ACCT5930 – Topic 4 Seminar solutions
• Adjusting entries
• Inventory
Adjusting entries – revision question
The financial year for LMIM is 30 June 2022.

1. Insurance was paid on 1 April 2022 for $12,000 covering 1 April 2022 to 31 March
2023. It was correctly recorded by Dr Prepaid Insurance, Cr Cash.
2. Sales revenue for the year included $900 of customer deposits for products that
have not yet been shipped to them.
3. A total of $4,000 was debited to the office supplies asset account during the year.
At year end $500 of the supplies remains.
4. The company took out a $200,000 loan on 1 January 2022 at 8% which was
correctly recorded. Interest is paid annually in arrears.

Required:
Write the adjusting journal entry for each of the above situations on 30 June 2022.
1. Insurance was paid on 1 April 2022 for $12,000 covering 1
April 2022 to 31 March 2023. It was correctly recorded by Dr
Prepaid Insurance, Cr Cash.
• Adjusting Entry on June 30 2022?
30/6/22 Dr Insurance expense $3,000
Cr Prepaid insurance (or prepayments) $3,000
There is another approach to accounting for prepayments (expense up front) which
will result in the same impact in the financial statements after the adjusting entry has
been made. We only will expect you to know the above approach for this course (that
is prepayment treated as an asset upfront)
2. Sales revenue for the year included $900 of customer
deposits for products that have not yet been shipped to them.
Adjusting Entry on June 30 2022?
30/6/22 Dr Sales Revenue $900
Cr Unearned revenue $900
3. A total of $4,000 was debited to the office supplies asset account
during the year. At year end $500 of the supplies remains.
Adjusting Entry on June 30 2022?
30/6/22 Dr Office Supplies expense $3,500
Cr Office supplies asset $3,500
What is wrong?
Correcting entry
Illustration continued
4. The company took out a $200,000 loan on 1 January
2022 at 8% which was correctly recorded. Interest is
paid annually in arrears.
• Adjusting Entry on June 30 2022?
30/6/22 Dr Interest expense $8,000
Cr Interest payable * $8,000
* Or “Accrued interest expense”
Revision Question
At 1 July:
Accounts receivable $100 000
Allowance for doubtful debts $2 000
Accounts receivable (net) $98 000
1. A customer who owes $1 500 has gone bankrupt.
Prepare the journal entry and show the updated
balance sheet
2. The credit manager decides to increase the allowance
for doubtful debts to $ 3 000. Prepare the journal entry
and show the updated balance sheet
Note: scenario 2 builds on what happened in 1.
1. A customer who owes $1 500 has gone bankrupt.
DR Allowance for doubtful debts $1 500
CR Accounts receivable $1 500
Balance sheet after transaction:
Accounts receivable $98 500
- Allowance for doubtful debts 500
Accounts receivable (net) $98 000
Now continue with…
2. The credit manager decides to increase the allowance for
doubtful debts to $ 3 000. Prepare the journal entry and show the
updated balance sheet
Revision Question Solution
Before transaction:
Accounts receivable $100 000
Allowance for doubtful debts $2 000
Accounts receivable (net) $98 000
Note: Net AR has not
changed!
2. The credit manager decides to increase the allowance
for doubtful debts to $ 3 000.
Presently $500; therefore needs to increase by $2 500.
DR Bad debts expense $2 500
CR Allowance for doubtful debts $2 500
Balance sheet
Accounts receivable $98 500
- Allowance for doubtful debts 3 000
Accounts receivable (net) $95 500
Revision Question Solution
Lecture Example- Perpetual System
• ABC Ltd made several inventory purchases and sales during January
(see the table below).
• A stocktake at the end of January revealed that 350 units were still on
hand.
Required:
A. Calculate ABC Ltd’s ending inventory and COGS at 31/1/19 under
the perpetual inventory system using:
1. FIFO 2. LIFO 3. Weighted Average

Details Date Units Unit cost Total cost Units sold
Opening stock 1/1/19 200 $2 $400
Purchased 15/1/19 300 $3 $900
Sold 17/1/19 250
Purchased 28/1/19 500 $4 $2 000
Sold 30/1/19 400
Total 1 000 $3 300 650

Lecture Example – FIFO Perpetual
PURCHASES COGS ENDING STOCK/INV.
Date Units Unit
$
Total
$
Units Unit $ Total
$
Units Unit $ Total
$
1/1 200 2 400
15/1 300 3 900 200 2 400
300 3 900
17/1 200
50
2
3
400
150 250 3 750
28/1 500 4 2000 250
500
3
4
750
2000
30/1 250
150
3
4
750
600
350 4 1400
TOTAL 1900 1400
Answers to Lecture example
Lecture Example – LIFO Perpetual
PURCHASES COGS ENDING STOCK/INV.
Date Units Unit
cost
Total
cost
Units Unit
cost
Total
cost
Units Unit
cost
Total cost
1/1 200 2 400
15/1 300 3 900 200 2 400
300 3 900
17/1 200 2 400
250 3 750 50 3 150
28/1 500 4 2 000 200 2 400
50 3 150
500 4 2000
30/1 200 2 400
50 3 150
400 4 1600 100 4 400
TOTAL 2 350 950
Lecture Example – Moving Avg Perpetual
PURCHASES COGS ENDING INV.
Date Units Unit
cost
Total
cost
Units Unit
cost
Total
cost
Units Unit
cost
Total
cost
1/1 200 2 400
15/1 300 3 900 *500 2.60 1300
($400+$900)/(200+300)
= $2.60/unit
17/1 250 2.60 650 250 2.60 650
28/1 500 4 2 000 *750 3.53 2 650
($650+$2000)/(250+500)
= $3.53/unit
30/1 400 3.53 1413.33 350 3.53 1 236.67
TOTAL 2 063.33 1 236.67