ACC231 – Fall 2020
Classroom Activities - Chapter 3
Suggested Solutions ACC 231 – Fall 2020 (© ASU SOA) Page 1 of 4
ACTIVITY #1
Depreciation Adjusting Journal Entries
Kona Coffee Mills, Inc. purchases a large coffee grinder (equipment) on May 1, 2020 for $75,000.
Estimated useful life is 5 years (60 months); estimated salvage value is $9,000.
(Original cost – SV) ÷ life of asset in months = monthly depreciation amount
Monthly depreciation is: $75,000 original cost - $9,000 salvage value = $66,000 depreciable base ÷ 60
estimated life in months or $66,000 ÷ 60 = $1,100/month
1. What is the adjusting journal entry (AJE) needed on May 31, 2020?
05/31 DR Depreciation Expense $1,100
CR Accumulated Depreciation $1,100
To Record May Depreciation Expense
2. What are the T-account balances at May 31, 2020?
PPE (Equipment)
Accumulated Depr.
Depreciation Expense
$75,000
$1,110 AJE
AJE $1,110
Note that depreciation expense will be closed (zero out) at the end of the month.
3. What is the adjusting journal entry (AJE) needed on June 30, 2020?
06/30 DR Depreciation Expense $1,100
CR Accumulated Depreciation $1,100
To Record June Depreciation Expense
4. What are the T-account balances at June 30, 2020?
PPE (Equipment)
Accumulated Depr.
Depreciation Expense
BB $75,000
$1,100 BB
$0
$1,100 AJE
AJE $1,100
$75,000
$2,200
$1,100
5. What is the net book value (NBV) of the PP&E (Equipment) at June 30, 2020?
Net Book Value = Equipment Cost - Accumulated Depreciation
= $75,000 - $2,200
= $72,800
ACC231 – Fall 2020
Classroom Activities - Chapter 3
Suggested Solutions ACC 231 – Fall 2020 (© ASU SOA) Page 2 of 4
ACTIVITY #2
Prepaid Expense (Asset) Adjusting Journal Entries
On April 1, Adler Ltd. pays $18,000 in cash for one year’s real property insurance in advance
(covering April 1, 2020, to March 31, 2021).
1. What is the initial journal entry (JE) needed by Adler on April 1, 2020?
04/01 DR Prepaid Insurance $18,000
CR Cash $18,000
Record Prepaid Insurance
2. What is the adjusting journal entry (AJE) needed on April 30, 2020?
04/30 DR Insurance Expense $ 1,500
CR Prepaid Insurance $1,500
Record April Insurance AJE
$18,000 / 12 months = $1,500 per month
Unless told otherwise, assume that things like rent, insurance etc are expensed evenly over the
time period (straight line).
3. What are the T-account balances at April 30, 2020?
Cash
Prepaid Insurance
Insurance Expense
$18,000
$18,000
$1500
$1,500
$16,500
$1,500
4. What is the adjusting journal entry (AJE) needed on May 31, 2020?
05/31 DR Insurance Expense $1,500
CR Prepaid Insurance $1,500
Record May Insurance AJE
5. What are the T-account balances at May 31, 2020?
Prepaid Insurance
Insurance Expense
BB $16,500
$1,500
$1,500
$15,000
$1,500
ACC231 – Fall 2020
Classroom Activities - Chapter 3
Suggested Solutions ACC 231 – Fall 2020 (© ASU SOA) Page 3 of 4
ACTIVITY #3
Accrued Liability Adjusting Journal Entries
ExpressCo Freight incurs weekly wages of $25,000 ($5,000/day) for September 28 to October 2 are
payable on Friday, October 9, 2020. However, month end is on Wednesday, September 30, 2020.
1. What is the adjusting journal entry (AJE) needed on September 30, 2020?
9/30 DR Wages Expense $15,000
CR Wages Payable $15,000
To Record September Accrued Wages AJE
$25,000 of Wages for 5 days ÷ 5 days = $5,000 per day * 3 day in Sept. = $15,000
2. What are the T-account balances at September 30, 2020?
Wages Payable
Wages Expense
$15,000
$15,000
3. What journal entry is needed on October 9, 2020 when the company actually pays its
employees (ignore payroll taxes)?
11/9 DR Wages Expense $10,000
DR Wages Payable $15,000
CR Cash $25,000
Record Sept. 28 – Oct. 2 Payroll paid
4. What are the T-account balances after this journal entry on October 9, 2020?
Wages Payable
Wages Expense
Cash
$15,000 BB
???
$15,000
$10,000
$25,000
$0
$10,000
???
ACC231 – Fall 2020
Classroom Activities - Chapter 3
Suggested Solutions ACC 231 – Fall 2020 (© ASU SOA) Page 4 of 4
ACTIVITY #4
Part A: Unearned Revenues Adjusting Journal Entries
On September 1, Tycho Publishing, Inc. received $4,800 for one year’s subscriptions in advance
(covering September 1, 2020, to August 31, 2021).
1. What is the initial journal entry (JE) needed on September 1, 2020?
09/01 DR Cash $4,800
CR Unearned Subscription Revenue1 $4,800
Record receipt of one year's advance subscriptions
2. What is the adjusting journal entry (AJE) needed on September 30, 2020?
09/30 DR Unearned Subscription Revenue $400
CR Subscription Revenue $400
Record September subscription revenue AJE
$4,800 ÷ 12 months = $400 per month
3. What are the T-account balances at September 30, 2020?
Subscription Revenue
Cash
Unearned Subscription
Revenue
$4,800
$400
4,800
$400
$400
$4,400
Note that "Unearned Subscription Revenue" is a LIABILITY Account
Part B: Accrued Revenues Adjusting Journal Entries
Vortex Corp. earns rental revenue of $15,000 on March 31, 2020 related to office space it leases to
Enigma, Inc., but in accord with the lease, does not receive the payment until April 15, 2020.
1. What entries are needed on March 31 and April 15, 2020? What are these (JE or AJE)?
03/31 DR Rent Receivable $15,000
CR Rent Revenue $15,000
Record rent revenue on March 31
04/15 DR Cash $15,000
CR Rent Receivable $15,000
Record receipt of rent
1 It is also acceptable to use the account title “Deferred Revenue” instead of Unearned Revenue.
