Chapter 4: Accrual Accounting Systems

Exercise
1. Mark Bennett, D.D.S., Dental Practice
Mark Bennett, D.D.S., opened an incorporated dental practice on January
1, 2010. During, the first month of operations the following transactions
occurred:
1. Performed services for patients who had dental plan insurance. At
January 31, $680 of such services was earned but not yet billed to the
insurance companies.
2. Utility expenses incurred but not paid prior to January 31 totaled $520.
3. Purchased dental equipment on January 1 for $80,000, paying $20,000
in cash and signing a $60,000, 3-year note payable (Interest is paid
each December 31). The equipment depreciates $400 per month.
Interest in$500 per month.
4. Purchased a 1-year malpractice insurance policy on January 1 for
$24,000.
5. Purchased $1,750 of dental supplies (recorded as increase to Supplies).
On January 31 determined that $550 of supplies were on hand.
Instructions
Prepare the adjusting entries on January 31. Account titles are:
Accumulated Depreciation- Dental Equipment, Depreciation Expense,
Service Revenue, Accounts Receivable, Insurance Expense, Interest
Expense, Interest Payable, Prepaid Insurance, Supplies, Supplies
Expense, Utilities Expense, and Utilities Payable.

Fachbereich Elektrische
Energietechnik
Prof. Dr. Valerie Wulfhorst
Betriebswirtschaftslehre,
insb. Controlling
Telefon
02921 378-451
Telefax
02921 378-409
E-Mail
v.wulfhorst@fh-swf.de

Standort Soest
Lbecker Ring 2
59494 Soest

2. Marx Co.
The income statement of Marx Co. for the month of July shows:
Net income of $1,500, based on:
Service Revenue
$5,500
Wage Expense
$2,300
Supplies Expense
$ 900
Utilities Expense
$ 800.
In reviewing the statement, you discover the following:
1. Insurance expired during July of $350 was omitted.
2. Supplies expense included $200 of supplies that are still on hand at
July 31.
3. Depreciation on equipment of $150 was omitted.
4. Accrued but unpaid wages at July 31 of $300 were not included.
5. Revenue earned but unrecorded totaled $700.
Instruction
Prepare a correct income statement for July 2010.
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Fachhochschule
Sdwestfalen
Sitz: Iserlohn

Hagen
Iserlohn
Meschede
Soest
www.fh-swf.de

3. Callahan Company
Selected accounts of Callahan Company are shown here.
July 31
1,200

Supplies Expenses
750

Salaries Payable
July 31

Salaries Expense
July 15
1,200
31
1,200

Accounts Receivable
July 31
500

Service Revenue
July 14 4,100
31
900
31
500
Supplies
July 1 Bal. 1,100 July 31
10
200

Unearned Service Revenue

July 31
900 July 1 Bal. 1,500
July 20
600

750

Instructions
After analyzing the accounts, journalize (a) the July transactions and (b)
the adjusting entries that were made on July 31. (Hint: July transactions
were for cash)

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