Prepaid and Accrued Expenses

Questions
Q5.1. What is the purpose of adjusting entries? Distinguish between
transaction and adjusting entries.
Q5.2. Describe briefly the matching principle.
Q5.3. Define prepaid expense. Give three examples of hospital expense
items that may be prepaid.
Q5.4. Define accrued expense. Give three examples of hospital expense
items that often must be accrued at the end of an accounting period.
Q5.5. Distinguish between prepaid and accrued expenses.
Q5.6. Distinguish among pre-adjusted trial balance, adjusted trial balance,
preclosing trial balance, and postclosing trial balance.
Q5.7. Why are prepaid expenses reported in a balance sheet as assets?
Q5.8. Why are accrued expenses reported in a balance sheet as liabilities?
Q5.9. What is the purpose of reversing entries? Distinguish between
adjusting entries and reversing entries.

Exercises
E5.1. Eston Hospital paid a three-year insurance premium of $1,350 in
advance on January 1, 20X1.
Required: What amount should Eston Hospital report as prepaid
insurance in its December 31, 20X2, balance sheet?
E5.2. Eastland Hospital paid a three-year insurance premium in advance on
January 1, 20X1. The hospital’s adjusted trial balance at December 31,
20X2, included a prepaid insurance account with a balance of $1,480.
Required: What was the amount of the insurance premium paid on
January 1, 20X1?
E5.3. Early Hospital rented certain equipment for use in its business offices
on October 1, 20X1, paying one year’s rent of $1,800 in advance.
Required: What amount should appear as prepaid rent in Early

Hospital’s postclosing trial balance at December 31, 20X1?
E5.4. Edson Hospital obtained a six-month loan of $24,000 from a bank
on August 1, 20X1, paying 10 percent interest in advance. The
interest was debited to interest expense.
Required: Assuming that adjustments are made annually on
December 31 only, prepare the necessary adjusting entry for
December 31, 20X1.
E5.5. Using the data of Exercise 5.4, assume that the August 1, 20X1,
transaction entry debited the interest to prepaid expense.
Required: If adjustments are made annually on December 31 only,
what is the necessary adjusting entry at December 31, 20X1?

E5.6. Esterbrook Hospital issued $100,000 of 6 percent, 20-year bonds
on July 1, 20X1, at face value. Interest is payable semiannually on
January 1 and July 1 of each year, beginning January 1, 20X2.
Required: Assuming that adjustments are made annually on
December 31 only, prepare the necessary adjusting entry on
December 31, 20X1.

E5.7. Easy Hospital’s preadjusted trial balance at December 31, 20X1,
includes a salaries and wages expense account with a debit balance
of $805,200. It is determined, however, that employees have
earned an additional $38,900 of salaries and wages in 20X1 that
have not yet been paid.
Required: Prepare the necessary adjusting entry for December 31, 20X1.

E5.8. Ernst Hospital’s 20X2 statement of operations reports salaries and
wages expense of $699,400. The hospital’s balance sheets include
the following accounts:
12/31/X1 Accrued salaries and wages payable $ 41,600
12/31/X2 Accrued salaries and wages payable 38,400
Required: What was the amount of salaries and wages actually paid
in cash during 20X2?

E5.9. Extant Hospital paid $355,100 of salaries and wages during 20X2.
Its balance sheets reported accrued salary and wages payable and
related liabilities as follows:
12/31/X2 $28,300
12/31/X1 25,700
Required: What amount should be reported as salaries and wages
expense in Extant Hospital’s 20X2 statement of operations?

E5.10. Eucher Hospital’s 20X2 statement of operations reported insurance
expense of $8,000. Its balance sheets reported prepaid insurance
as follows:
12/31/X1 $ 1,400
12/31/X2 1,100
Required: What was the amount actually paid in cash for insurance
premiums during 20X2?

E5.11. Easter Hospital paid $4,600 of rent expense during 20X2. Its
balance sheets reported prepaid rent expense as follows:
12/31/X1 $ 1,200
12/31/X2 900
Required: What amount should be reported as rent expense in
Easter Hospital’s 20X2 statement of operations?

P5.5. Eunice Hospital’s preadjusted trial balance at December 31, 20X1,
included the following accounts, among others:
Acct.
No.
107 Prepaid insurance $ 0-
108 Prepaid rent -0-
109 Prepaid interest -0-
202 Notes Payable 80,000
203 Accrued interest payable -0-
204 Accrued salaries and wages payable -0-
250 Bonds payable 100,000
601 Salaries and wages expense 399,500
604 Insurance expense 5,760
606 Rent expense 2,700
608 Interest expense 4,800
The following additional information is available:
1. A three-year insurance premium was prepaid on January 1, 20X1.
2. One year’s rent was paid in advance on June 1, 20X1.
3. On December 1, 20X1, an $80,000, 12 percent, six-month loan
was obtained from a local bank; interest was prepaid.
4. Unpaid salaries and wages at December 31, 20X1, amounted to
$27,400.
5. On April 1, 20X1, $100,000 of 6 percent, 15-year bonds were
issued at face value. Interest on these bonds is payable annually
on April 1, beginning April 1, 20X2.
Required: Prepare, in general journal form, the necessary adjusting
entries at December 31, 20X1.

P5.2. Eversure Hospital’s preadjusted trial balance at December 31, 20X1,
included the following accounts, among others:
Acct.
No.
203 Accrued interest payable $ -0-
204 Accrued salaries and wages payable -0-
601 Salaries and wages expense 245,600
608 Interest expense -0-
250 Bonds payable 120,000
On September 1, 20X1, the hospital issued its $120,000, 8 percent,
six-month note to a local bank in connection with a short-term
loan. An analysis indicated that employees had earned $33,600 of
salaries and wages during 20X1 that had not been paid to them.
Required: Prepare, in general journal form, the necessary adjusting
entries at December 31, 20X1.
P5.3. Exacto Hospital’s preadjusted trial balance at December 31, 20X1,
included the following accounts, among others:
Acct.
No.
107 Prepaid insurance $ 5,760
108 Prepaid rent 2,700
109 Prepaid interest 3,600
202 Notes payable 80,000
203 Accrued interest payable -0-
204 Accrued salaries and wages payable -0-
250 Bonds payable 400,000
601 Salaries and wages expense 755,200
604 Insurance expense -0-

606 Rent expense -0-
608 Interest expense -0-
The following additional information is available:
1. A three-year insurance premium was prepaid on January 1, 20X1.
2. One year’s rent was paid in advance on June 1, 20X1.
3. On December 1, 20X1, an $80,000, 9 percent, six-month loan
was obtained from a local bank. Interest was prepaid.
4. Unpaid salaries and wages at December 31, 20X1, totaled $68,700.
5. On October 1, 20X1, $400,000 of 6 percent, ten-year bonds
were issued at face value. Interest on these bonds is payable
annually on October 1, beginning October 1, 20X2.
Required: Prepare, in general journal form, the necessary adjusting
entries for December 31, 20X1.

P5.4. The following accounts appeared in the adjusted trial balance of
Evansville Hospital at December 31, 20X1:
Cash $ 26,300
Accounts receivable 105,900
Inventory 14,700
Prepaid insurance 1,800
Prepaid rent 900
Prepaid interest 500
Buildings and equipment 575,000
Accounts payable 29,700
Bonds payable 125,000
Accrued interest payable 2,300
Accrued salaries and wages payable 9,800
Notes payable 350,000
Hospital net assets 193,600
Routine services revenue 135,000
Ancillary services revenue 75,800
Other operating revenues 30,900
Salaries and wages expense 140,000
Supplies expense 31,000
Utilities expense 29,000
Insurance expense 8,200
Repairs expense 5,400
Rent expense 7,100
Interest expense 4,900
Other expenses 1,400

Required: Prepare, in good form, (1) a balance sheet at
December 31, 20X1, and (2) a statement of operations for the year
then ended.

P5.1. Exerto Hospital’s preadjusted trial balance on December 31, 20X1,
included the following accounts, among others:
Acct.
No.
107 Prepaid insurance $5,040

108 Prepaid rent 2,100
109 Prepaid interest 1,200
604 Insurance expense -0-
606 Rent expense -0-
608 Interest expense -0-
The hospital paid a three-year insurance premium in advance on
January 1, 20X1. On August 1, 20X1, a year’s rent was paid in
advance. A $20,000, 12 percent loan for six months was obtained
from a bank on November 1, 20X1, and the interest was paid in
advance by the hospital.
Required: Prepare, in general journal form, the necessary adjusting
entries at December 31, 20X1.