Book 2 - Chapter 9

3. An unearned revenue adjustment will be needed. Unearned revenue is debited, and a revenue is credited.

4. A prepaid expense adjustment will be needed. An expense is debited, and short-term asset is credited.

5. A depreciation expense adjustment will be needed. Depreciation expense is debited, and accumulated
depreciation is credited.

6. An accrued revenue adjustment will be needed. A receivable is debited, and a revenue is credited.

7. An accrued expense adjustment will be needed. An expense is debited, and a liability is credited.

  8.   The purpose of a Depreciation Expense account is to record the estimated amount of plant and
         equipment cost that has been used up and has become an expense. Depreciation Expense has a
         normal debit balance. It appears on the income statement as an operating expense.

         The purpose of an Accumulated Depreciation account is to record the cumulative amount of
         depreciation that has been calculated for a plant and equipment asset. Accumulated depreciation a
         contra-asset account, which means that it acts as an offset to the balance in a plant and equipment
         asset account. An accumulated depreciation account has a normal credit balance. The amount of
         accumulated depreciation appears on the balance sheet as a subtraction from its related plant and
         equipment asset. An example of a common balance sheet format is:

Equipment	$100,000
Less: Accumulated depreciation	22,000
	78,000

9. The total wages expense is $29,000 + $3,500 = $32,500. To show a wages payable liability of $3,500, wages expense of the same amount is also recorded.

11.

Consulting Expense	$100,000
Accounts Payable	22,000

12. The equality of the totals on a trial balance only means that debits equal credits; in other words, the
accounting equation is in balance. Although this is important, it does not mean that all the individual account balances are correct. Adjusting entries may still be needed to correctly record revenues and
expenses.

13.

Accounts Payable	1,000
Repairs Expense	2,800
Cash	3,800

14. Net income would be understated by $200 in the current period and overstated by $200 in the next
period when cash is received for the revenue and paid for the expense.

15. Adjusting entries involve revenues and expenses. Revenues and expenses always affect both the income
statement and the balance sheet. Mary is correct.

16. Yes. One month of interest expense is owing and unpaid since the last payment on December 1. A
December 31 entry that debits Interest Expense and credits Interest Payable is required.

17. This is incorrect. For accounting and financial purposes the word “depreciation” does not refer to loss
of value. It means the process of allocating the cost of a plant and equipment asset into expense, as the asset provides benefits during its estimated useful life. This is unrelated to whatever the asset might
sell for.

18.

a. credit Accumulated Depreciationh

b. debit Office Supplies Expense

c. debit Accounts Receivable or debit Unearned Revenue

d. credit Rent Payable or credit Prepaid Rent

e. credit a revenue

Learning Goal 9, continued

SOLUTIONS

Section I · Adjusting the Accounts

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