3-1
Classify the following adjusting entries as involving prepaid expenses (PE), unearned revenues (UR), accrued expenses (AE), or accrued revenues (AR).
a. UR To record revenue earned that was previously received as cash in advance.
b. PE To record annual depreciation expense.
c. AE To record wages expense incurred but not yet paid (nor recorded).
d. AR To record revenue earned but not yet billed (nor recorded).
e. PE To record expiration of prepaid insurance.

3-9
In its first year of operations, Harden Co. earned $39,000 in revenues and received $33,000 cash from these customers. The company incurred expenses of $22,500 but had not paid $2,250 of them at yearend. Harden also prepaid $3,750 cash for expenses that would be incurred the next year. Calculate the first year’s net income under both the cash basis and the accrual basis of accounting.
Accrual Method
Revenues 39,000
Expenses 22,500
Prepaid 0
Net Income = 16,500

Cash Method
Revenues 33,000
Expenses 20,250
Prepaid (Expense) 3,750
Net Income = 9,000

3-1
In the blank space beside each adjusting entry, enter the letter of the explanation A through F that most closely describes the entry:
A. To record this period’s depreciation expense.
B. To record accrued salaries expense.
C. To record this period’s use of a prepaid expense.
D. To record accrued interest revenue.
E. To record accrued interest expense.
F. To record the earning of previously unearned income.

___B___ 1. Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,280
Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,280
___E __ 2. Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,208
Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,208
___C___ 3. Insurance Expense . . . . . . . . . . . . . . . . . . . . . . .