1. Demonstration Problem
Accounting
What the Numbers Mean 10e
Demonstration Problem
Chapter 4 – Exercise 11
Record Transactions and Adjustments

2. Problem Definition
Enter the following column heading across the top of a sheet of paper:
Transaction/ Stockholders’ Net
Adjustment Assets Liabilities Equity Income

3. Problem Definition
Enter the following column heading across the top of a sheet of paper:
Transaction/ Stockholders’ Net
Adjustment Assets Liabilities Equity Income
Enter the transaction/adjustment letter in the first column and show the effect, if
any, of the transaction entry or adjusting entry on the appropriate balance sheet
category or on the income statement by entering the amount and indicating
whether it is an addition (+) or a subtraction (-). Column headings reflect the
expanded balance sheet equation; items that affect net income should not be
shown as affecting stockholders’ equity. In some cases, only one column may be
affected because all of the specific accounts affected by the transaction are
included in that category. Transaction a has been done as an illustration. (Note:
As an alternative to using the horizontal model, you may write the journal entry
for each transaction or adjustment.)

4. Problem Definition
Provided services to a client on account; revenues totaled $550.
Paid an insurance premium of $360 for the coming year. An asset, Prepaid Insurance, was debited.
Recognized insurance expense for one month from the above premium via a reclassification adjusting entry.
Paid $800 of wages accrued at the end of the prior month.
Paid $2,600 of wages for the current month.
Accrued $600 of wages at the end of the current month.
Received cash of $1,500 on accounts receivable accrued at the end of the prior month.

5. Problem Solution a. +550 +550 Transaction/ Stockholders’ Net
Adjustment Assets Liabilities Equity Income a

6. Problem Solution
Transaction/ Stockholders’ Net
Adjustment Assets Liabilities Equity Income a
Journal entry:
Dr. Accounts Receivable $550
Cr. Service Revenue $550

7. Problem Solution
Transaction/ Stockholders’ Net
Adjustment Assets Liabilities Equity Income a
Journal entry:
Dr. Accounts Receivable $550
Cr. Service Revenue $550
Accounts receivable (an asset account) increases and Service Revenue (a revenue account) also increases which causes Net Income to increase.

8. Problem Definition
Provided services to a client on account; revenues totaled $550.
Paid an insurance premium of $360 for the coming year. An asset, Prepaid Insurance, was debited.
Recognized insurance expense for one month from the above premium via a reclassification adjusting entry.
Paid $800 of wages accrued at the end of the prior month.
Paid $2,600 of wages for the current month.
Accrued $600 of wages at the end of the current month.
Received cash of $1,500 on accounts receivable accrued at the end of the prior month.

9. Problem Solution b. -360 +360 Transaction/ Stockholders’ Net
Adjustment Assets Liabilities Equity Income b
+360

10. Problem Solution
Transaction/ Stockholders’ Net
Adjustment Assets Liabilities Equity Income b
+360
Journal entry:
Dr. Prepaid Insurance $360
Cr. Cash $360

11. Problem Solution
Transaction/ Stockholders’ Net
Adjustment Assets Liabilities Equity Income b
+360
Journal entry:
Dr. Prepaid Insurance $360
Cr. Cash $360
Prepaid Insurance (an asset account) increases and Cash (an asset account) decreases. No effect on Net Income.

12. Problem Definition
Provided services to a client on account; revenues totaled $550.
Paid an insurance premium of $360 for the coming year. An asset, Prepaid Insurance, was debited.
Recognized insurance expense for one month from the above premium via a reclassification adjusting entry.
Paid $800 of wages accrued at the end of the prior month.
Paid $2,600 of wages for the current month.
Accrued $600 of wages at the end of the current month.
Received cash of $1,500 on accounts receivable accrued at the end of the prior month.

13. Problem Solution c. -30 -30 Transaction/ Stockholders’ Net
Adjustment Assets Liabilities Equity Income c

14. Problem Solution
Transaction/ Stockholders’ Net
Adjustment Assets Liabilities Equity Income c
Journal entry:
Dr. Insurance Expens $30
Cr. Prepaid Insurance $30

15. Problem Solution
Transaction/ Stockholders’ Net
Adjustment Assets Liabilities Equity Income c
Journal entry:
Dr. Insurance Expense $30
Cr. Prepaid Insurance $30
Insurance Expense (an expense account) increases which causes Net Income to decrease; Prepaid Insurance (an asset account) decreases.

16. Problem Definition
Provided services to a client on account; revenues totaled $550.
Paid an insurance premium of $360 for the coming year. An asset, Prepaid Insurance, was debited.
Recognized insurance expense for one month from the above premium via a reclassification adjusting entry.
Paid $800 of wages accrued at the end of the prior month.
Paid $2,600 of wages for the current month.
Accrued $600 of wages at the end of the current month.
Received cash of $1,500 on accounts receivable accrued at the end of the prior month.

17. Problem Solution d. -800 -800 Transaction/ Stockholders’ Net
Adjustment Assets Liabilities Equity Income d

18. Problem Solution
Transaction/ Stockholders’ Net
Adjustment Assets Liabilities Equity Income d
Journal entry:
Dr. Wages Payable $800
Cr. Cash $800

19. Problem Solution
Transaction/ Stockholders’ Net
Adjustment Assets Liabilities Equity Income d
Journal entry:
Dr. Wages Payable $800
Cr. Cash $800
Wages Payable (a liability account) decreases and Cash (an asset account) also decreases. No effect on Net Income.

20. Problem Definition
Provided services to a client on account; revenues totaled $550.
Paid an insurance premium of $360 for the coming year. An asset, Prepaid Insurance, was debited.
Recognized insurance expense for one month from the above premium via a reclassification adjusting entry.
Paid $800 of wages accrued at the end of the prior month.
Paid $2,600 of wages for the current month.
Accrued $600 of wages at the end of the current month.
Received cash of $1,500 on accounts receivable accrued at the end of the prior month.

21. Problem Solution e. -2,600 -2,600 Transaction/ Stockholders’ Net
Adjustment Assets Liabilities Equity Income
e , ,600

22. Problem Solution
Transaction/ Stockholders’ Net
Adjustment Assets Liabilities Equity Income
e , ,600
Journal entry:
Dr. Wages Expense $2,600
Cr. Cash $2,600

23. Problem Solution
Transaction/ Stockholders’ Net
Adjustment Assets Liabilities Equity Income
e , ,600
Journal entry:
Dr. Wages Expense $2,600
Cr. Cash $2,600
Wages Expense (an expense account) increases which causes Net Income to decrease; Cash (an asset account) decreases.

24. Problem Definition
Provided services to a client on account; revenues totaled $550.
Paid an insurance premium of $360 for the coming year. An asset, Prepaid Insurance, was debited.
Recognized insurance expense for one month from the above premium via a reclassification adjusting entry.
Paid $800 of wages accrued at the end of the prior month.
Paid $2,600 of wages for the current month.
Accrued $600 of wages at the end of the current month.
Received cash of $1,500 on accounts receivable accrued at the end of the prior month.

25. Problem Solution f. +600 -600 Transaction/ Stockholders’ Net
Adjustment Assets Liabilities Equity Income f

26. Problem Solution
Transaction/ Stockholders’ Net
Adjustment Assets Liabilities Equity Income f
Journal entry:
Dr. Wages Expense $600
Cr. Wages Payable $600

27. Problem Solution
Transaction/ Stockholders’ Net
Adjustment Assets Liabilities Equity Income f
Journal entry:
Dr. Wages Expense $600
Cr. Wages Payable $600
Wages Expense (an expense account) increases which causes Net Income to decrease; Wages Payable (a liability account) increases.

28. Problem Definition
Provided services to a client on account; revenues totaled $550.
Paid an insurance premium of $360 for the coming year. An asset, Prepaid Insurance, was debited.
Recognized insurance expense for one month from the above premium via a reclassification adjusting entry.
Paid $800 of wages accrued at the end of the prior month.
Paid $2,600 of wages for the current month.
Accrued $600 of wages at the end of the current month.
Received cash of $1,500 on accounts receivable accrued at the end of the prior month.

29. Problem Solution g. +1,500 -1,500 Transaction/ Stockholders’ Net
Adjustment Assets Liabilities Equity Income
g ,500
-1,500

30. Problem Solution
Transaction/ Stockholders’ Net
Adjustment Assets Liabilities Equity Income
g ,500
-1,500
Journal entry:
Dr. Cash $1,500
Cr. Accounts Receivable $1,500

31. Problem Solution
Transaction/ Stockholders’ Net
Adjustment Assets Liabilities Equity Income
g ,500
-1,500
Journal entry:
Dr. Cash $1,500
Cr. Accounts Receivable $1,500
Cash (an asset account) increases and Accounts Receivable (an asset account) decreases. No effect on Net Income.

32. Problem Solution a. +550 +550 b. -360 +360 c. -30 -30 d. -800 -800
Transaction/ Stockholders’ Net
Adjustment Assets Liabilities Equity Income a b
+360 c d
e , ,600 f
g ,500
-1,500

33. Problem Solution
Journal entries:
a. Dr. Accounts Receivable $ 550
Cr. Service Revenue $ 550
b. Dr. Prepaid Insurance
Cr. Cash
c. Dr. Insurance Expense
Cr. Prepaid Insurance
d. Dr. Wages Payable
Cr. Cash
e. Dr. Wages Expense ,600
Cr. Cash ,600
f. Dr. Wages Expense
Cr. Wages Payable
g. Dr. Cash ,500
Cr. Accounts Receivable ,500

34. Accounting What the Numbers Mean 10e David H. Marshall
You should now have a better understanding of recording transactions and adjustments.
Remember that there is a demonstration problem for each chapter that is here for your learning benefit.
David H. Marshall
Wayne W. McManus
Daniel F. Viele