Question & Answer

When the accounts of Daniel Barenboim Inc. are examined, the adjusting data listed below are uncovered on December 31, the end of an annual fiscal period.

1. The prepaid insurance account shows a debit of $5,280, representing the cost of a 2-year fire insurance policy dated August 1 of the current year.

2. On November 1, Rent Revenue was credited for $1,800, representing revenue from a subrental for a 3-month period beginning on that date.

3. Purchase of advertising materials for $800 during the year was recorded in the Advertising Expense account. On December 31, advertising materials of $290 are on hand.

4. Interest of $770 has accrued on notes payable.

Instructions

Prepare the following in general journal form.

(a) The adjusting entry for each item.

(b) The reversing entry for each item where appropriate.

Wayne Rogers Corp. maintains its financial records on the cash basis of accounting. Interested in securing a long-term loan from its regular bank, Wayne Rogers Corp. requests you as its independent CPA to convert its cash-basis income statement data to the accrual basis. You are provided with the following summarized data covering 2013, 2014, and 2015.

Instructions

(a) Using the data above, prepare abbreviated income statements for the years 2013 and 2014 on the cash basis.

(b) Using the data above, prepare abbreviated income statements for the years 2013 and 2014 on the accrual basis.

Jill Accardo, M.D., maintains the accounting records of Accardo Clinic on a cash basis. During 2014, Dr. Accardo collected $142,600 from her patients and paid $55,470 in expenses. At

January 1, 2014, and December 31, 2014, she had accounts receivable, unearned service revenue, accrued expenses, and prepaid expenses as follows. (All long-lived assets are rented.)

Instructions

Prepare a schedule that converts Dr. Accardo’s “excess of cash collected over cash disbursed” for the year 2014 to net income on an accrual basis for the year 2014.

Scratch Miniature Golf and

Driving Range Inc. was opened on March 1 by Scott Verplank. The following selected events and transactions occurred during March.

Mar. 1 Invested $50,000 cash in the business in exchange for common stock. 3 Purchased Michelle Wie’s Golf Land for $38,000 cash. The price consists of land $10,000, building $22,000, and equipment $6,000. (Make one compound entry.) 5 Advertised the opening of the driving range and miniature golf course, paying advertising expenses of $1,600.

6 Paid cash $1,480 for a one-year insurance policy. 10 Purchased golf equipment for $2,500 from Singh Company, payable in 30 days. Mar. 18 Received golf fees of $1,200 in cash.

25 Declared and paid a $500 cash dividend. 30 Paid wages of $900. 30 Paid Singh Company in full.

31 Received $750 of fees in cash.

Scratch uses the following accounts: Cash, Prepaid Insurance, Land, Buildings, Equipment, Accounts Payable, Common Stock, Dividends, Service Revenue, Advertising Expense, and Salaries and Wages Expense.

Instructions

Journalize the March transactions. (Provide explanations for the journal entries.)

Presented below are selected account balances for Homer

Winslow Co. as of December 31, 2014.

Inventory 12/31/14 $ 60,000 Cost of Goods Sold $225,700

Common Stock 75,000 Selling Expenses 16,000

Retained Earnings 45,000 Administrative Expenses 38,000

Dividends 18,000 Income Tax Expense 30,000

Sales Returns and Allowances 12,000

Sales Discounts 15,000

Sales Revenue 410,000

Instructions

Prepare closing entries for Homer Winslow Co. on December 31, 2014. (Omit explanations.)

Presented below is financial information for two different companies.

Alatorre Company Eduardo Company

Sales revenue $90,000 (d)

Sales returns and allowances (a) $ 5,000

Net sales 81,000 95,000

Cost of goods sold 56,000 (e)

Gross profi t (b) 38,000

Operating expenses 15,000 23,000

Net income (c)

Instructions

Compute the missing amounts.

Presented below is information related to Gonzales Corporation for the month of

January 2014. Cost of goods sold $208,000 Salaries and wages expense $ 61,000

Delivery expense 7,000 Sales discounts 8,000 Insurance expense 12,000 Sales returns and allowances 13,000 Rent expense 20,000 Sales revenue 350,000

Instructions

Prepare the necessary closing entries.

The adjusted trial balance of Lopez Company shows the following data pertaining to sales at the end of its fiscal year, October 31, 2014: Sales Revenue $800,000, Delivery Expense $12,000, Sales Returns and Allowances $24,000, and Sales Discounts $15,000.

Instructions

(a) Prepare the revenues section of the income statement.

(b) Prepare separate closing entries for (1) sales and (2) the contra accounts to sales.

Santo Design Agency was founded by Thomas Grant in January

2008. Presented below is the adjusted trial balance as of December 31, 2014.

Instructions

(a) Prepare an income statement and a statement of retained earnings for the year ending December 31, 2014, and an unclassified balance sheet at December 31.

(b) Answer the following questions.

(1) If the note has been outstanding 6 months, what is the annual interest rate on that note?

(2) If the company paid $17,500 in salaries in 2014, what was the balance in Salaries and Wages

Payable on December 31, 2013?

The adjusted trial balance of Anderson Cooper Co. as of December

31, 2014, contains the following.

(a) Prepare an income statement.

(b) Prepare a statement of retained earnings.

(c) Prepare a classified balance sheet.

Greco Resort opened for business on June 1 with eight air-conditioned units. Its trial balance on August 31 is as follows.

Other data:

1. The balance in prepaid insurance is a one-year premium paid on June 1, 2014.

2. An inventory count on August 31 shows $450 of supplies on hand.

3. Annual depreciation rates are buildings (4%) and equipment (10%). Salvage value is estimated to be 10% of cost.

4. Unearned Rent Revenue of $3,800 was earned prior to August 31.

5. Salaries of $375 were unpaid at August 31.

6. Rentals of $800 were due from tenants at August 31.

7. The mortgage interest rate is 8% per year.

Instructions

(a) Journalize the adjusting entries on August 31 for the 3-month period June 1–August 31. (Omit explanations.)

(b) Prepare an adjusted trial balance on August 31.

Selected accounts of Urdu Company are shown below.

Instructions

From an analysis of the T-accounts, reconstruct (a) the October transaction entries, and (b) the adjusting journal entries that were made on October 31, 2014. Prepare explanations for each journal entry.

Andy Roddick is the new owner of Ace Computer Services. At the end of

August 2014, his first month of ownership, Roddick is trying to prepare monthly financial statements.

Below is some information related to unrecorded expenses that the business incurred during August.

1. At August 31, Roddick owed his employees $1,900 in wages that will be paid on September 1.

2. At the end of the month, he had not yet received the month’s utility bill. Based on past experience, he estimated the bill would be approximately $600.

3. On August 1, Roddick borrowed $30,000 from a local bank on a 15-year mortgage. The annual interest rate is 8%.

4. A telephone bill in the amount of $117 covering August charges is unpaid at August 31.

Instructions

Prepare the adjusting journal entries as of August 31, 2014, suggested by the information above.

A partial adjusted trial balance of Piper Company at January 31, 2014, shows the following.

Instructions

Answer the following questions, assuming the year begins January 1.

(a) If the amount in Supplies Expense is the January 31 adjusting entry, and $850 of supplies was purchased in January, what was the balance in Supplies on January 1?

(b) If the amount in Insurance Expense is the January 31 adjusting entry, and the original insurance premium was for one year, what was the total premium and when was the policy purchased?

(c) If $2,500 of salaries was paid in January, what was the balance in Salaries and Wages Payable at December 31, 2013?

(d) If $1,600 was received in January for services pe

Karen Weller, D.D.S., opened a dental practice on January 1, 2014. During the first month of operations, the following transactions occurred.

1. Performed services for patients who had dental plan insurance. At January 31, $750 of such services was performed but not yet billed to the insurance companies.

2. Utility expenses incurred but not paid prior to January 31 totaled $520.

3. Purchased dental equipment on January 1 for $80,000, paying $20,000 in cash and signing a $60,000, 3-year note payable. The equipment depreciates $400 per month. Interest is $500 per month.

4. Purchased a one-year malpractice insurance policy on January 1 for $12,000.

5. Purchased $1,600 of dental supplies. On January 31, determined that $500 of supplies were on hand.

Instructions

Prepare the adjusting entries on January 31. (Omit explanations.) Account titles are Accumulated

Depreciation—Equipment, Depreciation Expense, Service Revenue, Accounts Receivable, Insurance

Expense, Interest Expense, Interest Payable, Prepaid Insurance, Supplies, Supplies Expense, Utilities Expense, and Accounts Payable.

The ledger of Duggan Rental Agency on March 31 of the current year includes the following selected accounts before adjusting entries have been prepared.

An analysis of the accounts shows the following.

1. The equipment depreciates $250 per month.

2. One-third of the unearned rent was recognized as revenue during the quarter.

3. Interest of $500 is accrued on the notes payable.

4. Supplies on hand total $850.

5. Insurance expires at the rate of $300 per month.

WATTEAU CO.

TRIAL BALANCE

JUNE 30, 2014

Debit Credit

Cash $ 2,870

Accounts Receivable $ 3,231

Supplies 800

Equipment 3,800

Accounts Payable 2,666

Unearned Service Revenue 1,200

Common Stock 6,000

Retained Earnings 3,000

Service Revenue 2,380

Salaries and Wages Expense 3,400

Offi ce Expense 940

$13,371 $16,916

Debit Credit

Prepaid Insurance $ 3,600

Supplies 2,800

Equipment 25,000

Accumulated Depreciation—Equipment $ 8,400

Notes Payable 20,000

Unearned Rent Revenue 9,300

Rent Revenue 60,000

Interest Expense –0–

Salaries and Wages Expense 14,000

Instructions

Prepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly. Additional accounts are Depreciation Expense, Insurance Expense, Interest Payable, and Supplies Expense. (Omit explanations.)

(Corrected Trial Balance) The trial balance of Watteau Co. (shown on the next page) does not balance.

Each of the listed accounts should have a normal balance per the general ledger. An examination of the ledger and journal reveals the following errors.

1. Cash received from a customer on account was debited for $570, and Accounts Receivable was credited for the same amount. The actual collection was for $750.

2. The purchase of a computer printer on account for $500 was recorded as a debit to Supplies for $500 and a credit to Accounts Payable for $500.

3. Services were performed on account for a client for $890. Accounts Receivable was debited for $890 and Service Revenue was credited for $89.

4. A payment of $65 for telephone charges was recorded as a debit to Office Expense for $65 and a debit to Cash for $65.

5. When the Unearned Service Revenue account was reviewed, it was found that service revenue amounting to $325 was performed prior to June 30 (related to Unearned Service Revenue).

6. A debit posting to Salaries and Wages Expense of $670 was omitted.

7. A payment on account for $206 was credited to Cash for $206 and credited to Accounts Payable for $260.

8. A dividend of $575 was debited to Salaries and Wages Expense for $575 and credited to Cash for $575.

Instructions

Prepare a correct trial balance. (Note: It may be necessary to add one or more accounts to the trial balance.)

The trial balance of Blues Traveler Corporation does not balance.

An examination of the ledger shows these errors.

1. Cash received from a customer on account was recorded (both debit and credit) as $1,380 instead of $1,830.

2. The purchase on account of a computer costing $3,200 was recorded as a debit to Office Expense and a credit to Accounts Payable.

3. Services were performed on account for a client, $2,250, for which Accounts Receivable was debited

$2,250 and Service Revenue was credited $225.

4. A payment of $95 for telephone charges was entered as a debit to Office Expense and a debit to Cash.

5. The Service Revenue account was totaled at $5,200 instead of $5,280.

Instructions

From this information prepare a corrected trial balance.

The trial balance of Wanda Landowska Company (shown on the next page) does not balance. Your review of the ledger reveals the following. (a) Each account had a normal balance. (b) The debit footings in Prepaid Insurance, Accounts Payable, and Property Tax Expense were each understated $100. (c) A transposition error was made in Accounts Receivable and Service Revenue; the correct balances for Accounts Receivable and Service Revenue are $2,750 and $6,690, respectively. (d) A debit posting to Advertising Expense of $300 was omitted. (e) A $1,500 cash drawing by the owner was debited to Owner’s Capital and credited to Cash.

Instructions

Prepare a correct trial balance.

Beverly Crusher is a licensed CPA. During the first month of operations of her business (a sole proprietorship), the following events and transactions occurred.

April 2 Invested $32,000 cash and equipment valued at $14,000 in the business.

2 Hired a secretary-receptionist at a salary of $290 per week payable monthly.

3 Purchased supplies on account $700. (Debit an asset account.)

7 Paid offi ce rent of $600 for the month.

11 Completed a tax assignment and billed client $1,100 for services rendered. (Use Service Revenue account.) 12 Received $3,200 advance on a management consulting engagement.

17 Received cash of $2,300 for services completed for Ferengi Co.

21 Paid insurance expense $110.

30 Paid secretary-receptionist $1,160 for the month.

30 A count of supplies indicated that $120 of supplies had been used.

30 Purchased a new computer for $6,100 with personal funds. (The computer will be used exclusively for business purposes.)

Instructions

Journalize the transactions in the general journal. (Omit explanations.)

Assume that Best Buy made a December 31 adjusting entry to debit Salaries and Wages Expense and credit Salaries and Wages Payable for $4,200 for one of its departments. On January 2, Best Buy paid the weekly payroll of $7,000. Prepare Best Buy’s (a) January 1 reversing entry; (b) January 2 entry (assuming the reversing entry was prepared); and (c) January 2 entry (assuming the reversing entry was not prepared).

Kelly Company had cash receipts from customers in 2014 of $142,000. Cash payments for operating expenses were $97,000. Kelly has determined that at January 1, accounts receivable was $13,000, and prepaid expenses were $17,500. At December 31, accounts receivable was $18,600, and prepaid expenses were $23,200. Compute (a) service revenue and (b) operating expenses.

Side Kicks has year-end account balances of Sales Revenue $808,900; Interest Revenue $13,500;

Cost of Goods Sold $556,200; Administrative Expenses $189,000; Income Tax Expense $35,100; and Dividends $18,900. Prepare the year-end closing entries.

At the end of its first year of operations, the trial balance of Alonzo Company shows Equipment

$30,000 and zero balances in Accumulated Depreciation—Equipment and Depreciation Expense. Depreciation for the year is estimated to be $2,000. Prepare the adjusting entry for depreciation at December 31, and indicate the balance sheet presentation for the equipment at December 31.

Prepare the following adjusting entries at August 31 for Walgreens.

(a) Interest on notes payable of $300 is accrued.

(b) Services performed but unbilled total $1,400.

(c) Salaries and wages earned by employees of $700 have not been recorded.

(d) Bad debt expense for year is $900.

Use the following account titles: Service Revenue, Accounts Receivable, Interest Expense, Interest Payable,Salaries and Wages Expense, Salaries and Wages Payable, Allowance for Doubtful Accounts, and Bad Debt Expense.