CHAPTER 4

ADJUSTING THE ACCOUNTS & PREPARING FINANCIAL STATEMENTS

Problem 4.21 Adjusting entries, posting to T accounts, and effect on profit (Modified
to include GST)
The trial balance of Chelsea Elliott, marketing services provider, at 30 June 2019 was as follows:

CHELSEA ELLIOTT, MARKETING SERVICES

Unadjusted Trial Balance
as at 30 June 2019

Account Debit Credit

Cash at bank $ 7 780
Accounts receivable 21 700
GST receivable 2 600
Prepaid rent 2 100
Prepaid insurance 2 730
Office supplies 4 020
Office equipment 12 200
Accumulated depreciation — office equipment $ 2 470
Accounts payable 2 800
Unearned fees 1 100
Loan payable — due 2019 9 200
GST collections 8 060
C. Elliott, Capital 16 600
C. Elliott, Drawings 52 000
Fees revenue 138 400
Salaries expense 57 200
Telephone expense 6 100
Rent expense 10 200
$ 178 630 $ 178 630

Required
a. Using the following information, prepare adjusting entries. Use the accounts shown in the trial balance and
these additional accounts: Salaries Payable, Interest Payable, Telephone Account Payable, Depreciation
Expense, Office Supplies Expense, Insurance Expense, Interest Expense.
i. Interest expense of $520 has accrued on the loan payable.
ii. A physical count of office supplies on 30 June shows $560 of unused supplies on hand.
iii. Depreciation of the office equipment this year is estimated to be $1020.
iv. Half the amount in the Unearned Fees account had been earned by the end of the year.
v. The amount in the Prepaid Rent account covers this June and the next 2 months.
vi. Of prepaid insurance, 80% expired this period.
vii. Salaries expense accrued for the last 4 days in June amounts to $1660.
viii. The telephone expense for June of $670 has not been recorded or paid. No tax invoice has been issued.

b. Open T accounts for the accounts shown in the trial balance and enter the 30 June balance in each account.
Post the adjusting entries to the T accounts.
c. Prepare an adjusted trial balance, an income statement and a statement of financial position.
d. Assuming that adjusting entries i. – viii. in requirement a. were not made, determine what the profit would have
been. What is the difference between this figure and the profit derived in requirement c.?

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