. Annual rent of let out building amounting to tk. 1,500 was received on 1-4-07 for the year ending 31-03-08. Pass necessary journal entries to give effect to these adjustments and state how these will be dealt with in the accounts of the next year.

Problem 12
Show journal entries to be passed while preparing final accounts in respect of the following: 1. Goods costing tk. 2,000 taken by the owner for personal used/ consumption. 2. Sales for the period included tk. 1,000 worth of goods (cost price) also taken by the owner for personal consumption. 3. Goods costing tk. 700 distributed as free sample. 4. Goods distributed to employees free of change worth tk. 1,200 and those given away as charity worth tk. 500. (both cost price) 5. A lot of goods costing tk. 2,500 was destroyed by fire but the insurance company admitted a claim for tk. 2,000 only. Easy Method Institute

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6. Another lot of goods costing tk. 750 pilfered by employees and not covered by insurance. 7. Sales for the period included tk. 3,000 worth of goods (invoice price) sent out on approval basis. In respect of tk. 1,000 worth of goods the period of approval not yet expired. (invoice price arrived at by adding 25% on cost).

Problem 13
The following is the adjusted and unadjusted trial balance of Ahmed Company as on December 31, 2004. Accounts title Unadjusted Adjusted Dr. Cr. Dr. Cr. Cash 20,000 20,000 Accounts 4,000 6,000 Receivable Prepaid Insurance 4,500 2,000 Supplies 4,000 1,000 Equipment 30,000 30,000 Acc. Depreciation 1,500 equipment Notes Payable 20,000 20,000 Accounts Payable 6,000 6,000 Salaries Payable 2,000 Interest Payable 1,000 Unearned Rent 4,500 3,000 Revenue Capital 34,000 34,000 Drawing 2,000 2,000 Rent Revenue 1,500 Salaries Expense 2,000 Depreciation 1,500 Expense Equipment Service Revenue 2,000 Supplies Expense 3,000 Interest Expense 1,000 Insurance 2,500 Expense 64,500 64,500 71,000 71,000 Requirement: (a) Show the adjusting entries. (b) Show the reversing entries.

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