Page 142 - Accounting Principles (A Business Perspective)

3. Adjustments for financial reporting

• Since the last payday, the employees of the company have earned additional salaries in the amount of USD
5,430.

a. Prepare the year-end adjusting journal entries at December 31.
b. Open ledger accounts for each of the accounts involved, enter the balances as shown in the trial balance, post
the adjusting journal entries, and calculate year-end balances.
Problem C Hillside Apartments, Inc., adjusts and closes its books each December 31. Assume the accounts for
all prior years have been properly adjusted and closed. Following are some of the company’s account balances prior
to adjustment on 2010 December 31:
HILLSIDE APARTMENTS, INC.

Partial Trial Balance
2010 December 31
Debits Credits
Prepaid insurance $ 7,500
Supplies on hand 7,000
Buildings 255,000
Accumulated deprecation – Buildings $ 96,000
Unearned rent 2,700
Salaries expense 69,000
Rent revenue 277,500
The Prepaid Insurance account balance represents the remaining cost of a four-year insurance policy dated 2011
June 30, having a total premium of USD 12,000.
The physical inventory of the office supply stockroom indicates that the supplies on hand cost USD 3,000.
The building was originally acquired on 1994 January 1, at which time management estimated that the building
would last 40 years and have a residual value of USD 15,000.

Salaries earned since the last payday but unpaid at December 31 amount to USD 5,000.
Interest earned but not collected on a savings account during the year amounts to USD 400.
The Unearned Rent account arose through the prepayment of rent by a tenant in the building for 12 months
beginning 2010 October 1.
Prepare the annual year-end adjusting entries indicated by the additional data.
Problem D The reported net income amounts for Gulf Coast Magazine, Inc., for calendar years 2010 and 2011
were USD 200,000 and USD 222,000, respectively. No annual adjusting entries were made at either year-end for

any of the following transactions:
A fire insurance policy to cover a three-year period from the date of payment was purchased on 2010 March 1 for
USD 3,600. The Prepaid Insurance account was debited at the date of purchase.
Subscriptions for magazines in the amount of USD 72,000 to cover an 18-month period from 2010 May 1, were
received on 2010 April 15. The Unearned Subscription Fees account was credited when the payments were received.
A building costing USD 180,000 and having an estimated useful life of 50 years and a residual value of USD
30,000 was purchased and put into service on 2010 January 1.
On 2011 January 12, salaries of USD 9,600 were paid to employees. The account debited was Salaries Expense.
One-third of the amount paid was earned by employees in December of 2010.

Calculate the correct net income for 2010 and 2011. In your answer, start with the reported net income. Then
show the effects of each correction (adjustment), using a plus or a minus to indicate whether reported income
should be increased or decreased as a result of the correction. When the corrections are added to or deducted from

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