EXERCISE
Prepare any necessary adjusting or correcting entries called for by the following
situations, which were discovered at the end of the calendar year (December, 31).
Assume that no monthly adjustments have been made during the year. Amounts
are in thousands of dollars.
1) A note for $5,000 was received from a customer in a sales transaction on
April 1. The note matures in one year and bears 8% interest.
2) A business made several purchases of fuel oil. Some purchases ($ 900)
were debited to Fuel Expense, whereas others ($ 1,100) were charged to an
asset account (Fuel on Hand). An oil gauge revealed $ 400 of fuel on hand
at the end of the year. There was no fuel on hand at the beginning of the
year. What adjustment was necessary on December 31?
3) On April 1, a business took out a fire insurance policy. The policy was for 2
years, and the full premium of $ 3,600 was paid on April 1. The payment was
debited to Insurance Expense on April 1. What adjustment was necessary
on December 31?
4) On December 1, $ 6,000 was paid in advance to the landlord for 5 months’
rent. The tenant debited Prepaid Rent for $ 6,000 on December 1. What
adjustment is necessary on December 31 on the tenant’s books?
