Week Two Exercise Assignment
Revenue and Expenses
1. Recognition of concepts. Jim Armstrong operates a small company that books enter¬tainers for theaters, parties, conventions, and so forth. The company’s fiscal year ends on June 30. Consider the following items and classify each as either (1) pre¬paid expense, (2) unearned revenue, (3) accrued expense, (4) accrued revenue, or (5) none of the foregoing.
a Interest owed on the company's bank loan, to be paid in early July Prepaid Expense
b Professional fees earned but not billed as of June 30 Accrued Revenue
c Office supplies on hand at year-end Prepaid Expense
d An advance payment from a client for a performance next month at ...view middle of the document...
By the end of December, one half of this amount had been earned. A. Adjustment of unearned income. B. Unearned Revenue $750 Accrued Revenue $750 C. Increased Revenue $750
• Sally Corporation provided $1,500 of services to Artech Corporation; no billing had been made by December 31. D. Adjustment to record an accrued revenue B. Accounts Receivable $1500 Debit, Services Revenue Credit $1500. C. Increase to total revenue $1500
• Salaries owed to employees at year-end amounted to $1,000. C. Adjustment to record an accrued expense B. Wages Expense (accrued wages) $1000 Debit, Wages payable (credit) $1000 C. Increase of total expenses $1000
• The Supplies account revealed a balance of $8,800, yet only $3,300 of supplies were actually on hand at the end of the period. A. adjust¬ment of a prepaid expense B. Supplies Expense $5,500 (DR), (CR) Supplies $5,500. C. Increase to total expenses by $1650
• The company paid $18,000 on October 1 of the current year to Vantage Property Management. The payment was for 6 months’ rent of Sally Corporation’s headquarters, beginning on November 1. A. adjust¬ment of a prepaid expense B. (DR) Rent Expense $6000 (CR) Prepaid Rent $6000 C. Increase in total expenses
Sally Corporation’s accounting year ends on December 31.
Analyze the five preceding cases individually and determine the following:
a. The type of adjusting entry needed at year-end (Use the following codes: A, adjust¬ment of a prepaid expense; B, adjustment of an unearned revenue; C, adjustment to record an accrued expense; or D, adjustment to record an accrued revenue.)
b. The year-end journal entry to adjust the accounts
c. The income statement impact of each adjustment (e.g., increases total revenues by $500)
4. Adjusting entries. You have been retained to examine the records of Mary’s Day Care Center as of December 31, 20X3, the close of the current reporting period. In the course of your examination, you discover the following:
• On January 1, 20X3, the Supplies account had a balance of $1,350. During the year, $5,520 worth of supplies was purchased, and a balance of $1,620 remained unused on December 31.
• Supplies expense Debit $5250, Supplies Credit $5250
• Unrecorded interest owed to the center totaled $275 as of December 31.
• Interest expense Debit $275, Interest payable Credit $275
• All clients pay tuition in advance, and their payments are credited to the Unearned Tuition Revenue account. The account was credited for $65,500 on August 31. With the exception of $15,500 all amounts were for the current semester ending on December 31.
• Unearned Tuition Revenue Debit $50000, Tuition Revenue Credit $5000
• Depreciation on the school’s van was $3,000 for the year.
• Depreciation Expense Debit $3000, Accumulated Depreciation School Van Credit $3000
• On August 1, the center began to pay rent in 6-month installments of $24,000. Mary wrote a check to the owner of the building and recorded the check in...