Preparing adjusting entries,
adjusted trial balance, and
Watson Technical Institute (WTI), a school owned by Tom Watson, provides training to individuals
who pay tuition directly to the school. WTI also offers training to groups in off-site locations. Its unadjusted
trial balance as of December 31, 2005, follows. WTI initially records prepaid expenses and
unearned revenues in balance sheet accounts. Descriptions of items a through h that require adjusting
entries on December 31, 2005, follow.
Additional Information Items
a. An analysis of the school’s insurance policies shows that $3,000 of coverage has expired.
b. An inventory count shows that teaching supplies costing $2,600 are available at year-end 2005.
c. Annual depreciation on the equipment is $12,000.
d. Annual depreciation on the professional library is $6,000.
e. On November 1, the school agreed to do a special six-month course (starting immediately) for a
client. The contract calls for a monthly fee of $2,200, and the client paid the first five months’
fees in advance. When the cash was received, the Unearned Training Fees account was credited.
The fee for the sixth month will be recorded when it is collected in 2006.
f. On October 15, the school agreed to teach a four-month class (beginning immediately) for an
individual for $3,000 tuition per month payable at the end of the class. The services are being
provided as agreed, and no payment has yet been received.
g. The school’s two employees are paid weekly. As of the end of the year, two days’ wages have
accrued at the rate of $100 per day for each employee.
h. The balance in the Prepaid Rent account represents rent for December.
1. Prepare T-accounts (representing the ledger) with balances from the unadjusted trial balance.
2. Prepare the necessary adjusting journal entries for items a through h and post them to the
T-accounts. Assume that adjusting entries are made only at year-end.
3. Update balances in the T-accounts for the adjusting entries and prepare an adjusted trial balance.
4. Prepare Watson Technical Institute’s income statement and statement of owner’s equity for the
year 2005 and prepare its balance sheet as of December 31, 2005.
Check (2e) Cr.Training Fees Earned,
$4,400; (2f ) Cr.Tuition Fees Earned,
$7,500; (3) Adj.Trial balance totals,
$301,500; (4) Net income, $38,500;
Ending T.Watson, Capital $62,100
Cash Debit 26,000
Accounts receivable 0
Teaching supplies Debit 10,000
Prepaid insurance Debit 15,000
Prepaid rent Debit 2,000
Professional library Debit 30,000
Accumulated depreciation—Professional library Credit 9,000
Equipment Debit 70,000
Accumulated depreciation—Equipment credit 16,000
Accounts payable Credit 36,000
Salaries payable 0
Unearned training fees credit 16,000
Tuition fees earned credit 102,000
Training fees earned credit 38,000
Depreciation expense—Professional library 0
Depreciation expense—Equipment 0
Salaries expense Debit 48,000
Insurance expense 0
Rent expense debit 22,000
Teaching supplies expense 0
Advertising expense Debit 7,000
Utilities expense Debit 5,600
T. Watson, Capital Credit 63,600
T. Watson, Withdrawals Debit 40,000
Adjusting Entries, T-Accounts, Adjusted Trial Balance, Income Statement, Balance Sheet.
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