chapter_3_adjusting_the_accounts

chapter_3_adjusting_the_accounts - ADJUSTING THE ACCOUNTS...

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Unformatted text preview: ADJUSTING THE ACCOUNTS Chapter 3 3-1 Understanding adjusting entries. a) Why are adjusting entries recorded? 39309?“qu ENTR‘xgs ENSUEE ‘ NR6 We b) When are adjusting entries recorded? mus W23 wmxfi PAREij E b c) Describe the two accounting principles which form the basis for adjusting entries. . moi fie o \ \ — R ewe ASK:va mm to “nudge e Seesaw Maxim,me Kmame EEg Em * Wm Rwsz d) List and describe the four basic types of adjusting entries. 1. 9&2 Reggae. EEK: mmku 9‘9th “9" B‘ 2. 513§EEEQ§> Egmggye 15 B UENQT SI E W “M: Eg‘moe mm 1““: WE: W‘ 3. gcewzb Rgmwmk 3333ng mm. m fin” N6? \2‘? ‘RQCORE WM 4. QC '— E L r . Em N91)“: fimflgb‘ ’ Chapter 3 — Adjusting the Accounts Page 29 3-2 Recording prepayments. The Sparkle Clean Compmyhad the following transactions for-October. Oct 5 Purchased cleaning supplies on account for $700. Oct. 12 Received $500 from customers for future cleaning services. a) JournaliZetheOctoberumsactionsandposttotheTaccomts. % E I B I I III?“ I I I I I I !!§!!!.. III'III L: \d\%\ b) At October 31, an inventory of supplies on hand was $400 and cleaning services rendered to customers who had paid in advance amounted to $200. Record the adjusting entries for these transactions and post_to the '1‘ accounts. Page 30 Chapter 3 - Completion of the Acoounting'Cyele General Journal 3—3 Depreciation and balance sheet presentation. a) The Nantucket Company purchased equipment on January 1, 2009 for $18,000 cash. It is expected to be used for 15 years. Record the journal entry for the purchase and post to the T accounts. General Journal Account Titles “— Im- - Accumulated E ui ment De reciation Depreciation Ex ense b) Record the adjusting entry for $1,200 depreciation at the end of the first year and post to the T-accounts. General Journal In x \ ‘ Chapter 3 — Adjusting the Accounts Page 31 c) Show the balance sheet presentation of the book value of the equipment on December 31, 2009. Nantucket Company Partial Balance Sheet December 31, 2009 (1) Define depreciation. § § 3%??? o“? fixeCBgY 9U haw-p e) Which accounting principle explains the need for recording depreciation expense? ' , K W e @ (J 3-4 Recording accrued interest. The Fernandez Company obtained a bank loan on November 1. The company signed a 6-month note payable in the amount of $8,000. The armual interest rate is 12%. a) Record the November 1 transaction. b) Record the November 30 adjusting entry. General Journal Page 32 Chapter 3 — Adjusting the Accounts mm 3-5 Types of adjusting entries. For each of the following, indicate the type of adjuslment and the category of account debited and l. Recognizetheexpenseresulfingfiomtheuaeofprepaid expenses. Mai: . Egg W e SD: Cn.FE 61' 2. Recognize the allocation of the cost of a plant asset to expense over its useful 1i . mew: Dr: ' ‘c Wanna» . 5. Record expenseincm'red; butnotyetpaidorreoorded. mm Dr- . ’ . ' ' Cr. _ 3-6 Recording adjusting entries for accruals. a) The Sparkle Clean Company has a total payroll for a five day work week of $10,000. The company’s accounting period ends onDeoember 31. Record the adjusting entry for accrued salaries assuming that December 31 is on a Wednesday. Chapter3-TheRecordingProcess Page33 b) The Sparkle Clean Company provided $24,000 of services during the last week in December. These services have not yet been recorded or billed to customers. General Journal 3-7 Preparing adjusting entries, adjusted trial balance and financial statements. Shown below is the December 31 trial balance of the Rent-A-Space Company. Rent-A-Space Company Trial Balance December 31, 2009 Debit Credit Cash $26,100 Accounts Receivable 2,100 Supplies 600 Prepaid Insurance 1,400 Equipment 1 8,000 Accumulated Depreciation $ 3,500 Unearned Storage Revenue 10,000 Notes Payable 5,000 Interest Payable -0- Salaries Payable —0- G. Kennedy, Capital 16,000 Storage Revenue 20,000 Salaries Expense 2,000 Interest Expense 300 Depreciation Expense 1,100 Supplies Expense 1,900 Insurance Expense 1,000 $54,500 $54,500 Page 34 Chapter 3 — Adjusting the Accounts a) J ournalize the adjusting entries for the month of December, assuming adjusting entries are made monthly. 1. An inventory of supplies shows $250 of unused supplies at December 31. 2. The insurance policy purchased on July 1 expires at a rate of $200 per month. Monthly depreciation on the equipment is $100. Unearned storage revenue of $1,000 has been earned. Salaries of $700 were earned by employees but unpaid at December 31. Accrued interest on the note is $50. Storage services provided but not recorded total $800. 95‘.“ >19 General Journal P e 1 Da e ' Account Titles N? H ) ‘ H- . Z 0% 6/ ¢,.. l6 (m w’A U lllglllfilllallla a. ‘ ‘ 8&N&-%%NK ‘v V. _ \. ‘ V .r 0 :9 _ 8 3 'l >’. C " II V IIII I55! III. III. III. ama- IIII III- III. IEMI III- III- IIII “ME. I... III- III- IKE] III. III- III- IE5. III- IIII III- KIM- III. III- IIIIIIIIIIII III§III5III§ Chapter 3 — Adjusting the Accounts Page 35 b) Post the adjusting entries to the ledger below. _- _-i—I—i @ i ‘_ ‘ —-, —' -,—. DATE ‘ Page 36 Chapter 3 — Adjusting the Accounts No.21] BALANCE l ‘ CREDIT ' _ m -3 Ref l Salaries Pa able Ex o lananon ' 6 Revenue to ._ E . lanation S Salaries E ense Interest Ex ense E . lanation De reciation E o ense Su lies Ex ense . lanation E Ex . lanation Page 37 Chapter 3 — Adjusting the Accounts Rent-A-Space Company Adjusted Trial Balance December 31, 2009 I! Credit ?** --_ xx. \x _ .. ma} 3 M , “‘4 g n ’—}m ‘ “aux Mr 1“ - 3—1... u_ u v... x. s: i—l s mt n _!—i A me 2‘ u. I—i o \me x.» ‘_‘ .m g: :1 _g . ._ v g9 s pmm \K ~- Q ' l-ma: I \'1-\. \- g !-mm - E5 ‘ V9 ~- i "' i f —‘ 830 s L (1) Prepare an income statement and an owner's equity statement for the year 2009. Rent-A-Sp Compy Income Statement For the Year Ended December 31, 2009 Rent-A—Space Company Owner's Equity Statement For the Year Ended December 31, 2009 Chapter 3 — Adjusting the Accounts Page 39 e) Prepare a balance sheet at December 31, 2009. Rent-A-Space Company Balance Sheet December 31, 2009 Assets '- O u l | g I Q'. ‘ t I? to 5‘ ,, u I 3—8 Original business transactions and related adjusting entries. Among the ledger accounts used by the Silver Wing baseball team are: Prepaid Rent, Rent Expense, Unearned Admissions Revenue, Admissions Revenue, Prepaid Printing, Printing Expense, Office Supplies, Office Supplies Expense, Accounts Receivable, and Souvenir Revenue. For each of the following items, write first the journal entry (if one is needed) to record the original transaction and second the adjusting entry on April 30, the end of the fiscal year. a) On April 1, paid rent for 3 months beginning April 1 at $10,000 per month. b) On April I, borrowed $100,000 cash from First American Bank by issuing a 12% note payable due in 3 months. Page 40 Chapter 3 — Adjusting the Accounts c) On April 1, collected $2,400,000 from sales for season tickets. The season includes 60 home games; 5 in April, 10 in May, 10 in June, 15 in July, 15 in August, 5 in September. d) On April I bought office supplies for $800 on account. The inventory at April 30 was $100. e) On April 5, an agreement was reached with Logos Incorporated allowing the company to sell team souvenirs in the baseball park in return for 25% of the gross receipts from sales. 1) On April 12, programs for 20 games were printed and paid for at a cost of $9,000. g) On April 30, Logos Inc. reported that the gross receipts from souvenir sales in April had been $140,000, and that the 25% owed to team would be remitted on May 15. General Journal Titles M m U 3 a G ---_-—I — , . . -_-_I -a) --m- I ---; - . -—-Is~ ml -- --—-_ — L_-m-—l --'w M 9 m —-—nm -- -=--- Q4 n-mn—l -- «wt m M..- --—-_-_I --—---—I a) 4 -_I -- . ._ n. \m---qul --——-—=—= ---— — -- -— - --_-_-_l — L ' H ‘ M -n—-_I -- _ _\\ . - 9.90-_- ---t_-—=mn E ---— — --—-—-—I ha) a ~ .- .n._-n§m-—l --m-—- m Chapter 3 — Adjusting the Accounts Page 41 6 0 8| ‘ Ill LA) O _ mm _ [m \ I Q ‘. __ — w w w w i I V O . ‘ 3—9A Alternative treatment for deferrals. a) Refer to problem 3—2. Record the October transactions for Sparkle Clean Company assuming that prepaid expenses are debited to expense when acquired and unearned revenues are credited to revenue when received. General Journal Page 42 Chapter 3 — Adjusting the Accounts Cleaning Supplies Cleaning Supplies Expense .- has} too 0&0 W0 Uneamed Cleaning Revenue 500 b) Refer to the adjusting entry information in problem 3-2b. Record the October 31 adjusting entries and post to the T accounts. General Journal mm Credit “KW-Etta.- -— ‘1 ’5 . . 9 ' .' B x a c) Compare the T account balances from problem 3-2 to the T—account balances above and explain any similarities or differences. The ENWWQ Bu LS5: no Requb QM fiQ¢WP$gQ Qfigomg QR? W3 Chapter 3 — Adjusting the Accounts Page 43 3—10 Aceoimfingterms and emscepts. Listed bdow are several accounting terms and concepts. Match the letter of each withtheappropriatephraaewhichstatesitsmeaning Accrual basis of accounting h Matching principle Accrued expenses i. Accrued revenues Time, period assumptiOn j. Adjusting entries Prepaid expmses 1:. Book value Fiscal year 1. Revenue recognition principle Depreciation m Contra asset account Adjusted trial balance it Uneamed revenues I. Theassmnptionthattheeconomiclifeofabusineescanbedividedintormitsofa moManayw. 2. Anawounfingpaiodthatisomyearnilengfitbutnotnecessarflybegimnngon JarmarylandendingonDecemberSl. 3. Revenue should be recognized in the accounting records-when it is earned, regardless ofwhenthecashis received. " 4. "Let the menses follbw the revenues," regardless of when the cash is paid. Efi'orts should be matched with accomplishments. 5. Entries made at the end of accounting periods to ensure that the revenue recognition and Mching principles have been properly applied. Anassetthatrepresematheamoinnpaidinadvanceforafimn-eexpense. 7. The systematic allocation ofthe cost ofaplant asset to expense over itsusefiil life in compliance with the matching ' 8. Anmunnflmisofisetagainstansssetawoudewbalmesheetwpermitdear disclonueofboththeorigirmlcoflmdtheexpiredwfloftheasset. 9. Original cost less accumulated depreciation. 10. Ahabfiitythatrepresmflwammmtreceivedinadvmoeibraservieeflmhasnot yetbeenperformedoraproductthathasnotyetbeendelivered. 1]. Revenues that have been earned, but have been neither received nor recorded. 12. Expenses that have been incurred, but have been neither paid nor recorded I? me P ‘7‘ l9 W H s We l3. Transactions are recorded in the time period in which the events occur, rather than in the period in which cash is paid or received. Page 44 Chapter 3 - Complaion of the Accounting Cycle ...
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This note was uploaded on 05/20/2008 for the course ACCOUNTING ACC102 taught by Professor Murphy during the Spring '07 term at Monroe CC.

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chapter_3_adjusting_the_accounts - ADJUSTING THE ACCOUNTS...

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