Topic : Adjusting Entries / Adjustments

Compiled By: Sir Ghalib Hussain

Problem 1:
At year end, unrecorded interest expense due to creditors was Rs. 4,000 (payable in the next year). Prepare the
adjusting entry at year end (12/31):
 
Solution:

Problem 2:
Prepaid Insurance account began the year with a balance of Rs. 230. During the year, insurance in the amount of
Rs. 570 was purchased. At the end of the year March 31 st, 2009 the amount of insurance still unexpired was Rs.
350. Prepare the year end adjusting entry:
 
Solution:

Problem 3:
Wages are paid every Saturday for a five day work week (Mon – Fri; two days are unpaid and free). Wages are
Rs. 2,000 per week. Prepare the adjusting entry on June 30, assuming July 1 falls on a Wednesday:
 
Solution:

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Topic : Adjusting Entries / Adjustments
Compiled By: Sir Ghalib Hussain

Problem 4:
At year end, unrecorded interest receivable from the Government bonds is Rs. 1,700. Prepare the adjusting entry:
 
Solution:

Problem 5:
On July 3, a deposit in the amount of Rs. 5,000 was received for services to be performed. By the end of the
month, services in the amount of Rs. 1,200 were performed. Prepare journal entries for the original receipt of the
deposit and the adjusting entry on 31st July:
 
Solution:

Problem 6:
On October 4, Smith Company rendered services valued at Rs. 11,000. The client will pay for the services
November 1 and closing are done at the end of each month pass this transaction at the end of period:
 
Solution:

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Topic : Adjusting Entries / Adjustments
Compiled By: Sir Ghalib Hussain

Problem 7:
The Supplies asset account began the year with a balance of Rs. 190. During the year, supplies in the amount of
Rs. 490 were purchased. At the end of the year the inventory of supplies on hand was Rs. 220. Prepare the year
end adjusting entry:
Solution:

Problem 4:
Prepare the journal entry for XYZ Company to estimates Rs. 17,000 of Bad debt expense for the year 2017 by
using allowance method for bad debt treatment.

Problem 6:
Company reports the following financial information before adjustments:

Prepare the journal entry to record estimated Bad Debt Expense assuming Company estimates bad debts
at (a) 1% of net sales and (b) 5% of net accounts receivable

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Topic : Adjusting Entries / Adjustments
Compiled By: Sir Ghalib Hussain

Problem 7:
Prepare adjusting journal entries for the year ended December 31, 2010, for each of these separate situations.
Assume that prepaid expenses are initially recorded in asset accounts. Also assume that fees collected in advance
of work are initially recorded as liabilities:
a. Depreciation on the company’s machinery is computed to be Rs.16,000 by cost method
b. The prepaid Insurance account had a Rs. 9,000 debit balance at December 31, 2010, before adjusting for the
costs of any expired coverage. An analysis of the company’s insurance policies showed that Rs. 3,000 of
unexpired insurance coverage remains
c. The office supplies account had Rs. 600 debit balance on January 1, 2010; and Rs. 2,600 of the supplies was
purchased during the year. The December 31, 2010, physical count showed Rs. 500 of the supplies available
d. One half of the work related to Rs. 10,000 received in advance was performed during the period
e. Interest expenses of Rs.3,500 have been incurred but are not paid as of December 31, 2010
f. On December 31, of the current year, a company’s unadjusted trial balance revealed the following: Accounts
receivable of Rs. 185,600; and Allowance for Doubtful Accounts of Rs. 1,600 (credit balance). Prepare the
adjusting journal entry to record the estimate for bad debts, assuming 6% of the accounts receivable balance is
assumed to be uncollectible
Solution:

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Topic : Adjusting Entries / Adjustments
Compiled By: Sir Ghalib Hussain

Problem 8:
AR Khan Country Club adjusts its accounts monthly and closes its accounts annually.  Club members pay their
annual dues in advance by January 4. The entire amount is initially credited to Unearned Membership Dues.   At
the end of each month, an appropriate portion of this amount is credited to Membership Dues Earned. The
following information is available as a source for preparing adjusting entries at December 31, 2016:
1. Salaries earned by club’s employees that have not yet been recorded or paid amount to Rs. 17,500
2. Membership dues earned in December, for collections received in January, amount to Rs. 80,000
3. Depreciation of the country club’s equipment is based on an estimated life of 10 years by WDM.  The
equipments had originally been purchased for Rs. 180,000.  The straight-line method is used

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Topic : Adjusting Entries / Adjustments
Compiled By: Sir Ghalib Hussain

4. A 12-month bank loan in the amount of Rs. 50,000 had been obtained by the country club on October 1. 
Interest is computed at an annual rate of 12%.  The entire Rs. 50,000, plus all of the interest accrued over the 12-
month life of the loan, is due in full on September 30 of the upcoming year.  The necessary adjusting entry was
made on November 30 to record the first two months of accrued interest expense.  However, no adjustment has
been made to record interest expense accrued in December
5. A one-year property insurance policy had been purchased on March 31.  The entire premium of Rs. 2,400 was
initially recorded as Unexpired Insurance
6. Unrecorded Income Taxes Expense accrued in December amounts to Rs. 1,700.  This amount will not be paid
until January 15
Solution:

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Topic : Adjusting Entries / Adjustments
Compiled By: Sir Ghalib Hussain

Problem 9:
YT is a global freight forwarding company. It is in the business since two decade and during that time period, it
has acquired sufficient experience for gaining new customers and maintaining a high level of balance for meeting
customer’s satisfaction. Every year, YT closes its financial year on 30 th June. In order to close this year’s
accounting records, accountant need to take care of the following transactions:
1. Closing inventory Rs.20,000.
2. Prepaid/ unexpired insurance Rs.3,000.
3. Depreciation on machinery Rs.2,000.
4. Provide interest on capital invested Rs.2,000.
5. Commission received from customer in advance Rs.2,000.
6. Outstanding salary Rs.6,000.
7. Interest accrued on security bonds Rs.1,000.
8. Alan who is a customer of YT went into bankruptcy. Amount proved to be irrecoverable from this
customer is Rs.1,000.
9. Interest on drawing is to be provided Rs.500.
10. It is the company policy to provide Allowance for doubtful debt @ 10 % on ending balance of accounts
receivable which is Rs.40,000.
Required
As an accountant of YT, you are required to pass on adjusting entries.
Solution
YT
Adjusting Entries

Date Particulars Debit Credit

Closing inventory 20,000  
  P & L A/c 20,000
(to record closing inventory adjustment)
Prepaid insurance 3,000  
  Insurance expense 3,000
To record adjustment of prepaid insurance)
Salaries expense 6,000  
  Salary payable 6,000
(Outstanding salary adjustment)
Depreciation expense 2,000  
  Allowance for depreciation 2,000
(to record depreciation on machinery for the year)
Interest receivable 1,000  
  Interest income 1,000
(interest receivable on investment adjusted)
Commission income 2,000  
  Unearned commission 2,000
(commission received recorded as liability)
Bad debt expense 1,000  
  Accounts receivable – Alan 1,000
(to record bad debts written off adjusting entry)
  Bad debt expense 4,000  
Allowance for doubtful debts 4,000

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Topic : Adjusting Entries / Adjustments
Compiled By: Sir Ghalib Hussain

(allowance for doubtful debt adjusted)

Interest on Capital 2,000  
  Capital 2,000
(interest on capital adjusted)
Capital 500,  
  Interest on drawings
(interest on drawings adjusted)

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