Chapter 3, Problem 1CP

The unadjusted trial balance that you prepared for PS Music at the end of Chapter 2 should appear as follows:

PS Music

Unadjusted Trial Balance

July 31, 2018

The data needed to determine adjustments are as follows:

• During July, PS Music provided guest disc jockeys for KXMD for a total of 115 hours. For information on the amount of the accrued revenue to be billed to KXMD, see the contract described in the July 3 transaction at the end of Chapter 2.
• Supplies on hand at July 31, $275.
• The balance of the prepaid insurance account relates to the July 1 transaction at the end of Chapter 2.
• Depreciation of the office equipment is $50.
• The balance of the unearned revenue account relates to the contract between PS Music and KXMD, described in the July 3 transaction at the end of Chapter 2.
• Accrued wages as of July 31 were $140.

Instructions

1. 1. Prepare adjusting journal entries. You will need the following additional accounts:

   18 Accumulated Depreciation—Office Equipment

   22 Wages Payable

   57 Insurance Expense

   58 Depreciation Expense

2. 2. Post the adjusting entries, inserting balances in the accounts affected.
3. 3. Prepare an adjusted trial balance.

To determine

Adjusting entries:

Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle.  All adjusting entries affect at least one income statement account (revenue or expense), and one balance sheet account (asset or liability).

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

• Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
• Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

T-account:

T-account refers to an individual account, where the increases or decreases in the value of specific asset, liability, stockholder’s equity, revenue, and expenditure items are recorded.

This account is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.’ An account consists of the three main components which are as follows:

1. (a) The title of the account
2. (b) The left or debit side
3. (c) The right or credit side

Adjusted trial balance:

Adjusted trial balance is a summary of all the ledger accounts, and it contains the balances of all the accounts after the adjustment entries are journalized, and posted.

To prepare: The adjusting entries in the books of Company PS at the end of the July 31, 2019.

Explanation of Solution

Journal                                           Page 18
Date		Description	Post. Ref	Debit ($)	Credit ($)
2019		Accounts receivable	12	1,400
July	31	Fees earned (1)	41		1,400
		(To record the fees earned at the end of July)
	31	Supplies expense (2)	56	745
		Supplies	14		745
		(To record supplies expense incurred at the end of the July)
	31	Insurance expense (3)	57	225
		Prepaid insurance	15		225
		(To record insurance expense incurred at the end of the July)
	31	Depreciation expense	58	50
		Accumulated depreciation-Office equipment	18		50
		(To record depreciation expense incurred at the end of the July)
	31	Unearned revenue (4)	23	3,600
		Fees earned	41		3,600
		(To record the service performed to the customer at the end of the July)
	31	Wages expense	50	140
		Wages payable	22		140
		(To record wages expense incurred at the end of the July)

Table (1)

Working notes:

1. Calculated the value of accrued fees during the July

$\begin{array}{c}\text{Fees earned=}\left(\begin{array}{l}\text{Total hours of music provided}-\\ \text{Music billed during the month}\end{array}\right)\times \text{Rate per hour}\\ \text{=}\left(\text{115 Hr}\text{.}-80\text{Hr}\text{.}\right)\times \$40\\ =35\text{ Hr}\text{.}\times \text{\$40}\\ \text{=\$1,400}\end{array}$ (1)

Hence, fees earned during the July are $1,400.

2. Calculate the value of supplies expense

$\begin{array}{c}\text{Supplies expense=}\left(\begin{array}{l}\text{The value of supplies at the beginning of the month}-\\ \text{Supplies on the hand at the end of the month}\end{array}\right)\\ =\$1,020-\$275\\ =\$745\end{array}$ (2)

Hence, supplies expense during the July is $745.

3. Calculate the value of insurance expense

$\begin{array}{c}\text{Insurance expense=}\frac{\text{The amount of one year premium}}{\text{No}\text{. of months in the year}}\\ =\frac{\$2,700}{12\text{ months}}\\ =\$225\end{array}$ (3)

Hence, insurance expense during the July is $745.

4. Calculate the value of unearned fees at the end of the July

$\begin{array}{c}\text{Unearned fees=}\frac{\text{Unearned fees at the beginning on the year}}{\text{2 months}}\\ =\frac{\$7,200}{2\text{ months}}\\ =\$3,600\end{array}$ (4)

Hence, unearned fees at the end of the July are $3,600.

To determine

To post: The adjusting entries to the ledger in the books of Company PS.

Explanation of Solution

Post the adjusting entries to the ledger account as follows:

Account:         Cash                                                              Account no. 11
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2019
July	1	Balance	✓			3,920
	1		1	5,000		8,920
	1		1		1,750	7,170
	1		1		2,700	4,470
	2		1	1,000		5,470
	3		1	7,200		12,670
	3		1		250	12,420
	4		1		900	11,520
	8		1		200	11,320
	11		1	1,000		12,320
	13		1		700	11,620
	14		1		1,200	10,420
	16		2	2,000		12,420
	21		2		620	11,800
	22		2		800	11,000
	23		2	750		11,750
	27		2		915	10,835
	28		2		1,200	9,635
	29		2		540	9,095
	30		2	500		9,595
	31		2	3,000		12,595
	31		2		1,400	11,195
	31		2		1,250	9,945

Table (2)

Account:    Accounts Receivable                                             Account no. 12
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2019
July	1	Balance	✓			1,000
	2		1		1,000
	23		2	1,750		1,750
	30		2	1,000		2,750
	31	Adjusting	3	1,400		4,150

Table (3)

Account:     Supplies                                                                Account no. 14
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2019
July	1	Balance	✓			170
	18			850		1,020
	31	Adjusting			745	275

Table (4)

Account:    Prepaid Insurance                                             Account no. 15
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2019
July	1		1	2,700		2,700
	31	Adjusting	3		225	2,475

Table (5)

Account:  Office equipment                                                              Account no. 17
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2019
July	5		1	7,500		7,500

Table (6)

Account: Accumulated Depreciation                                               Account no. 18
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2019
July	31	Adjusting	3		50		50

Table (7)

Account:     Accounts Payable                                                      Account no. 21
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2019
July	1	Balance	✓				250
	3		1	250
	5		1		7,500		7,500
	18		2		850		8,350

Table (8)

Account:     Wages Payable                                                      Account no. 22
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2019
July	31	Adjusting	3		140		140

Table (9)

Account:     Unearned revenue                                                     Account no. 23
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2019
July	1		1		7,200		7,200
	31	Adjusting	3	3,600			3,600

Table (10)

Account:     P’s capital                                                                   Account no. 31
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2019
July	1	Balance	✓				4,000
	1		1		5,000		9,000

Table (11)

Account:     P’s drawings                                                                  Account no. 32
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2019
July	1	Balance	✓			500
	31		2	1,250		1,750

Table (12)

Account:   Fees earned                                                             Account no. 41
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2019
July	1	Balance	✓				6,200
	11		1		1,000		7,200
	16		2		2,000		9,200
	23		2		2,500		11,700
	30		2		1,500		13,200
	31		2		3,000		16,200
	31	Adjusting	3		1,400		17,600
	31	Adjusting	3		3,600		21,200

Table (13)

Account:     Wages expense                                                               Account no. 50
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2019
July	1	Balance	✓			400
	14		1	1,200		1,600
	28		2	1,200		2,800
	31	Adjusting	3	140		2,940

Table (14)

Account:     Office rent expense                                                       Account no. 51
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2019
July	1	Balance	✓			800
	1		1	1,750		2,550

Table (15)

Account:     Equipment rent expense                                               Account no. 52
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2019
July	1	Balance	✓			675
	13		1	700		1,375

Table (16)

Account:     Utilities expense                                                       Account no. 53
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2019
July	1	Balance	✓			300
	27		2	915		1,215

Table (17)

Account:     Music expense                                                       Account no. 54
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2019
July	1	Balance	✓			1,590
	21		2	620		2,210
	31		2	1,400		3,610

Table (18)

Account:   Advertising expense                                                       Account no. 55
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2019
July	1	Balance	✓			500
	8		1	200		700
	22		2	800		1,500

Table (19)

Account:   Supplies expense                                                       Account no. 56
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2019
July	1	Balance	✓			180
	31	Adjusting	3	745		925

Table (20)

Account:     Insurance expense                                                     Account no. 57
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2019
July	31	Adjusting	3	225			225

Table (21)

Account:     Depreciation expense                                                     Account no. 58
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2019
July	31	Adjusting	3	50			50

Table (22)

Account:   Miscellaneous expense                                                    Account no. 59
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2019
July	1	Balance	✓			415
	4			900		1,315
	29			540		1,855

Table (23)

To determine

To prepare: An adjusted trial balance of Company PS at July 31, 2019.

Explanation of Solution

Prepare an adjusted trial balance of Company PS at July 31, 2019 as follows:

Company PS
Adjusted Trial Balance
July 31, 2019
Particulars	Account No.	Debit $	Credit $
Cash	11	9,945
Accounts receivable	12	4,150
Supplies	14	275
Prepaid insurance	15	2,475
Office equipment	17	7,500
Accumulated depreciation-Equipment	18		50
Accounts payable	21		8,350
Wages payable	22		140
Unearned revenue	23		3,600
P's capital	31		9,000
P's drawings	32	1750
Fees earned	41		21,200
Wages expense	50	2,940
Office rent expense	51	2,550
Equipment rent expense	52	1,375
Utilities expense	53	1,215
Music expense	54	3,610
Advertising expense	55	1,500
Supplies expense	56	925
Insurance expense	57	225
Depreciation expense	58	50
Miscellaneous expense	59	1,855
		42,340	42,340

Table (24)

Conclusion

The debit column and credit column of the adjusted trial balance are agreed, both having the balance of $42,340.