ORIE_350_Homework__2_spring_2008_answers - ORIE 350 Spring...

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ORIE 350 Spring 2008 Homework #2 Due February 6, 2008 1. The following are selected data taken from the financial statements of the Italian/American Club of Virginia, Minnesota. The club uses the accrual method of accounting. Dues are billed to the members on an annual basis. The club also sells gift certificates, which are recorded as revenue when they are redeemed, not when they are sold. Dec. 31, 2005 Dec. 31, 2004 Accounts Receivable $15,000 $10,000 Unearned Revenue $15,000 $20,000 Revenue $148,000 $113,000 Show journal entries for the net effect of the following events that took place during fiscal year 2005. a. All outstanding dues at the end of 2004 were collected from members. [date] Cash 10,000 Accts Rec 10,000 (5 points) Concept: Accounts Receivable of $10,000 outstanding on Dec. 31, 2004 was collected as cash. b. Unearned revenue at the end of 2004 was all earned in 2005. [date] Unearned Revenue (L) 20,000 Revenue (temp SE) 20,000 (5 points) Concept: Unearned Revenue (L) of $20,000 outstanding on Dec. 31, 2004 was earned. People would redeem a gift certificate, and the Club would give them a spaghetti dinner (or something else), thus earning the revenue. c. $35,000 in gift certificates were sold for cash in 2005. Some, but not all of them were redeemed. [date] Cash (A) 35,000 Revenue (temp SE) 20,000 Unearned Revenue (L) 15,000 (5 points) Concept: Unearned Revenue (L) had $15,000 outstanding on Dec. 31, 2005. Thus there must have been $20,000 in Revenue to total the $35,000 in cash collected. d. Dues for fiscal 2005 were all billed to members. Some, but not all of the members paid their dues in 2005.
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[date] Cash (A) 93,000 Accounts Receivable 15,000 Revenue (temp SE) 108,000 (5 points) Concept: Revenue must be $108,000, to total $148,000 for the year ($40,000 has already been recorded above). Accounts Receivable must be $15,000, as that is the balance on Dec. 31, 2005. The Cash amount must be $93,000 to get things to balance. 2. Dillweed International is at the end of its fiscal year on Dec. 31, 2006, and needs to make some adjusting entries. Make the adjusting entries needed, if any, on December 31, 2006 for each case below. a. Dillweed has $10,000 in employee salaries that were earned in 2006 that will not be paid until January 15, 2007. Dec. 31, 2006 Wages Expense (temp SE) 10,000 Wages Payable (L) 10,000 (10 points) b. Dillweed paid $20,000 for two years of product liability insurance on June 30, 2006. At that time, Prepaid Insurance (A) was debited and Cash was credited. Hint: June 30 is exactly halfway through the year. Dec. 31, 2006 Insurance Expense (temp SE) 5,000 Prepaid Insurance (A) 5,000 (10 points) 3. Rojo Grande Carpentry is awarded a contract to remodel the second floor bathroom at Lambda Lambda Lambda Fraternity. The contract requires that the work be paid for in advance. Lambda Lambda Lambda pays Rojo Grande Carpentry $5,000 on February 14, 2007, which represents the full price of the work to be done.
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ORIE_350_Homework__2_spring_2008_answers - ORIE 350 Spring...

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