Chapter 3: Q3-6DQ (page 139)
What contra account is used when recording and reporting the effects of depreciation? Why is it used?
An accumulated depreciation account is used as a contra account because it helps in better disclosure.
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In making adjusting entries at the end of its accounting period, Chao Consulting mistakenly forgot to record:
∙ \(3,200 of insurance coverage that had expired (this \)3,200 cost had been initially debited to the Prepaid
Insurance account).
∙ \(2,000 of accrued salaries expense.
As a result of these oversights, the financial statements for the reporting period will [choose one] (1) understate
assets by \)3,200; (2) understate expenses by \(5,200; (3) understate net income by \)2,000; or
(4) overstate liabilities by $2,000.
Prepare adjusting journal entries for the year ended (date of) December 31, 2017, for each of these separate situations.
(Entries can draw from the following partial chart of accounts: Cash; Accounts Receivable; Supplies;
Prepaid Insurance; Equipment; Accumulated Depreciation—Equipment; Wages Payable; Unearned Revenue;
Revenue; Wages Expense; Supplies Expense; Insurance Expense; Depreciation Expense—Equipment.)
a. Depreciation on the company’s equipment for 2017 is computed to be \(18,000.
b. The Prepaid Insurance account had a \)6,000 debit balance at December 31, 2017, before adjusting for
the costs of any expired coverage. An analysis of the company’s insurance policies showed that \(1,100
of unexpired insurance coverage remains.
c. The Office Supplies account had a \)700 debit balance on December 31, 2016; and \(3,480 of office
supplies were purchased during the year. The December 31, 2017, physical count showed \)300 of supplies
available.
d. Two-thirds of the work related to \(15,000 of cash received in advance was performed this period.
e. The Prepaid Insurance account had a \)6,800 debit balance at December 31, 2017, before adjusting for the
costs of any expired coverage. An analysis of insurance policies showed that \(5,800 of coverage had expired.
f. Wage expenses of \)3,200 have been incurred but are not paid as of December 31, 2017.
In the blank space beside each numbered balance sheet item, enter the letter of its balance sheet classification. If the item should not appear on the balance sheet, enter a Z in the blank.
A. Current assets
B. Long-term investments
C. Plant assets
D. Intangible assets
E. Current liabilities
F. Long-term liabilities
G. Equity
15. Store supplies
Question: Pablo Management has five part-time employees, each of whom earns $250 per day. They are normally
paid on Fridays for work completed Monday through Friday of the same week. Assume that December 28,
2017, was a Friday, and that they were paid in full on that day. The next week, the five employees worked
only four days because New Year’s Day was an unpaid holiday.
a. Assuming that December 31, 2017, was a Monday, prepare the adjusting entry for wages expense that
would be recorded at the close of that day.
b. Assuming that January 4, 2018, was a Friday, prepare the journal entry that would be made to record
payment of the employees’ wages for that week.
In the blank space beside each numbered balance sheet item, enter the letter of its balance sheet classification. If the item should not appear on the balance sheet, enter a Z in the blank.
A. Current assets E. Current liabilities
B. Long-term investments F. Long-term liabilities
C. Plant assets G. Equity
D. Intangible assets
4. Prepaid insurance
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