Exam 3: Adjusting the Accounts

Percy's Kitchens paid $18,200 for a one-year insurance policy on January 1 and recorded the entire amount as prepaid insurance. Before preparing its March 31 financial statements the company should make which of the following adjusting entries?

Because accounting often requires estimates to be made to assess the effect of a transaction, the shorter the time period, the easier it becomes to determine the proper adjustments.

Which of the following is NOT a common accounting period chosen by businesses?

Ellis Company accumulates the following adjustment data at December 31. 1. Fees of $800 collected in advance have been earned. 2. Salaries of $600 are unpaid. 3. Prepaid rent totalling $450 has expired. 4. Supplies of $550 have been used. 5. Fees earned but unbilled total $750. 6. Utility expenses of $200 are unpaid. 7. Interest of $250 has accrued on a note payable. 8. Depreciation of office equipment is $300. Instructions a. For each of the above items indicate: i. The type of adjustment (prepaid expense, unearned revenue, accrued revenue, or accrued expense). ii. The account relationship (asset/liability, liability/revenue, etc.). iii. The status of account balances before adjustment (understatement or overstatement). iv. The accounts that will be affected. v. The profit effect. Prepare your answer in the tabular form presented below. The first item is shown for illustrative purposes.

In calculating depreciation, the number of years of useful life of the asset is

The following situations are independent: 1. Jane's Drywall Installation completes a $4,000 contract, starting work on June 16, and completing the work on July 15. The home builder pays them $1,000 in advance on June 15, $2,600 on July 15, and the balance ($400) when the home is sold in September. 2. An interior designer signs a contract in December, 2013 to provide design services to a home builder, related to decorating a new show home. The contract is valued at $25,000 and the designer receives a 10% down payment upon signing the contract. All design work is done during January 2014. On February 1, 2014 the show home opens to the public and the home builder pays the 90% balance remaining on the contract. 3. A lawyer has a meeting with a new client on April 15 and agrees to represent her in a legal case. The fee negotiated is to be based on the number of hours the lawyer spends on the case. At the end of the meeting, the client pays the lawyer $500 as a "retainer". The case involves research and negotiations that take place in May. On June 2, the lawyer invoices the client for $3,200 and the client pays the balance due ($2,700) in two equal instalments on June 15 and July 15. 4. On January 1 an insurance company receives $4,200 for a one year insurance policy that will expire on December 31. Instructions: For each situation, state in which month(s) the revenue will be recognized and calculate how much is recognized in each month, and explain why.

A new accountant working for Amherst Sobey's Store records $800 Depreciation Expense on store equipment on December 31 as follows: The effect of this entry is to

The cash basis of accounting is not in accordance with generally accepted accounting principles.

In 2013, Micro Marvels signed a $70,000 note payable for 2 years at 5%. Interest is payable monthly on the 10^th of each month. Micro has a December 31 year end, and adjusting entries are prepared at year end only. For calculation purposes assume each month has 30 days, and round amounts to the nearest dollar. Instructions Prepare the journal entries to record the following: a. Payment of interest on December 10 b. The adjusting entry to accrue interest at December 31 c. Payment of interest on January 10

Prepaid expenses are

The Moose Zoo operates a drive through tourist attraction in Manitoba. The company adjusts its accounts at the end of each month. The selected accounts appearing below reflect balances after adjusting entries were prepared on April 30. The adjusted trial balance shows the following: Other data: 1. Three months' rent had been prepaid on April 1. 2. The fencing is being depreciated over a five year period. 3. The unearned ticket revenue represents tickets sold for future zoo visits. The tickets were sold at $4.00 each on April 1. During April, twenty-five of the tickets were used by customers. Instructions a. Calculate the following: 1. Monthly rent expense. 2. The age of the fencing in months. 3. The number of tickets sold on April 1. b. Prepare the adjusting entries that were made by the Moose Zoo on April 30.

The Kookie Kutter Bakery purchased $6,500 worth of baking supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the baking supplies indicated only $3,000 on hand. The adjusting entry that should be made by the company on June 30 is

A company is required to prepare adjusting entries for its financial statements because

Adjusting journal entries are only necessary when year end financial statements are prepared.

In 2013, Florenceville Potatoes signed a $50,000 note receivable for 3 years at 5%. Interest is receivable monthly on the 20^th of each month. Florenceville has a December 31 year end, and adjusting entries are prepared at year end only. For calculation purposes assume each month has 30 days, and round amounts to the nearest dollar. Instructions Prepare the journal entries to record the following: a. Receipt of interest on December 20 b. The adjusting entry to accrue interest at December 31 c. Receipt of interest on January 20

An adjusting entry always involves two balance sheet accounts.

In January 2014, Edward started a business providing home repair services. The business is called Helpful Handyman, and the service is so popular that he has already hired 10 additional employees after being in business for just six months. On May 1 he rented an office with storage space for tools and supplies. It is now the end of June and he must prepare financial statements to present to his banker. The following amounts are taken from Helpful Handyman's unadjusted trial balance at June 30, 2014. Assume all accounts are their normal balance (Debit or Credit). Additional information about the accounting records: 1. The loan receivable was made to an employee on June 1 and the employee is to pay interest at 12% annually in monthly instalments starting July 1. 2. Edward normally invoices customers when the jobs are complete. At June 30, there was $5,000 of work that had been completed near month end for which invoices had not yet been issued. 3. The bank loan bears interest at 6% and was taken out on April 1. Interest payments are due quarterly, so no interest has yet been paid. 4. The last pay day before June 30 was on June 25. Since then, the 10 employees have worked an average of 25 hours each, at a wage of $8.50 per hour. 5. Rent is $2,000 per month. The June rent has not yet been paid. Instructions: a. Prepare any adjusting entries required at June 30, 2014 based on the above information. Accounts not listed above may need to be set up. a. Indicate whether the ending balances are Debit or Credit. b. Calculate the adjusted balances of the accounts listed above and any new accounts set up in part c. Assuming that unadjusted Profit of Helpful Handyman is $60,000. Calculate the adjusted Profit after the adjustments above have been made.

A company usually determines the amount of supplies used during a period by

The balance sheets of Yin Company include the following: The income statement for 2014 shows the following: Instructions Calculate the following for 2014: 1. Cash received for interest. 2. Cash paid for supplies. 3. Cash paid for wages. 4. Cash received for services.