SM_Chap004 - Chapter 04 - Adjustments, Financial...

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Unformatted text preview: Chapter 04 - Adjustments, Financial Statements, and Financial Results Chapter 4 Adjustments, Financial Statements, and ANSWERS TO MINI-EXERCISES M4-7 Assets = Liabilities + Stockholders Equity a = Utilities Payable +600 Utilities Expense (+E)- 600 b = Wages Payable +3,000* Wages Expense (+E)- 3,000 c Interest Receivable +100 = Interest Revenue (+R) +100 * $3,000 = 10 employees x 3 days x $100 per day $1,200 12 months = $100 for one month . M4-8 (a ) dr Utilities Expense (+E, - SE)........................... 600 cr Utilities Payable (+L)........................... 600 To record utilities expense incurred but not yet paid. (b ) dr Wages Expense (+E, - SE)........................... 3,000 cr Wages Payable (+L)........................... 3,000 To record wages expense incurred but not yet paid, calculated as 10 employees x 3 days x $100 per day. (c ) dr Interest Receivable (+A)............................... 100 cr Interest Revenue (+R, +SE)................ 100 To record interest earned but not yet collected, calculated as $1,200 x 1/12. 4-1 Chapter 04 - Adjustments, Financial Statements, and Financial Results ANSWERS TO EXERCISES E4-4 Req. 1 The annual reporting period for this company is January 1 through December 31. Req. 2 Both transactions are accruals because revenue has been earned and expenses incurred but no cash has yet been received or paid. Req. 3 Assets = Liabilities + Stockholders Equity a . = Wages Payable +6,000 Wage Expense (+E) -6,000 b . Interest Receivable +3,000 = Interest Revenue (+R) +3,000 Req. 4 Adjustments are needed to ensure the financial statements are up-to-date and complete . Adjusting entries are necessary at the end of the accounting period to ensure that all revenues earned and expenses incurred and the related assets and liabilities are measured properly . The entries above are accruals; entry (a) is an accrued expense (incurred but not yet recorded) and entry (b) is an accrued revenue (earned but not yet recorded). In applying the accrual basis of accounting, revenues should be recognized when earned and expenses should be recognized when incurred in generating revenues. 4-2 Chapter 04 - Adjustments, Financial Statements, and Financial Results E4-5 ( a ) December 31, 2009: dr Wage Expense (+E, - SE)....................................... 6,000 cr Wages Payable (+L)..................................... 6,000 To record wages incurred during 2009, but not yet paid. ( b ) December 31, 2009: dr Interest Receivable (+A)......................................... 3,000 cr Interest Revenue (+R, +SE)......................... 3,000 To record interest revenue earned during 2009, but not yet collected. E4-6 Req. 1 2010 Income statement : Insurance Expense ($7,200 x 12/24) = $3,600 used....
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SM_Chap004 - Chapter 04 - Adjustments, Financial...

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