Question

PSA3.2 Prepare adjusting entries, post to ledger accounts, and prepare adjusted trial balance. L03, 4, 5 The unadjusted trial balance at 30 June 2020 for Maxi Services Ltd is as follows MAXI SERVICES LTD Trial balance as at 30 June 2020 No. Account name Debit Credit 100 Cash 104 Accounts receivable 112 Prepaid insurance 113 Supplies 130 Office equipment 131 Accumulated depreciation 200 Accounts payable 213 Service revenue received in advance 300 Share capital 310 Retained earnings 400 Service revenue 500 Salaries expense 510 Rent expense 515 Insurance expense 530 Electricity expense 54800 15000 3200 1500 30000 $ 20000 7 400 4 000 60000 7 500 3400046 800 2000 1200 4000 $145700$145 700 The chart of accounts for Maxi Services Ltd contains the following accounts in addition to those listed on the trial balance: 218 Electricity payable, 215 Salaries payable, 520 Depreciation expense, and 505 Supplies expense. Other data: 1. Supplies on hand at 30 June total $1000 2. An electricity bill for $300 for June has not been recorded and will not be paid until next month. 3. The balance of the prepaid insurance account is the annual premium for insurance com- mencing 1 January 2020. 4. Services were performed during the current period in relation to $3000 of revenue received in advance. 5. Salaries of $4600 are owed at 30 June. 6. Depreciation expense for the year is $4000. 7. Invoices representing $4400 of services performed during the month have not been recorded as of 30 June 2020. Required (a) Prepare the adjusting entries from the information provided. (b) Using T accounts, enter the totals from the trial balance as beginning account balances and then post the adjusting entries to the ledger accounts (c) Prepare an adjusted trial balance as at 30 June 2020. (d) Calculate profit or loss for the year ended 30 June 2020. (e) If the business wanted to report a higher profit, which of the adjusting entries above would be avoided? Which stakeholders would be affected by the misreported profit?

Answer 1

Maxi Services Ltd Adjusting Enteries EventParticulars Debit in $ Credit in $ 1 Supplies Expense a/c 500 To Supplies 500 (Supplies Expensed) 2 Electricity Expense a/c 300 To Accounts Payable 300 (Electricity Expense accrued) 3 Insurance Expense a/c 1600 To Prepaid Insurance 1600 (Insurance Expensed 4 Service Revenue received in advance a/c Dr 3000 To Service Revenue 3000 (Service Revenue recognized) 5 Salaries Expense a/c (Salary accrued) 4600 To Salaries Payable 4600 6 Depreciation Expense Off.Equip a/c Dr 4000 To Accumulated Depre - Off.Equi 4000 (Depreciation charged to Equipment) 7 Accounts Receivable a/c To Service Revenue 4400 (Service Revenue accrued)

Worksheet For the period ending 31.3.2019 Adjustment Debit in $ Credit in $ Debit in Credit in $ Debit in $ Credit in $ Unadjusted Adjusted Particulars Cash Accounts Receivable Prepaid Insurance Supplies Office Equipment Accumulated Depre - Off.Equip Accounts Payable Salaries Payable Service Revenue received in advance Share Capital Retained Earnings Service Revenue Salaries Expense Rent Expense Insurance Expense Electricity Expense Supplies Expense Depreciation Expense - Off.Equip Totals 3200 1500 19400 1600 1000 1600 4000 300 4600 24000 7400 4600 1000 7500 7500 7400 54200 4600 38600 1600 4000 4300 4000 4000 145700 145700 18400 18400 159000 159000

Statement of Income For the period ending 31.3.2019 Service Revenue Less: Salaries Expense Rent Expense Insurance Expense Electricity Expense Supplies Expense Depreciation Expense - Off.Equip Net Income 54200 38600 2000 2800 4300 500 400052200 2000 Statement of Retained Earnings For the period ending 31.3.2019 Beginning Net Income 7500 2000 9500

Accounts Receivable Service Revenue received in advance Bal Service Revenue 3000 Bal Service Revenue Bal 19400 Bal 1000 19400 19400 Prepaid Insurance Service Revenue Bal 3200 Insurance Expense Bal 1600 1600 3200 Bal 49800 Service Re 49800 Bal 3000 3200 49800 Supplies Salaries Expense Bal 1500 Supplies Expense Bal Salaries Payable Bal 1000 4600 Bal 38600 1500 1500 38600 Accumulated Depre - Off.Equip Insurance Expense Bal Prepaid Insurance Bal Depreciation Expens 1600 2800 Bal 24000 24000 24000 Electricity Expense Accounts Payable Bal 7400 300 7700 Bal Accounts Payable 300 Bal 4300 4300 4300 Bal 7700 Electricity Expense 7700 Depreciation Expense - Off.Equip Supplies Expense Accumulated Dep Supplies Bal 4000 Bal 500 500 500