College Accounting Study Set 7

Business

Quiz 12 :

Accruals, Deferrals, and the Worksheet

Quiz 12 :

Accruals, Deferrals, and the Worksheet

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Recording adjustments for accrued and prepaid expense items and unearned income. On July 1, 2013, Shawn Smith established his own accounting practice. Selected transactions for the first few days of July follow. INSTRUCTIONS 1. Record the transactions on page 1 of the general journal. Omit descriptions. Assume that the firm initially records prepaid expenses as assets and unearned income as a liability. 2. Record the adjusting journal entries that must be made on July 31, 2013, on page 2 of the general journal. Omit descriptions. img Analyze: What balance should be reflected in Unearned Accounting Fees at July 31, 2013?
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1.
The transactions should be recorded in the general journal as follows:
(i)
Expenses paid in advance are assets for the business. Such transactions are recorded in
the general journal by debiting the prepaid expense account and crediting cash or note
payable as the case may be.
The entry to record prepaid rent should be made as follows:
General Journal Page 1
img (ii)
The general journal entry to record money borrowed by issuing note payable whereon
cash is received after deducting interest for the whole period of the borrowing in advance,
should be prepared as follows:
General Journal Page 1
img (iii)
Cash received in advance for services to be provided in future is unearned income.
Unearned income is a liability on the business as the business has an obligation to
provide the services. Such transactions are recorded in the general journal by debiting
cash and crediting unearned income account.
The entry to record the services fee received in advance should be made as follows:
General Journal Page 1
img (iv)
The entry to record purchase of office equipment should be made as follows:
General Journal Page 1
img (v)
The entry to record prepaid insurance should be made as under:
General Journal Page 1
img (vi)
The entry to record purchase of office furniture should be prepared as under:
General Journal Page 1
img (vii) The entry to record purchase of office supplies should be made as under:
General Journal Page 1
img 2.
The adjusting entries on July 31, 2013 should be recorded as follows:
(i) The balance in prepaid expense account should be adjusted when the expense is actually incurred. To recognize the expense incurred during the current period an adjusting entry crediting the prepaid expense account and debiting the expense account is made.
The adjusting entry to record rent expense incurred for the month of July should be prepared as follows:
Calculate rent expense for the month of July:
img Record the adjusting entry into the general journal:
General Journal Page 2
img (ii)
The adjusting entry to record the interest expense for the month of July should be
prepared as follows:
Calculate interest expense for the month of July:
img Record the adjusting entry into the general journal:
General Journal Page 2
img (iii)
The balance in unearned income account should be adjusted when the income has
actually been earned. To recognize the income earned during the current period an
adjusting entry debiting the unearned income account and crediting the revenue account
is made.
The adjusting entry to record the service fee earned for the month of July should be prepared as under:
General Journal Page 2
img (iv)
The adjusting entry to record depreciation expense in respect of office equipment should
be prepared as follows:
Calculate depreciation on office equipment for the month of July:
img Record the adjusting entry:
General Journal Page 2
img (v)
The adjusting entry to record the interest accrued for the month of July on the note
payable issued to purchase the office equipment should be prepared as follows:
Calculate the interest expense for the month of July:
img Record the adjusting entry:
General Journal Page 2
img (vi)
The adjusting entry to record insurance expense for the month of July should be prepared
as follows:
Calculate insurance expense for one month:
Insurance expense for twelve months
img Insurance expense for one month
img img Record the adjusting entry to recognize insurance expense for the month of July:
General Journal Page 2
img (vii)The adjusting entry to record depreciation expense in respect of office furniture should be prepared as follows:
Calculate depreciation on office furniture for the month of July:
img Record the adjusting entry:
General Journal Page 2
img (viii)
The adjusting to record the office supplies expense for the month of July should be
prepared as follows:
Calculate the office supplies expense for the period:
Office supplies purchased
img Office supplies balance on July 31
img Supplies expense for the month
img img Record the adjusting entry to recognize office supplies expense for the month of July:
General Journal Page 2
img

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McCormick and Company, Incorporated reported the following in its 2009 Annual Report: img Analyze: List the potential adjusting entries. Disregard dollar amounts.
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The Potential adjusting entries for Inventory should be given as follows:
(a)
The adjusting entry to clear the beginning balance of inventory account should be made
as under:
img (b)
The adjusting entry to place the ending inventory on the books should be made as under:
img The potential adjusting entry for Prepaid Expense should be given as under:
img

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What adjustment is made to record the estimated expense for uncollectible accounts?
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The estimated expense for uncollectible accounts should be recorded by making an adjusting entry debiting an account called Uncollectible Accounts Expense and crediting a contra asset account called Allowance for Doubtful Accounts.

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Computing adjustments for accrued and prepaid expense items. For each of the following independent situations, indicate the adjusting entry that must be made on the December 31, 2013, worksheet. Omit descriptions. a. During the year 2013, Sam Sons Company had net credit sales of $941,000. Past experience shows that 0.6 percent of the firm's net credit sales result in uncollectible accounts. b. Equipment purchased by One Stop Shops for $29,355 on January 2, 2013, has an estimated useful life of nine years and an estimated salvage value of $1,743. What adjustment for depreciation should be recorded on the firm's worksheet for the year ended December 31, 2013? c. On December 31, 2013, Parrish Plumbing Supply owed wages of $6,546 to its factory employees, who are paid weekly. d. On December 31, 2013, Parrish Plumbing Supply owed the employer's social security (6.2%) and Medicare (1.45%) taxes on the entire $6,546 of accrued wages for its factory employees. e. On December 31, 2013, Parrish Plumbing Supply owed federal (0.8%) and state (5.4%) unemployment taxes on the entire $6,546 of accrued wages for its factory employees.
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McCormick and Company, Incorporated reported the following in its 2009 Annual Report: img Analyze: Based on the information presented above, which categories might require adjusting entries at the end of an operating period?
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When a specific account receivable is deemed uncollectible it is written off by debiting and crediting.
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Recording adjustments for accrued and prepaid expense items and unearned income. On June 1, 2013, Penelope Bermudez established her own advertising firm. Selected transactions for the first few days of June follow. 1. Record the transactions on page 1 of the general journal. Omit descriptions. Assume that the firm initially records prepaid expenses as assets and unearned income as a liability. 2. Record the adjusting journal entries that must be made on June 30, 2013, on page 2 of the general journal. Omit descriptions. img Analyze: At the end of the year, 2013, how much of the rent paid on June 1 will have been charged to expense?
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Why is depreciation recorded?
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Recording adjustments for accrued and prepaid items and unearned income. Based on the information below, record the adjusting journal entries that must be made for June Kang Consulting Services on December 31, 2013. The company has a December 31 fiscal year-end. Use 18 as the page number for the general journal. a.-b. Merchandise Inventory, before adjustment, has a balance of $9,000. The newly counted inventory balance is $10,500. c. Unearned Seminar Fees has a balance of $10,000, representing prepayment by customers for four seminars to be conducted in December 2013 and January 2014. Three seminars had been conducted by December 31, 2013. d. Prepaid Insurance has a balance of $12,000 for six months insurance paid in advance on October 1, 2013. e. Store Equipment costing $5,000 was purchased on September 1, 2013. It has a salvage value of $500, and a useful life of five years. f. Employees have earned $500 of wages not paid at December 31, 2013. g. The employer owes the following taxes on wages not paid at December 31, 2013: SUTA, $15.00; FUTA, $4.00; Medicare, $7.25; and Social Security, $31.00. h. Management estimates uncollectible accounts expense at 1.5% (0.015) of sales. This year's sales were $3,000,000. i. Prepaid Rent has a balance of $13,200 for six months rent paid in advance on October 1, 2013. j. The Supplies account in the general ledger has a balance of $500. A count of supplies on hand at December 31, 2013, indicated $225 of supplies remain. k. The company borrowed $8,000 on a two-month note payable dated December 1, 2013. The note bears interest at 6% Analyze: After all adjusting entries have been journalized and posted, what is the balance of the Unearned Seminar Fees account?
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Determining the adjustments for inventory. The beginning inventory of a merchandising business was $121,000, and the ending inventory is $102,519. What entries are needed at the end of the fiscal period to adjust Merchandise Inventory?
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Computing adjustments for accrued and prepaid expense items. For each of the following independent situations, indicate the adjusting entry that must be made on the December 31, 2013, worksheet. Omit descriptions. a. On December 31, 2013, the Notes Payable account at King Manufacturing Company had a balance of $14,000. This balance represented a three-month, 9 percent note issued on November 1. b. On January 2, 2013, Wayland's Word Processing Service purchased flash drives, paper, and other supplies for $5,950 in cash. On December 31, 2013, an inventory of supplies showed that items costing $1,517 were on hand. The Supplies account has a balance of $5,950. c. On August 1, 2013, North Texas Manufacturing paid a premium of $12,324 in cash for a one-year insurance policy. On December 31, 2013, an examination of the insurance records showed that coverage for a period of five months had expired. d. On April 1, 2013, Connie Crafts signed a one-year advertising contract with a local radio station and issued a check for $12,960 to pay the total amount owed. On December 31, 2013, the Prepaid Advertising account has a balance of $12,960.
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Recording adjustments for accrued and prepaid items and unearned income. Based on the information below, record the adjusting journal entries that must be made for John Gavone Consulting on June 30, 2013. The company has a June 30 fiscal year-end. Use 18 as the page number for the general journal. a.-b. Merchandise Inventory, before adjustment, has a balance of $7,500. The newly counted inventory balance is $8,000. c. Unearned Seminar Fees has a balance of $6,000, representing prepayment by customers for five seminars to be conducted in June, July, and August 2013. Two seminars had been conducted by June 30, 2013. d. Prepaid Insurance has a balance of $12,000 for six months insurance paid in advance on May 1, 2013. e. Store Equipment costing $5,000 was purchased on March 31, 2013. It has a salvage value of $500, and a useful life of five years. f. Employees have earned $250 that has not been paid at June 30, 2013. g. The employer owes the following taxes on wages not paid at June 30, 2013: SUTA, $7.50; FUTA, $2,00; Medicare, $3.63; and Social Security, $15.50. h. Management estimates uncollectible accounts expense at 1% of sales. This year's sales were $2,000,000. i. Prepaid Rent has a balance of $6,600 for six months rent paid in advance on March 1, 2013. j. The supplies account in the general ledger has a balance of $400. A count of supplies on hand at June 30, 2013 indicated $150 of supplies remain. k. The company borrowed $6,000 from First Bank on June 1, 2013 and issued a four-month note. The note bears interest at 7%. Analyze: After all adjusting entries have been journalized and posted, what is the balance of the Prepaid Rent account?
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What types of assets are subject to depreciation? Give three examples of such assets.
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Recording adjustments for accrued and prepaid expense items. On December 1, 2013, Joe's Java Joint borrowed $31,000 from its bank in order to expand its operations. The firm issued a four-month, 11 percent note for $31,000 to the bank and received $29,864 in cash because the bank deducted the interest for the entire period in advance. In general journal form, show the entry that would be made to record this transaction and the adjustment for prepaid interest that should be recorded on the firm's worksheet for the year ended December 31, 2013. Omit descriptions. Round your answers to the nearest dollar.
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McCormick and Company, Incorporated reported the following in its 2009 Annual Report: img Analyze: By what percentage did McCormick's inventories increase from 2008 to 2009?
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Explain the meaning of the following terms that relate to depreciation: a. Salvage value b. Depreciable base c. Useful life d. Straight-line method
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Recording adjustments for accrued and prepaid expense items and earned income. On July 31, 2013, after one month of operation, the general ledger of Michael Brady, Consultant, contained the accounts and balances given below. INSTRUCTIONS 1. Prepare a partial worksheet with the following sections: Trial Balance, Adjustments, and Adjusted Trial Balance. Use the data about the firm's accounts and balances to complete the Trial Balance section. 2. Enter the adjustments described below in the Adjustments section. Identify each adjustment with the appropriate letter. 3. Complete the Adjusted Trial Balance section. ACCOUNTS AND BALANCES img ADJUSTMENTS a. On July 31, an inventory of the supplies showed that items costing $580 were on hand. b. On July 1, the firm paid $9,000 in advance for six months of rent. c. On July 1, the firm purchased a one-year insurance policy for $1,620. d. On July 1, the firm paid $360 interest in advance on a four-month note that it issued to the bank. e. On July 1, the firm purchased office furniture for $12,050. The furniture is expected to have a useful life of seven years and a salvage value of $1,550. f. On July 1, the firm purchased office equipment for $6,400. The equipment is expected to have a useful life of five years and a salvage value of $1,600. g. On July 1, the firm issued a three-month, 8 percent note for $7,800. h. On July 1, the firm received a consulting fee of $4,800 in advance for a one-year period. Analyze: By what total amount were the expense accounts of the business adjusted?
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Net Profit When Sandra Costello's father died suddenly, Sandra had just completed the semester in college, so she stepped in to run the family business, Costello's Delivery Service, until it could be sold. Under her father's direction, the company was a successful operation and provided ample money to meet the family's needs. Sandra was majoring in biology in college and knew little about business or accounting, but she was eager to do a good job of running the business so it would command a good selling price. Since all of the services performed were paid in cash, Sandra figured that she would do all right as long as the Cash account increased. Thus, she was delighted to watch the cash balance increase from $25,000 at the beginning of the first month to $73,028 at the end of the second month-an increase of $48,028 during the two months she had been in charge. When she was presented an income statement for the two months by the company's bookkeeper, she could not understand why it did not show that amount as income but instead reported only $19,100 as net income. Knowing that you are taking an accounting class, Sandra brings the income statement, shown below, to you and asks if you can help her understand the difference. img In addition, Sandra permits you to examine the accounting records, which show that the balance of Salaries Payable was $12,680 at the beginning of the first month but had increased to $25,040 at the end of the second month. Most of the balance in the Insurance Expense account reflects monthly insurance payments covering only one month each. However, the Prepaid Insurance account had decreased $300 during the two months, and all supplies had been purchased before Sandra took over. The balances of the company's other asset and liability accounts showed no changes. 1. Explain the cause of the difference between the increase in the Cash account balance and the net income for the two months. 2. Prepare a schedule that accounts for this difference.
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Determining the adjustments for inventory. The Income Statement section of the worksheet of Smith Company for the year ended December 31, has $179,000 recorded in the Debit column and $203,344 in the Credit column on the line for the Income Summary account. What were the beginning and ending balances for Merchandise Inventory?
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Income Summary amounts are extended to which statement columns on the worksheet?
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