Dwadad

Classify the following adjusting entries as involving prepaid expenses (PE), unearned revenues (UR),

accrued expenses (AE), or accrued revenues (AR).

a. To record revenue earned that was previously received as cash in advance. - UR

b. To record annual depreciation expense. - AE

c. To record wages expense incurred but not yet paid (nor recorded). - AE

d. To record revenue earned but not yet billed (nor recorded). - AR

e. To record expiration of prepaid insurance. -PE

QUICK STUDY 3-9

In its first year of operations, Harden Co. earned $39,000 in revenues and received $33,000 cash from

these customers. The company incurred expenses of $22,500 but had not paid $2,250 of them at yearend.

Harden also prepaid $3,750 cash for expenses that would be incurred the next year. Calculate

the first year’s net income under both the cash basis and the accrual basis of accounting.

Net income under cash basis

Cash received from customers 33000

Less: Expenses paid in cash (22500-2250+3750) 23750

Net Income 9250

Net income under cash basis

Revenue earned 39000

Less: Expenses accrued (22500-2250 ) 20000

Net Income 19000

Exercise 3-1

In the blank space beside each adjusting entry, enter the letter of the explanation A through F that

most closely describes the entry:

A. To record this period’s depreciation expense.

B. To record accrued salaries expense.

C. To record this period’s use of a prepaid

expense.

D. To record accrued interest revenue.

E. To record accrued interest expense.

F. To record the earning of previously unearned

income.

____B__ 1. Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,280

Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,280

____E__ 2. Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,208

Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,208

___C___ 3....