Lightstone, May 2004
3A Accounting
Complex Adjusting Entries
Practice Test
1. Bad Debts Expense
Mike Egberts owns Mike’s Bikes on Melrose Avenue, Los Angeles. Mike's business is frequented
by jobless rogues who are trying to make it big in show business. Yet, these struggling actors
cannot afford to drive a car. Needless to say, many of these customers don't have a lot of cash
on them, so Mike is kind enough to sell them bikes on credit. Sadly, Mike often does not receive
any payment on his accounts, and must sooner or later write them off.
Record the transactions outlined below within the General Journal provided.
April 30:
The total sales for the month of April was $26,000.00, but his total accounts
receivable account currently has a balance of $3000.00. Mike uses the Balance
Sheet approach to estimating bad debts expense, therefore he estimates his Bad
Debts at 20% of his total accounts receivable. Make the necessary adjusting
entry to record the prediction of this bad debts expense.
May 16:
Mike tries to phone Carlo Varone to see about his late payment, but the phone
number turns out to belong to the Betty Ford Clinic. Mike writes off the entire
account, totaling $400.00
May 21:
Mike tries to phone Mickey Blue to see about his late payment, but the phone
number turns out to be disconnected. Mike writes off the entire
account, totaling $500.00
May 29:
Much to his surprise, Mike receives a $300.00 payment on the Carlo Varone
account - it turns out that Carlo has recovered from his illness and now has a job.
Carlo apologizes for the late payment and promises to pay the balance as soon
as he can.
May 31:
The total sales for the month of May was $26,000.00, but his total accounts
receivable account currently has a balance of $3000.00. Mike uses the Balance
Sheet approach to estimating bad debts expense, therefore he estimates his Bad
Debts at 20% of his total accounts receivable. Make the necessary adjusting
entry to record the prediction of this bad debts expense.
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Lightstone, May 2004
Date
April 30
Account Title and Explanation
Bad Debts Expense
P.R.
Debit
Credit
600.00
Allowance for Bad Debts
600.00
To record estimated bad debts expense.
May 16
Allowance for Bad Debts
400.00
A/R - Varone
400.00
To write off account receivable.
May 21
Allowance for Bad Debts
500.00
A/R - Blue
500.00
To write off account receivable.
May 29
A/R - Varone
400.00
Allowance for Bad Debts
400.00
To revive the account receivable.
May 29
Cash
300.00
A/R - Varone
300.00
Received payment on account.
May 31
Bad Debts Expense
Allowance for Bad Debts
500.00
500.00
To record estimated bad debts expense.
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Lightstone, May 2004
2. Accrued Expenses
The last week of May in 2000 has only three days actually falling within May. The other two days
of this week fall within the month of June. Julie pays her personal assistant, Tom, a salary of
$50.00 a day. However, Tom is only paid on Fridays.
Within the General Journal provided, prepare the two separate entries required in order for
Julie to apportion her Wages Expense correctly to each month. (Observe the diagram
below for assistance.)
MAY
Mon. 29
50.00
Date
May 31
Tue. 30
50.00
JUNE
Wed. 31
50.00
Account Title and Explanation
Wages Expense
Thur. 1
50.00
P.R.
Fri. 2
50.00
Debit
Credit
150.00
Wages Payable
150.00
To adjust for three days unpaid wages.
June 2
Wages Expense
100.00
Wages Payable
150.00
Cash
250.00
To record payment of one week’s wages.
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Lightstone, May 2004
3. Unearned Revenue
Lowell Heppner receives a total of $2,000.00 in advance for agreeing to perform two concerts at
$1,000.00 each. (Owing to the fact that his talent is in high demand, payment for his work is
always made in advance.)
Prepare the following entries within the General Journal provided:
May 3 - Record the initial receipt of the money ($2,000.00).
May 23 - Lowell completes his first performance.
June 11 - Lowell completes his second performance.
Date
May 3
Account Title and Explanation
Cash
P.R.
Debit
Credit
2,000.00
Unearned Revenue
2,000.00
To record advance payment for two gigs.
May 23
Unearned Revenue
1,000.00
Fees Earned
1,000.00
To record performance of first gig.
June 11
Unearned Revenue
Fees Earned
1,000.00
1,000.00
To record performance of second gig.
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Lightstone, May 2004
4. Disposal of Depreciated Assets
Derek feels that it is time to sell his old laptop computer and get a new one. The computer cost
$3,000.00 when it was new. Derek purchased the computer on March 2nd, 2002. At that time he
estimated he would use it for two years, after which he would dispose of the computer for
$1,000.00. The last time that depreciation was recorded was on December 31, 2003. The current
date is March 4th, 2004.
i) In the journal provided below, record the entry that would adjust for the last two month’s
of depreciation. (2 marks)
ii) In the same journal, record the entry that would show the computer being sold
for $1,200.00. (4 marks)
Date
March 4
Account Title and Explanation
Depreciation Expense
P.R.
Debit
Credit
166.67
Accumulated Depreciation / Computer
166.67
To adjust for two months depreciation.
March 4
Cash
1,200.00
Accumulated Depreciation / Computer
2,000.00
Computer
Gain on Disposal of Asset
3,000.00
200.00
To record sale of computer equipment.
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