Question
A partial trial balance of Thornbury Ltd. is as follows on December 31, 2027.
| Dr. | Cr. |
|---|
| Supplies | 3,000 | |
| Salaries and Wages Payable | | 1,800 |
| Interest Receivable | 6,120 | |
| Prepaid Insurance | 108,000 | |
| Unearned Rent | | 0 |
| Accrued Interest Payable | | 18,000 |
Additional adjusting data:
- A physical count of supplies on hand on December 31, 2027, totaled $1,320.
- Through oversight, the Salaries and Wages Payable account was not changed during 2027. Accrued Salaries and Wages on December 31, 2027, amounted to $5,280.
- The Interest Receivable account was also left unchanged during 2027. Accrued Interest on investments amounts to $5,220 on December 31, 2027.
- The unexpired portions of the insurance policies totaled $78,000 as of December 31, 2027.
- $28,800 was received on January 1, 2027, for the rent of a building for both 2027 and 2028. The entire amount was credited to rental income.
- Depreciation for the year on equipment was erroneously recorded as $6,000 rather than the correct figure of $60,000.
- A further review of depreciation calculations of prior years revealed that depreciation of $8,640 was not recorded. It was decided that this oversight should be corrected by a prior period adjustment.
Instructions: Assuming that the books have not been closed, what are the adjusting entries necessary at December 31, 2027? (Ignore income tax considerations.)
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 1 — accrual basis of accounting
Adjusting entries exist to move revenue and expense into the period they belong to, regardless of when cash moved. Every adjusting entry touches at least one income statement account and one balance sheet account — and never the cash account, because the cash has either already moved or has not moved yet.
Common mistakes
- Debiting or crediting Cash in an adjusting entry — a reliable sign the entry is wrong.
- Adjusting for the full amount of a prepayment rather than only the expired portion.
- Missing accrued items entirely because no document prompted them — accrued interest and accrued wages are the usual casualties.
Further readingThe 5 types of adjusting entry