Q.4. Arif Khan’s Air Service operates several small airplanes providing passenger and freight service to small towns, oil fields, fishing lodges, and other remote locations in Delhi. The company adjusts and closes its accounts at the end of each month. At April 30, the following trial balance was prepared from the ledger:
Arif Khan Air Service
Trial Balance
April 30, 2009

Cash …………………………………………….. Rs 22750
Accounts receivable………………………………… 28300
Prepaid rent…………………………………………. 8100
Unexpired Insurance……………………………….   36900
Airplanes……………………………………………. 855000
Accumulated depreciation: airplanes…………….................... Rs 232750
Notes Payable…………………………………………………...   450000
Unearned Passenger revenue……………………………………...175250
Arif Khan, capital………………………………………………    171750
Arif Khan, drawing…………………………………...7750
Freight revenue…………………………………………………    54250
Fuel expense…………………………………………..47600
Salaries expense………………………………………70900
Maintenance expense………………………………... 6700                      
                          Rs108400  Rs 1084000

Other Data:

a.One of Arif’s regular customers is Hermain Oil Company. The airline keeps track of the number of trips carrying freight for the oil company and sends a bill shortly after month-end. No entry has yet been made in the airline’s accounting record $11,750 freight revenue earned in April from Hermain Oil Company.
b.Three months’ rent ($8,100) had been prepaid on April 1.
c.On January 1, a 12 month insurance policy had been purchased for $49,200.
d.Arif Khan’s depreciates its airplanes over a period of 15 years (180 months)
e.Accrued interest on notes payable amounts to $4500 at April 30 and has not yet been recorded.
f.The amount shown as unearned passenger revenue represents the price of tickets sold to customers in advance of flights. During April, $94750 of this amount was earned by the airline. (Credit Passenger Revenue)
g.Salaries earned by airline employees but not yet recorded or paid amount to $1625 at April 30.

Instructions: (15 Marks)
a)Briefly explain the following concepts in relation to adjusting entries in your own words
1.Prepaid expenses;
2.Unearned revenues;
3.Accrued expenses; and
4.Accrued revenues
b)Prepare the Adjusting entries required at April 30, 2009?

Answer rating: 100% (QA)

a 1 Prepaid expense This means expenses paid in advance It actually not related to the current Accou... View the full answer