Chapter 3, Problem 20QS

A preparing adjusting entries P4

Cal Consulting follows the practice that prepayments are debited to expense when paid and unearned revenues are credited to revenue when cash is received. Given this company’s accounting practices, which one of the following applies to the preparations of adjusting entries at the end of its first accounting period?

1. Unearned fees (on which cash was received in advance earlier in the period) are recorded with a debit to Consulting Fees Earned of $500 and credit to Unearned Consulting Fees of $500.
2. Unpaid salaries of $400 are recorded with a debit to Prepaid Salaries of $400.
3. Office supplies purchased for the period $1,000. The cost of unused office supplies of $650 is recorded with a debit to Supplies Expense of $650 and a credit to Office Supplies of $650.
4. Earned but untitled (and unrecorded) consulting fees for the period were $1,200, which are recorded with a debit to Unearned Consulting Fees of $1,200 and a credit to Consulting Fees Earned of $1,200.