Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition

EXERCISE 3-8

Purpose:

(L.O. 5, 8) This exercise will provide you with examples of adjusting entries for: (1) Prepaid expenses when cash payments are recorded in an asset account. (2) Prepaid expenses when cash payments are recorded in an expense account. (3) Unearned revenues when cash receipts are recorded in a liability account. (4) Unearned revenues when cash receipts are recorded in a revenue account. Thus, this exercise will compare the approach explained in the Appendix to Chapter 3 in your text with the approach explained in the chapter.

Each situation described below is independent of the others.

1. Office supplies are recorded in an asset account when acquired. There were no supplies on hand at the beginning of the period. Cash purchases of office supplies during the period amounted to $900. A count of supplies at the end of the period shows $320 worth to be on hand. The asset account is titled Office Supplies on Hand.
2. Office supplies are recorded in an expense account when acquired. There were no supplies on hand at the beginning of the period. Cash purchases of office supplies during the period amount to $900. A count of supplies at the end of the period shows $320 worth to be on hand.
3. Office supplies are recorded in an asset account when acquired. There were $400 of supplies on hand at the beginning of the period. Cash purchases of office supplies during the period amount to $900. A count of supplies at the end of the period shows $320 worth to be on hand.
4. Office ...