Homework 2 – Adjustments: Deferrals, Accruals and Depreciation
Exercice 1-
Consider the balances of the unadjusted trial balance of IKON Advertising at October 31th, 2017, and the related
month-end adjustment data (in €):
Unadjusted Trial Balance Debit Credit
Cash 5.300
Accounts Receivable 7.000
Prepaid Rent 4.000
Supplies (Asset) 600
Furniture 36.000
Accumulated Depreciation - 3.000
Accounts Payable 8.800
Common Stock 15.000
Retained Earnings 21.000
Dividends - 4.600
Profits* 9.700
49.900 49.900
Trial Income Statement Debit Credit
Advertising Revenue 14.400
Salary Expense 4.400
Utilities Expense 300
Profits 9.700
Adjustment data:
a) Accrued advertising revenue at October 31, 2.000 €. The customer has agreed to pay in 90 days.
b) October Prepaid rent expired during the month. The unadjusted prepaid balance of 4.000 € relates to the period
September – October 2017. The following two months Rent bill, is expected beginning November.
c) Supplies used during October: 200 €
d) Depreciation on furniture for the month. The furniture's expected useful life is five years
e) The Company is going to pay an Extra-Payroll in December to workers for satisfactory performance during the
second semester. A normal month payroll is 2.000 €
f) During October, an unsatisfied customer sued the company in a civil court for 1.500 €. The Co. lawyers are not sure
of winning the process, so they recommend accruing the related expense.
g) In October, a customer advances 50% of an advertising campaign to be performed in December 2017. Total Value
of the Campaign: 5.000 €.
h) At the last minute of October, cashes in 3.000 € from Accounts Receivables.
Requirements:
1. Set-up T-accounts (including those listed in the unadjusted trial balance) and journalize the adjusting entries
2. Prepare the adjusted trial balance of IKON Advertising, at October 31, 2017
3. Prepare the closing entries.
4. Prepare the income statement, the statement of retained earnings and the balance sheet.
