Chapter 4
Adjustments, Financial Statements,
and Financial Results
PowerPoint Author:
Brandy Mackintosh, CA
Copyright © 2016 by McGraw-Hill Education
Learning Objective 4-1
Explain why adjustments are
needed.
4-2
Why Adjustments Are Needed
Accounting systems are designed to record most
recurring daily transactions, particularly any
involving cash.
However, cash is not always received or paid in the
period in which the company earns the related
revenue or incurs the related expense.
Solution: Adjustments are made to the accounting
records at the end of the period to state assets, liabilities,
revenues, and expenses at appropriate amounts.
4-3
Why Adjustments Are Needed
Income Statement
Revenues are
recorded when
earned.
Expenses are
recorded in the same
period as the
revenues to which
they relate.
4-4
Balance Sheet
Assets are reported
at amounts
representing the
economic benefits
that remain at the end
of the period.
Liabilities are
reported at amounts
owed at the end of
the period.
1. Deferral Adjustments
An expense or revenue has been deferred if we have
postponed reporting it on the income statement until a
later period.
Sept. 1
Use-up rent
benefits
Cash paid for
rent in advance
Sept. 1
Cash received
for game
downloads in
advance
4-5
Sept. 30
Adjustment
needed
Deliver game
downloads
Sept. 30
Adjustment
needed
1. Deferral Adjustments
Deferral adjustments
are used to decrease
balance sheet accounts
and increase
corresponding income
statement accounts.
4-6
Each deferral
adjustment involves
one asset and one
expense account, or
one liability and one
revenue account.
2. Accrual Adjustments
Accrual adjustments are needed when a company has
earned revenue or incurred an expense in the current
period but has not yet recorded it because the related
cash will not be received or paid until a later period.
Sept. 1
Sept. 1
Incur income
taxes
Earn revenue from
promotional
services
Sept. 30
Dec. 31
Adjustment
needed
Cash paid for
income taxes
Sept. 30
Dec. 31
Adjustment
needed
4-7
Cash received
for promotional
services
2. Accrual Adjustments
Accrual adjustments
are used to record
revenue or expenses
when they occur prior
to receiving or paying
cash, and to adjust
corresponding balance
sheet accounts.
4-8
Each accrual
adjustment involves
one asset and one
revenue account, or
one liability and one
expense account.
Learning Objective 4-2
Prepare adjustments needed
at the end of the period.
4-9
Making Required Adjustments
Adjustments are not made on a daily basis
because it’s more efficient to do them all at
once at the end of each period.
4-10
Adjustment Analysis, Recording
and Summarizing
1 Analyze
Determine the necessary adjustments to make to
the accounting records.
4-11
Adjustment Analysis, Recording
and Summarizing
4-12
Deferral Adjustments
(a) Supplies Used during the Period.
Of the $600 in supplies previously received, $250 remain on hand at September 30.
1 Analyze
Assets
=
Liabilities
(a) Supplies -$350
2
Stockholders’ Equity
+
Supplies Expense (+E)
-$350
Record
(a) Supplies Expense (+E, -SE)
Supplies (-A)
3
350
Summarize
dr +
Unadj. Bal.
Supplies (A)
Adj. Bal.
cr -
600
350
4-13
350
250
AJE (a)
dr +
Supplies Expense (E, SE)
Unadj. Bal.
AJE (a)
0
350
Adj. Bal.
350
cr -
Financial Statement Effects
4-14
Deferral Adjustments
(b) Rent Benefits Expired during the Period.
Three months of rent were prepaid on September 1 for $7,200, but one month has
now expired, leaving only two months prepaid at September 30.
4-15
Deferral Adjustments
(b) Rent Benefits Expired during the Period.
Three months of rent were prepaid on September 1 for $7,200, but one month has
now expired, leaving only two months prepaid at September 30.
1 Analyze
Assets
=
Liabilities
(b) Prepaid Rent
-$2,400
2
Stockholders’ Equity
+
Rent Expense (+E)
-$2,400
Record
(b) Rent Expense (+E, -SE)
Prepaid Rent (-A)
3
2,400
Summarize
dr +
Prepaid Rent (A)
cr -
Unadj. Bal. 7,200
2,400
Adj. Bal.
4-16
2,400
4,800
AJE (b)
dr +
Rent Expense (E, SE)
Unadj. Bal.
AJE (b)
0
2,400
Adj. Bal.
2,400
cr -
Deferral Adjustments
(c) Depreciation Is Recorded for Use of Equipment.
The computer equipment, which was estimated to last two years, has now been
used for one month, representing an estimated expense of $400.
Depreciation is the process of allocating the cost of
buildings, vehicles, and equipment to the accounting
periods in which they are used.
A contra-account
is an account that
is an offset to, or
reduction of,
another account.
4-17
Deferral Adjustments
(c) Depreciation Is Recorded for Use of Equipment.
The computer equipment, which was estimated to last two years, has now been
used for one month, representing an estimated expense of $400.
1 Analyze
Assets
=
Liabilities
(c) Accumulated
Depr.(+xA) -$400
2
Stockholders’ Equity
+
Depreciation
Expense (+E) -$400
Record
(c) Depreciation Expense (+E, -SE)
Accumulated Depreciation (+xA, -A)
3
400
Summarize
dr -
4-18
400
Accum. Depr. (xA)
cr +
dr + Depr. Expense (E, SE)
cr -
dr +
Equipment (A)
0 Unadj. Bal.
400
AJE (c)
Unadj. Bal.
0
AJE (c)
400
Unadj. Bal.
9,600
400
Adj. Bal.
Adj. Bal.
9,600
Adj. Bal.
400
cr -
Depreciation
Note 1
4-19
Note 2
Accumulated
Depreciation
Depreciation
Expense
Accumulated
Depreciation
Equipment
Balance
Sheet
Income
Statement
Total Amount
Depreciated
Original cost
Note 3
Note 4
ContraAccount
Depreciation
Amount
Opposes
account it
offsets
Depends on
method used
Deferral Adjustments
(d) Amortization Is Recorded for Use of Software.
The app software developed for SonicGateway, estimated to have three years of
usefulness, has now been used for one month at an estimated expense of $250.
1 Analyze
Assets
=
Liabilities
(d) Accumulated
Amort.(+xA) -$250
2
+
Stockholders’ Equity
Amortization
Expense (+E) -$250
Record
(d) Amortization Expense (+E, -SE)
Accumulated Amortization (+xA, -A)
3
250
Summarize
dr -
4-20
250
Accum. Amort. (xA)
cr +
dr + Amort. Expense (E, SE)
cr -
dr +
Software (A)
0 Unadj. Bal.
250
AJE (d)
Unadj. Bal.
0
AJE (d)
250
Unadj. Bal.
9,000
250
Adj. Bal.
Adj. Bal.
9,000
Adj. Bal.
250
cr -
Deferral Adjustments
(e) Gift Cards Redeemed.
SonicGateway redeemed $100 of gift cards that customers used to pay
for game downloads.
1 Analyze
Assets
=
(e)
2
+
Liabilities
Unearned
Revenue (+L)
-$100
+$100
100
100
Summarize
dr -
AJE (e)
4-21
Sales
Revenue (+R)
Record
(e) Unearned Revenue (-L)
Sales Revenue (+R, +SE)
3
Stockholders’ Equity
Unearned Revenue (L)
cr +
dr -
Sales Revenue (R, SE)
cr +
300 Unadj. Bal.
12,000 Unadj. Bal.
100
AJE (e)
200
12,100
100
Adj. Bal.
Adj. Bal.
Accrual Adjustments
(f) Revenues Earned but Not Yet Recorded.
SonicGateway provided $2,500 of promotional services to other app developers in
September, with payment to be received in October.
1 Analyze
Assets
=
+
Liabilities
(f) Accounts
Receivable +$2,500
2
+$2,500
Accounts Receivable (+A)
Service Revenue (+R, +SE)
2,500
2,500
Summarize
dr +
4-22
Service
Revenue (+R)
Record
(f)
3
Stockholders’ Equity
Accounts Receivable (A)
cr -
dr -
Service Revenue (R, SE)
cr +
Unadj. Bal.
500
AJE (f)
2,500
0 Unadj. Bal.
2,500
AJE (f)
Adj. Bal.
2,500
3,000
Adj. Bal.
Accrual Adjustments
(g) Wages Expense Incurred but Not Yet Recorded.
SonicGateway owes $1,200 of wages to employees for work done in the last four
days of September.
1 Analyze
Assets
(g)
2
=
Liabilities
Salaries & Wages
Payable
+$1,200
Stockholders’ Equity
+
Salaries & Wages
Expense (+E)
-$1,200
Record
(g) Salaries and Wages Expense (+E, -SE)
Salaries and Wages Payable (+L)
3
1,200
Summarize
dr - Salaries & Wages Payable (L) cr +
4-23
1,200
dr + Salaries & Wages Expense (E, SE) cr -
0 Unadj. Bal.
1,200
AJE (g)
Unadj. Bal.
AJE (g)
7,800
1,200
1,200
Adj. Bal.
9,000
Adj. Bal.
Accrual Adjustments
(h) Interest Expense Incurred but Not Yet Recorded.
SonicGateway has not paid or recorded the $100 interest that it owes for this
month on its note payable.
1 Analyze
Assets
=
(h)
2
Liabilities
Interest
Payable
Stockholders’ Equity
+
Interest
Expense (+E)
+$100
Record
(h) Interest Expense (+E, -SE)
Interest Payable (+L)
3
100
100
Summarize
dr -
4-24
-$100
Interest Payable (L)
cr +
dr +
Interest Expense (E, SE)
0 Unadj. Bal.
100
AJE (h)
Unadj. Bal.
AJE (h)
0
100
100
Adj. Bal.
100
Adj. Bal.
cr -
Accrual Adjustments
(i) Income Taxes Incurred but Not Yet Recorded.
SonicGateway pays income tax at an average rate equal to 20 percent of the
company’s income before taxes.
4-25
Accrual Adjustments
(i) Income Taxes Incurred but Not Yet Recorded.
SonicGateway pays income tax at an average rate equal to 20 percent of the
company’s income before taxes.
1 Analyze
Assets
(i)
2
+$200
Stockholders’ Equity
+
Income Tax
Expense (+E) -$200
Record
Income Tax Expense (+E, -SE)
Income Tax Payable (+L)
200
200
Summarize
dr -
4-26
Liabilities
Income Tax
Payable
(i)
3
=
Income Tax Payable (L)
cr +
dr + Income Tax Expense (E, SE) cr -
0 Unadj. Bal.
200
AJE (i)
Unadj. Bal.
AJE (i)
0
200
200
Adj. Bal.
200
Adj. Bal.
Additional Comments
Adjusting journal entries
never involve cash.
4-27
Adjusting entries always
include one balance sheet
and one income statement
account.
Learning Objective 4-3
Prepare an adjusted trial
balance.
4-28
SONICGATEWAY, INC.
Adjusted Trial Balance
At September 30, 2015
Cash
Accounts Receivable
Supplies
Prepaid Rent
Equipment
Accumulated Depreciation
Software
Accumulated Amortization
Logo and Trademarks
Accounts Payable
Unearned Revenue
Salaries and Wages Payable
Income Tax Payable
Interest Payable
Note Payable
Common Stock
Retained Earnings
Dividends
Sales Revenue
Service Revenue
Salaries and Wages Expense
Rent Expense
Utilities Expense
Advertising Expense
Depreciation Expense
Supplies Expense
Amortization Expense
Interest Expense
Income Tax Expense
Total
4-29
Credit
Debit
$
16,900
3,000
250
4,800
9,600
$
400
9,000
250
300
10,700
200
1,200
200
100
20,000
10,000
0
0
12,100
2,500
$
9,000
2,400
600
500
400
350
250
100
200
57,650
$
57,650
Partial Listing of T-accounts
Learning Objective 4-4
Prepare financial statements.
4-30
SONICGATEWAY, INC.
Adjusted Trial Balance
At September 30, 2015
Cash
Accounts Receivable
Supplies
Prepaid Rent
Equipment
Accumulated Depreciation
Software
Accumulated Amortization
Logo and Trademarks
Accounts Payable
Unearned Revenue
Salaries and Wages Payable
Income Tax Payable
Interest Payable
Note Payable
Common Stock
Retained Earnings
Dividends
Sales Revenue
Service Revenue
Salaries and Wages Expense
Rent Expense
Utilities Expense
Advertising Expense
Depreciation Expense
Supplies Expense
Amortization Expense
Interest Expense
Income Tax Expense
Total
4-31
Credit
Debit
$
16,900
3,000
250
4,800
9,600
Revenues
Sales Revenue
Service Revenue
Total Revenues
$
400
9,000
250
300
10,700
200
1,200
200
100
20,000
10,000
0
0
12,100
2,500
$
9,000
2,400
600
500
400
350
250
100
200
57,650
SONICGATEWAY, Inc.
Income Statement
For the Month Ended September 30, 2015
Expenses
Salaries and Wages Expense
Rent Expense
Utilities Expense
Depreciation Expense
Supplies Expense
Advertising Expense
Amortization Expense
Interest Expense
Income Tax Expense
Total Expenses
9,000
2,400
600
500
400
350
250
100
200
13,800
Net Income
$
57,650
800
SONICGATEWAY, Inc.
Statement of Retained Earnings
For the Month Ended September 30, 2015
Retained Earnings, September 1
Add: Net Income
Subtract: Dividends
Retained Earnings, September 30
$
$12,100
2,500
14,600
$
0
800
(0)
$ 800
SONICGATEWAY, INC.
Balance Sheet
At September 30, 2015
SONICGATEWAY, INC.
Adjusted Trial Balance
At September 30, 2015
Cash
Accounts Receivable
Supplies
Prepaid Rent
Equipment
Accumulated Depreciation
Software
Accumulated Amortization
Logo and Trademarks
Accounts Payable
Unearned Revenue
Salaries and Wages Payable
Income Tax Payable
Interest Payable
Note Payable
Common Stock
Retained Earnings
Dividends
Sales Revenue
Service Revenue
Salaries and Wages Expense
Rent Expense
Utilities Expense
Advertising Expense
Depreciation Expense
Supplies Expense
Amortization Expense
Interest Expense
Income Tax Expense
Total
4-32
Credit
Debit
$
16,900
3,000
250
4,800
9,600
$
400
9,000
250
300
10,700
200
1,200
200
100
20,000
10,000
0
0
12,100
2,500
$
9,000
2,400
600
500
400
350
250
100
200
57,650
$
57,650
Assets
Current Assets:
Cash
Accounts Receivable
Supplies
Prepaid Rent
Total Current Assets
Equipment
Accumulated Depreciation
Equipment, net
Software
Accumulated Amortization
Software, net
Logo and Trademarks
Total Assets
$ 16,900
3,000
250
4,800
24,950
$9,600
(400)
9,000
(250)
9,200
8,750
300
$43,200
Liabilities and Stockholders’ Equity
Liabilities
Current Liabilities
Accounts Payable
$ 10,700
Unearned Revenue
200
Salaries and Wages Payable
1,200
Income Tax Payable
200
Interest Payable
100
Total Current Liabilities
12,400
Note Payable
20,000
Total Liabilities:
32,400
Stockholders’ Equity
Common Stock
10,000
Retained Earnings
800
Total Stockholders’ Equity
10,800
Total Liabilities and Stockholders’ Equity
$43,200
Learning Objective 4-5
Explain the closing process.
4-33
Closing Temporary Accounts
Transfer net income (or
loss) and dividends to
Retained Earnings.
4-34
Establish zero
balances in all income
statement and dividend
accounts.
Closing Temporary Accounts
Temporary accounts
track financial
results for a limited
period of time.
4-35
Liabilities
Permanent
Accounts
Equity
Temporary
Accounts
Assets
Dividends
Expenses
Revenues
Permanent accounts
track financial
results from year to
year.
Closing Temporary Accounts
Two closing journal entries are
needed.
 Debit Revenue accounts and
credit Expense accounts.
Debit or credit the difference
to Retained Earnings.
 Credit Dividends Declared
and debit Retained Earnings.
4-36
SONICGATEWAY, INC.
Adjusted Trial Balance
At September 30, 2015
Cash
Accounts Receivable
Supplies
Prepaid Rent
Equipment
Accumulated Depreciation
Software
Accumulated Amortization
Logo and Trademarks
Accounts Payable
Unearned Revenue
Salaries and Wages Payable
Income Tax Payable
Interest Payable
Note Payable
Common Stock
Retained Earnings
Dividends
Sales Revenue
Service Revenue
Salaries and Wages Expense
Rent Expense
Utilities Expense
Advertising Expense
Depreciation Expense
Supplies Expense
Amortization Expense
Interest Expense
Income Tax Expense
Total
4-37
Credit
Debit
$
16,900
3,000
250
4,800
9,600
$
400
9,000
250
300
10,700
200
1,200
200
100
20,000
10,000
0
0
12,100
2,500
$
9,000
2,400
600
500
400
350
250
100
200
57,650
$
57,650
Sales Revenue (-R)
12,100
Service Revenue (-R)
2,500
Salaries and Wages Expense (-E)
Rent Expense (-E)
Utilities Expense (-E)
Advertising Expense (-E)
Depreciation Expense (-E)
Supplies Expense (-E)
Amortization Expense (-E)
Interest Expense (-E)
Income Tax Expense (-E)
Retained Earnings (+SE)
Retained Earnings (-SE)
Dividends (-D)
9,000
2,400
600
500
400
350
250
100
200
800
xx
xx
Closing Temporary Accounts
Sales Revenue (-R)
12,100
Service Revenue (-R)
2,500
Salaries and Wages Expense (-E)
Rent Expense (-E)
Utilities Expense (-E)
Advertising Expense (-E)
Depreciation Expense (-E)
Supplies Expense (-E)
Amortization Expense (-E)
Interest Expense (-E)
Income Tax Expense (-E)
Retained Earnings (+SE)
Retained Earnings (-SE)
Dividends (-D)
4-38
9,000
2,400
600
500
400
350
250
100
200
800
xx
xx
After posting these
closing entries, all
the income
statement accounts
and the dividend
account will have a
zero balance.
Post-Closing Trial Balance
Final check that all
debits still equal
credits and that all
temporary accounts
have been closed.
Contains balances for
only permanent
accounts.
Is the last step in the
accounting process.
4-39
Learning Objective 4-6
Explain how adjustments
affect financial results.
4-40
Adjusted Financial Results
Adjustments help to ensure that all revenues
and expenses are reported in the period in
which they are earned and incurred.
Without adjustments, the financial statements
present an incomplete and misleading picture
of the company’s financial performance.
4-41
Chapter 4
Solved Exercises
M4-5, M4-6, M4-9, M4-10, M4-20,
E4-19
Copyright © 2016 by McGraw-Hill Education
M4-5 Determine Accounting Equation Effects of Deferral
Adjustments
For each of the following transactions for the Sky Blue Corporation, give
the accounting equation effects of the adjustments required at the end of
the month on October 31:
a. Collected $2,400 rent for the period October 1, to December 31,
which was credited to Unearned Revenue on October 1.
Assets
(a)
=
Liabilities
Unearned
Revenue -$800
+
Stockholders’ Equity
Rent Revenue
+$800
b. Paid $1,200 for a two-year insurance premium on October 1 and
debited Prepaid
for that
amount. + Stockholders’ Equity
Assets Insurance
=
Liabilities
(b) Prepaid Insurance
-$50
c.
Used a machine purchased on October 1 for $48,000. The company
=
+
Liabilities
Stockholders’ Equity
estimates
annual depreciation
of $4,800.
Assets
(c) Accumulated
Depreciation -$400
4-43
Insurance Expense
-$50
Depreciation Expense
-$400
M4-6 Recording Adjusting Journal Entries
Using the information in M4-5, prepare the adjusting journal entries
required on October 31.
a. Unearned Revenue (L)
Rent Revenue (+R, +SE)
($800 = 1/3 x $2,400)
800
b. Insurance Expense (+E, SE)
Prepaid Insurance (A)
($50 = 1/24 x $1,200)
50
800
c. Depreciation Expense (+E, SE)
400
Accumulated Depreciation (+xA, A)
($400 =1/12 x $4,800)
4-44
50
400
M4-9 Preparing Journal Entries for Deferral Transactions and
Adjustments
For each of the following independent situations, prepare journal
entries to record the initial transaction on September 30 and the
adjustment required on October 31.
a. Hockey Helpers paid $4,000 cash on September 30, to rent an
arena for the months of October and November.
September 30:
Prepaid Rent (+A)
Cash (-A)
4,000
4,000
October 31 AJE:
Rent Expense (+E, -SE) 2,000
Prepaid Rent (-A)
($4,000/2=$2,000 per month)
4-45
2,000
M4-9 Preparing Journal Entries for Deferral Transactions and
Adjustments
b. Super Stage Shows received $16,000 on September 30, for
season tickets that admit patrons to a theatre event that will be
held twice (on October 31 and November 30).
September 30:
Cash (+A)
Unearned Revenue (+L)
16,000
16,000
October 31 AJE:
Unearned Revenue (-L)
Service Revenue (+R, +SE)
($16,000/2=$8,000 per month)
4-46
8,000
8,000
M4-9 Preparing Journal Entries for Deferral Transactions and
Adjustments
c. Risky Ventures paid $3,000 on September 30, for insurance
coverage for the months of October, November, and December.
September 30:
Prepaid Insurance (+A)
Cash (-A)
3,000
3,000
October 31 AJE:
Insurance Expense (+E, -SE)
Prepaid Insurance (-A)
($3,000/3=$1,000 per month)
4-47
1,000
1,000
M4-10 Preparing Journal Entries for Deferral Transactions and
Adjustments
For each of the following independent situations, prepare journal
entries to record the initial transaction on December 31 and the
adjustment required on January 31.
a. Magnificent Magazines received $12,000 on December 31,
2015, for subscriptions to magazines that will be published and
distributed in January through December 2016.
December 30, 2015:
Cash (+A)
Unearned Revenue (+L)
12,000
12,000
January 31, 2016 AJE:
Unearned Revenue (-L)
Subscription Revenue (+R, +SE)
($12,000/12=$1,000 per month)
4-48
1,000
1,000
M4-10 Preparing Journal Entries for Deferral Transactions and
Adjustments
b. Walker Window Washing paid $1,200 cash for supplies on
December 30, 2015. As of January 31, 2016, $200 of these
supplies had been used up.
December 30, 2015:
Supplies (+A)
Cash (-A)
1,200
1,200
January 31, 2016 AJE:
Supplies Expense (+E, -SE)
Supplies (-A)
4-49
200
200
M4-10 Preparing Journal Entries for Deferral Transactions and
Adjustments
c. Indoor Raceway received $3,000 on December 30, 2015, from
race participants for providing services for three races. One race
is held January 31, 2016, and the other two will be held in March
2016.
December 30, 2015:
Cash (+A)
Unearned Revenue (+L)
3,000
3,000
January 31, 2016 AJE:
Unearned Revenue (-L)
Service Revenue (+R, +SE)
($3,000/3=$1,000 per race)
4-50
1,000
1,000
M4-20 Preparing and Posting Adjusting Journal Entries
At December 31, the unadjusted trial balance of H&R Tacks reports
Prepaid Insurance of $7,200 and Insurance Expense of $0. The
insurance was purchased on July 1 and provides coverage for 24
months. Prepare the adjusting journal entry on December 31. In
separate T-accounts for each account, enter the unadjusted balances,
post the adjusting journal entry, and report the adjusted balance.
Insurance Expense (+E, SE)
Prepaid Insurance (A)
($7,200 x 6/24 = $1,800 used)
+
Bal.
Prepaid Insurance (A)
7,200
1,800
End
4-51
-
5,400
AJE
1,800
1,800
+
Insurance Expense (E)
Bal.
AJE
0
1,800
End
1,800
-
E4-19 Analyzing, Recording, and Summarizing Business Activities
and Adjustments
The following transactions relate to a magazine company called My Style Mag
(MSM).
Required:
For each event a–f, complete the three missing items using your understanding
of the relationships among: (1) business activities, (2) accounting equation
effects, (3) journal entries, and (4) T-accounts.
Event a:
1)
(2)
On January 22,
31, 2015,
2012, MSM received $24,000 cash from customers for one-year
subscriptions to
(forthe
themagazine
period from
for February 2012
2015 – January 2013).
2016. Assume it is
currently January 31, 2012.
Assets
=
Cash +$24,000
(3)
(4)
4-52
Account Names
Cash (+A)
Unearned Revenue (+L)
Cash
24,000
Liabilities
+
Stockholders’ Equity
Unearned
Revenue +$24,000
Debit
Credit
24,000
24,000
Unearned Revenue
24,000
E4-19 Analyzing, Recording, and Summarizing Business Activities
and Adjustments
The following transactions relate to a magazine company called My Style Mag
(MSM).
Required:
For each event a–f, complete the three missing items using your understanding
of the relationships among: (1) business activities, (2) accounting equation
effects, (3) journal entries, and (4) T-accounts.
Event b:
1)
(2)
MSM received utilities services on account at a cost of $3,000.
Assets
=
Liabilities
+
Accounts Payable
+$3,000
(3)
(4)
4-53
Account Names
Utilities Expense (+E, -SE)
Accounts
AccountsPayable
Payable(+L)
(+L)
Accounts Payable
3,000
Stockholders’ Equity
Utilities Expense (+E)
-$3,000
Debit
Credit
3,000
3,000
Utilities Expense
3,000
E4-19 Analyzing, Recording, and Summarizing Business Activities
and Adjustments
The following transactions relate to a magazine company called My Style Mag
(MSM).
Required:
For each event a–f, complete the three missing items using your understanding
of the relationships among: (1) business activities, (2) accounting equation
effects, (3) journal entries, and (4) T-accounts.
Event c:
1)
(2)
MSM provided $2,000 of subscriptions for which they previously received payment for.
Assets
=
Liabilities
+
Unearned Revenue
Revenue
-$2,000
-$2,000
(3)
(4)
4-54
Account Names
Unearned Revenue (-L)
Subscrip. Rev. (+R, +SE)
Unearned Revenue
2,000
Stockholders’ Equity
Subscription
Revenue
Revenue(+R)
(+R)+$2,000
+$2,000
Debit
Credit
2,000
2,000
Subscription Revenue
2,000
E4-19 Analyzing, Recording, and Summarizing Business Activities
and Adjustments
The following transactions relate to a magazine company called My Style Mag
(MSM).
Required:
For each event a–f, complete the three missing items using your understanding
of the relationships among: (1) business activities, (2) accounting equation
effects, (3) journal entries, and (4) T-accounts.
Event d:
1)
(2)
On March
MSM
recorded
31, 2015,
an adjusting
MSM recorded
entry foran
this
adjusting
month’sentry
depreciation
for the month’s
of $10,000.
depreciation on
equipment of $10,000.
Assets
=
Liabilities
+
Accumulated
Depr. (+xA) -$10,000
(3)
(4)
4-55
Account Names
Depr. Expense (+E, -SE)
Accum. Depr. (+xA, -A)
Accumulated Depreciation
10,000
Stockholders’ Equity
Depreciation
Expense (+E) -$10,000
Debit
Credit
10,000
10,000
Depreciation Expense
10,000
E4-19 Analyzing, Recording, and Summarizing Business Activities
and Adjustments
The following transactions relate to a magazine company called My Style Mag
(MSM).
Required:
For each event a–f, complete the three missing items using your understanding
of the relationships among: (1) business activities, (2) accounting equation
effects, (3) journal entries, and (4) T-accounts.
Event e:
1)
(2)
On April 1, MSM paid $5,000 rent in advance of obtaining its benefits.
Assets
=
Liabilities
+
Stockholders’ Equity
Cash -$5,000
Prepaid Rent +$5,000
(3)
(4)
4-56
Account Names
Prepaid Rent (+A)
Cash (-A)
Cash
5,000 April 1
Debit
Credit
5,000
5,000
Prepaid Rent
April 1 5,000
E4-19 Analyzing, Recording, and Summarizing Business Activities
and Adjustments
The following transactions relate to a magazine company called My Style Mag
(MSM).
Required:
For each event a–f, complete the three missing items using your understanding
of the relationships among: (1) business activities, (2) accounting equation
effects, (3) journal entries, and (4) T-accounts.
Event f
1)
(2)
On April 30, 2015, MSM billed customers for $10,000 of advertising services provided
on account.
Assets
=
Liabilities
+
Accounts Receivable
+$10,000
(3)
(4)
4-57
Account Names
Accounts Receivable (+A)
Service Rev. (+R, +SE)
Accounts Receivable
Apr 30 10,000
Stockholders’ Equity
Service
Revenue (+R) +$10,000
Debit
Credit
10,000
10,000
Service Revenue
10,000 Apr 30
End of Chapter 4
4-58