1-1 The McGraw-Hill Companies, Inc., 2007McGraw-Hill/IrwinChapter 3Exercise:Adjusting Accounts and Preparing Financial Statements The McGraw-Hill Companies, Inc., 2007McGraw-Hill/IrwinExercise 3-1 Classifying adjusting entries?In the blank space beside each adjusting entry, enter the letter of the explanation A through F that most closely describes the entry.?A. To record this periods depreciation expense.?B. To record accrued salaries expense.?C. To record this periods use of a prepaid?expense.?D. To record accrued interest revenue.?E. To record accrued interest expense.?F. To record the earning of previously unearned?income.1-2 The McGraw-Hill Companies, Inc., 2007McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2007McGraw-Hill/Irwin1-3 The McGraw-Hill Companies, Inc., 2007McGraw-Hill/IrwinExercise 3-1 (10 minutes) 1. E 4. D 2. C 5. A 3. F 6. B The McGraw-Hill Companies, Inc., 2007McGraw-Hill/IrwinExercise 3-2 Preparing adjusting entries.?Prepare adjusting journal entries for the year ended (date of) December 31, 2008, for each of these separate situations. Assume that prepaid expenses are initially recorded in asset accounts. Also assume that fees collected in advance of work are initially recorded as liabilities.?1-4 The McGraw-Hill Companies, Inc., 2007McGraw-Hill/Irwin?a. Depreciation on the companys equipment for 2008 is computed to be $18,000.?b. The Prepaid Insurance account had a $6,000 debit balance at December 31, 2008, before adjusting for the costs of any expired coverage. An analysis of the companys insurance policies showed that $1,100 of unexpired insurance coverage remains. The McGraw-Hill Companies, Inc., 2007McGraw-Hill/Irwin?c. The Office Supplies account had a $700 debit balance on December 31, 2007; and $3,480 of office supplies was purchased during the year. The December 31, 2008, physical count showed $298 of supplies available.?d. Two-thirds of the work related to $15,000 of cash received in advance was performed this period.1-5 The McGraw-Hill Companies, Inc., 2007McGraw-Hill/Irwin?e. The Prepaid Insurance account had a $6,800 debit balance at December 31, 2008, before adjusting for the costs of any expired coverage. An analysis of insurance policies showed that $5,800 of coverage had expired.?f. Wage expenses of $3,200 have been incurred but are not paid as of December 31, 2008. The McGraw-Hill Companies, Inc., 2007McGraw-Hill/Irwin?Lopez Management has five part-time employees, each of whom earns $250 per day. They are normally paid on Fridays for work completed Monday through Friday of the same week. They were paid in full on Friday, December 28, 2008. The next week, the five employees worked only four days because New Years Day was an unpaid holiday.?Show (a) the adjusting entry that would be recorded on Monday, December 31, 2008, and (b) the journal entry that would be made to record payment of the employees wages on Friday, January 4, 2009.Exercise 3-3 Adjusting and paying accrued wages1-6 The McGraw-Hill Companies, Inc., 2007McGraw-Hill/Irwin?Determine the missing amounts in each of these four separate situations a through d.Exercise 3-4 Determining cost flows through accounts The McGraw-Hill Companies, Inc., 2007McGraw-Hill/IrwinExercise 3-4 (15 minutes) a. $2,550 b. $6,500 c. $8,490 d. $2,288 1-7 The McGraw-Hill Companies, Inc., 2007McGraw-Hill/IrwinExercise 3-5 Determining assets and expenses for accrual and cash accounting?On March 1, 2006, a company paid an $18,000 premium on a 36-month insurance policy for coverage beginning on that date. Refer to that policy and fill in the blanks in the following table. The McGraw-Hill Companies, Inc., 2007McGraw-Hill/IrwinBalance Sheet Insurance Asset usingInsurance Expense using Accrual Basis* Cash Basis Accrual Basis* Cash Basis Dec. 31, 2006. $13,000 $0 2006. $ 5,000 $18,000 Dec. 31, 2007.7,000 0 2007.6,000 0 Dec. 31, 2008.1,000 0 2008. 6,000 0 Dec. 31, 2009.0 0 2009. 1,000 0 Total. $18,000 $18,000 1-8 The McGraw-Hill Companies, Inc., 2007McGraw-Hill/IrwinProblem 3-1 Preparing adjusting and subsequent journal entries?Arnez Co. follows the practice of recording prepaid expenses and unearned revenues in balance sheet accounts. Arnezs annual accounting period ends on December 31, 2008. The following information concerns the adjusting entries to be recorded as of that date. The McGraw-Hill Companies, Inc., 2007McGraw-Hill/Irwin?a. The Office Supplies account started the year with a $4,000 balance. During 2008, the company purchased supplies for $13,400, which was added to the Office Supplies account. The inventory of supplies available at December 31, 2008, totaled $2,554.1-9 The McGraw-Hill Companies, Inc., 2007McGraw-Hill/Irwin?b. An analysis of the companys insurance policies provided the following facts.?The total premium for each policy was paid in