COMR 457

Module 3: The Accounting Cycle

Alison Chan has owned the Ace Marketing Inc. (“Ace”) for many years. Ace offers specialty marketing and
consulting services to companies wishing to sell their products in Asia. Ace has a December 31 year-end.
Alison, who has provided you with the following trial balance, insists that 2026 has been an excellent year.
You have been given an opportunity to buy all the shares of Ace and have spent the last week reviewing
the accounting records of Ace. Your review uncovered the following information:

Ace Marketing
December 31, 2026
Unadjusted Trial Balance
Dr Cr
Cash $ 89,000
Accounts receivable 73,000
Supplies 4,000
Computer Equipment 22,000
Accumulated depreciation
Prepaid insurance
Bank loan 15,000
Accounts payable 17,000
Wages payable
Rent payable
Note payable
Interest payable
Unearned revenue
Common shares 15,000
Retained earnings 100,000
Dividends declared 15,000
Services revenue 229,300
Insurance expense 6,420
Wages expense 96,380
Income tax expense 5,000
Advertising expense 7,500
Communications expense 8,000
Rent expense 40,000
Supplies expense 10,000
Salary expense
Interest expense
Depreciation expense
Consulting expense
Total $ 376,300 $ 376,300
1. Each employee of Ace is paid $4,000 every 2 weeks (based on a 10-day work period). Due to a
misunderstanding, the time records for three employees were not forwarded to the bookkeeper. As
a result, the three employees are each owed for 7 working days as at December 31,2026.

2. You have determined that marketing consulting services that were provided to clients in the last two
weeks of December 2026 for $9,500 were not recorded until the cash was received in January 2027.

3. On May 1, 2026 Ace purchased a three-year insurance policy for $5,400 which has been recorded by
the bookkeeper (as an expense, no prepaid setup).

4. On December 1, 2025, Ace signed a six-year lease (rental) agreement for its office space. The monthly
rent is $4,000.

5. The unpaid invoice file contains a bill for $7,500 relating to work done by an independent computer
consultant hired by Ace. The work is being done evenly between October 1, 2026 and January 31,
2027. The bookkeeper indicates that the invoice will be recorded when it is paid in February 2027.

6. Ace’s bookkeeper indicated that a mistake was made on June 1, 2026. A $40,000 cash receipt (cash
received) was recorded as service revenues. The amount actually represents a loan which bears
interest at 7% . (always assume an annual interest rate)

7. The $22,000 of computer equipment was purchased on January 1, 2026 and is expected to have a
useful life of 4 years and an estimated residual value of $2,800.

8. On June 1, 2026 Ace received and recorded an $84,000 cash advance from the Cypress Mountain
Corporation. The money relates to consulting fees to be provided evenly over the eight-month period
starting November 1, 2026. The amount was credited to services revenue.

9. Supplies on hand at December 31, 2026 are $500

Required:
1. Prepare any adjusting or correcting journal entries for the above-noted items. Show your work.

2. Prepare the adjusted trial balance. A template is provided in the Excel file.