Question

Blitz Limited has recently hired a junior accountant. The accountant noticed that his predecessor had made several mistakes in recording transactions during the most recent fiscal year. For each of the following situations, prepare the adjusting entry that should be made to correct the error

1 Blitz received a $15,000 advance from a client for work that is going to be completed in the next year. The bookkeeper debited cash and credited revenue

2. Blitz purchased a new piece of equipment at a cost of $36.000. At the time of purchase the equipment was debited to repairs and maintenance expense. The

equipment is expected to have a useful life of 10 years. Blitz uses straight-line depreciation Assume that the equipment had been in use for a full year

3. During the year Blitz declared $5 000 in dividends. The bookkeeper had recorded this payment as a debit to dividends expense and a credit to cash

Answer 1

	S.No.	Account Titles and Explanation	Debit $	Credit $
	1	Revenue	15,000
		Unearned Revenue		15,000
	2	Equipment	36,000
		Repair & Maintenance Expense		36,000
		Depreciation Expense	3,600
		Accumulated Depreciation-Equipment (36,000 / 10)		3,600
	3	Retained earnings	5,000
		Cash	5,000
		Cash Dividend Payable		5,000
		Dividend Expense		5,000