2-2 Problem Set - Chapters 3 & 4 (100%) PDF

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9/12/2020

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Accounts Requiring Adjustment Indicate with a Yes or No whether or not each of the following accounts normally requires an adjusting entry: a. Building

No

b. Cash

No

c. Wages Expense

Yes

d. Miscellaneous Expense No e. Common Stock

No

f. Prepaid Insurance

Yes

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Four different categories of adjusting entries include prepaid expenses (deferred expenses), unearned revenues (deferred revenues), accrued expenses (accrued liabilities), and accrued revenues (accrued assets). All adjusting entries affect at least one income statement account and one balance sheet account. As you go through each of these, consider the other possible side of the transaction that may or may not result in recording an adjusting entry. Does your entry always involve a revenue or an expense account and an asset or a liability account? Learning Objective 1, Learning Objective 2 and Learning Objective 3.

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Adjustment for accrued expense

Instructions Prospect Realty Co. pays weekly salaries of $27,600 on Monday for a six-day workweek ending the preceding Saturday.

Journalize the necessary adjusting entry at the end of the accounting period, assuming that the period ends on Friday. Refer to the Chart of Accounts for exact wording of account titles.

Chart of Accounts

CHART OF ACCOUNTS Prospect Realty Co. General Ledger

ASSETS

REVENUE

11 Cash

41 Fees Earned

12 Accounts Receivable EXPENSES

13 Supplies 14 Prepaid Insurance

51 Advertising Expense

15 Land

52 Insurance Expense

16 Equipment

53 Rent Expense

17 Accumulated Depreciation-Equipment

54 Salaries Expense 55 Supplies Expense 56 Utilities Expense

LIABILITIES 21 Accounts Payable

57 Depreciation Expense

22 Unearned Fees

59 Miscellaneous Expense

23 Salaries Payable 24 Taxes Payable

EQUITY 31 Common Stock 32 Retained Earnings 33 Dividends

Journal

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Journalize the necessary adjusting entry at the end of the accounting period, assuming that the period ends on Friday, July 31. Refer to the Chart of Accounts for exact wording of account titles.

How does grading work? PAGE 10

JOURNAL DATE

DESCRIPTION



1

POST. REF.

Adjusting Entries ✔

Jul. 31

2

Score: 25/25

✔

Salaries Expense ✔

Salaries Payable

3

DEBIT

CREDIT







23,000.00





ACCOUNTING EQUATION ASSETS

LIABILITIES





EQUITY



✔

↓ ✔

23,000.00

↑

Points:

5/5

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Some types of services used in earning revenues are paid for after the service has been performed. In such cases, the expense is increased. When does the accounting period end? Multiply the daily amount times this number of days to obtain the accrual amount.

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Adjustment for prepaid expense

Instructions The prepaid insurance account had a beginning balance of $4,500 and was debited for $16,600 of premiums paid during the year.

Journalize the adjusting entry required at the end of the year, assuming the amount of unexpired insurance related to future periods is $5,600. Refer to the Chart of Accounts for exact wording of account titles.

Chart of Accounts

CHART OF ACCOUNTS General Ledger

REVENUE

ASSETS

41 Fees Earned

11 Cash 12 Accounts Receivable

EXPENSES

13 Supplies 14 Prepaid Insurance

51 Advertising Expense

15 Land

52 Insurance Expense

16 Equipment

53 Rent Expense

17 Accumulated Depreciation-Equipment

54 Salary Expense 55 Supplies Expense 56 Utilities Expense

LIABILITIES 21 Accounts Payable

57 Depreciation Expense

22 Unearned Fees

59 Miscellaneous Expense

23 Salaries Payable 24 Taxes Payable

EQUITY 31 Common Stock 32 Retained Earnings 33 Dividends

Journal

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Journalize the adjusting entry required at the end of the year (December 31), assuming the amount of unexpired insurance related to future periods is $5,600. Refer to the Chart of Accounts for exact wording of account titles.

How does grading work? PAGE 10

JOURNAL DATE

Score: 25/25

DESCRIPTION

1



2

Dec. 31

POST. REF.

Adjusting Entries ✔

✔

Insurance Expense ✔

Prepaid Insurance

3

DEBIT

CREDIT







15,500.00





ACCOUNTING EQUATION ASSETS

LIABILITIES





EQUITY



✔

↓ ✔

15,500.00

↓

Points:

5/5

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Set up a Prepaid Insurance T-account. Recall that prepaid insurance expires and becomes an expense with the passage of time. The insurance expense is the amount needed to arrive at the given ending balance. Premiums paid are increases to the account. The unexpired amount is the ending balance to the account. Solve for the expense by keeping in mind that the beginning balance of prepaid insurance plus premiums paid minus the insurance expense (expired) equals the ending balance of prepaid insurance. Complete your adjusting entry by making sure that it affects at least one income statement account and one balance sheet account.

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Effect of Errors on Adjusted Trial Balance For each of the following errors, considered individually, indicate whether the error would cause the adjusted trial balance totals to be unequal. If the error would cause the adjusted trial balance totals to be unequal, indicate whether the debit or credit total is higher and by how much. a. The adjustment for accrued wages of $5,200 was journalized as a debit to Wages Expense for $5,200 and a credit to Accounts Payable for $5,200. The totals are equal. Enter the difference between the debit and credit totals. If the totals are equal, enter a zero. $

✔

0 b. The entry for $1,125 of supplies used during the period was journalized as a debit to Supplies Expense of $1,125 and a credit to Supplies of $1,152. The totals are unequal; the credit total is higher. Enter the difference between the debit and credit totals. If the totals are equal, enter a zero. $

✔

27

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a. Recall that the trial balance does not provide complete proof of the accuracy of the ledger, but indicates only that debits equal credits. Though the transaction may have been handled incorrectly, did the selection of the wrong account to credit cause the debit and credit column totals to be unequal? b. Recall that the trial balance does not provide complete proof of the accuracy of the ledger, but indicates only that debits equal credits. Were the correct amounts recorded? If not, what is the difference and on which side of the T-account is it higher? Learning Objective 6 .

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Adjusting entries for accrued salaries

Instructions Garcia Realty Co. pays weekly salaries of $17,250 on Friday for a five-day workweek ending on that day.

Journalize the necessary adjusting entry at the end of the accounting period, assuming that the period ends (a) on Wednesday and (b) on Thursday. Refer to the Chart of Accounts for exact wording of account titles.

Chart of Accounts

CHART OF ACCOUNTS Garcia Realty Co. General Ledger

REVENUE

ASSETS

41 Fees Earned

11 Cash 12 Accounts Receivable

EXPENSES

13 Supplies 14 Prepaid Insurance

51 Advertising Expense

15 Land

52 Insurance Expense

16 Equipment

53 Rent Expense

17 Accumulated Depreciation-Equipment

54 Salaries Expense 55 Supplies Expense

LIABILITIES

56 Utilities Expense

21 Accounts Payable

57 Depreciation Expense

22 Unearned Fees

59 Miscellaneous Expense

23 Salaries Payable 24 Taxes Payable

EQUITY 31 Common Stock 32 Retained Earnings 33 Dividends

Journal

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(a) Journalize the necessary adjusting entry at the end of the accounting period, assuming that the period ends on Wednesday, March 31. Refer to the Chart of Accounts for exact wording of account titles.

How does grading work? PAGE 1

JOURNAL DATE

Score: 25/25

DESCRIPTION

1



2

Mar. 31

POST. REF.

Adjusting Entries ✔

✔

Salaries Expense ✔

3

Salaries Payable

DEBIT

CREDIT







10,350.00





ACCOUNTING EQUATION ASSETS

LIABILITIES





EQUITY



✔

↓ ✔

10,350.00

↑

Points:

5/5

(b) Journalize the necessary adjusting entry at the end of the accounting period, assuming that the period ends on Thursday, March 31. Refer to the Chart of Accounts for exact wording of account titles.

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How does grading work? PAGE 1

JOURNAL DATE

DESCRIPTION



1

POST. REF.

Adjusting Entries ✔

2

Score: 25/25

Mar. 31

 ✔

Salaries Expense ✔

Salaries Payable

3



DEBIT

CREDIT





ACCOUNTING EQUATION ASSETS

LIABILITIES

EQUITY







✔

↓

13,800.00



✔

13,800.00

↑

Points:

5/5

Feedback Check My Work a. & b. Some types of services used in earning revenues are paid for after the service has been performed. In such cases, the expense is increased. When does the accounting period end? Multiply the daily amount times this number of days to obtain the accrual amount in each situation.

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Effect of Omitting Adjusting Entry Accrued salaries owed to employees for October 30 and 31 are not considered in preparing the financial statements for the year ended October 31. Indicate which items will be erroneously stated, because of the error, on (A) the income statement for the year and (B) the balance sheet as of October 31. Also indicate whether the items in error will be overstated or understated. a.

Income Statement

Salaries Expense Understated Net Income b.

Overstated

Balance Sheet

Salaries Payable

Understated

Stockholders' Equity Overstated Feedback

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In essence, this mistake results in failing to record part of the salaries expense and their corresponding liability. The effect of omitting an adjusting entry on Net Income is the same as the effect on Stockholders' Equity. Also, keep in mind that the accounting equation is a depiction of the balance sheet, so understated liabilities will result in overstated Stockholders' Equity. Learning Objective 2 and Learning Objective 5.

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Adjusting Entry for Supplies The balance in the supplies account, before adjustment at the end of the year, is $4,850. Journalize the adjusting entry required if the amount of supplies on hand at the end of the year is $880.

✔ Supplies Expense

3,970

✔ Supplies

3,970

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Set up a Supplies T-account. Purchases are increases to the account. 'On hand' is what is left, or the ending supplies balance. The amount used decreases supplies and is the supplies expense amount. Solve for the expense by keeping in mind that the beginning balance plus purchases (none mentioned) minus the supplies (used) expense equals the ending balance of supplies. Complete your adjusting entry by making sure that it affects at least one income statement account and one balance sheet account. Learning Objective 3 .

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Adjusting Entries for Prepaid Insurance The balance in the prepaid insurance account, before adjustment at the end of the year, is $27,000. Journalize the adjusting entry required under each of the following alternatives for determining the amount of the adjustment: a. The amount of insurance expired during the year is $20,250.

✔ Insurance Expense

20,250

✔ Prepaid Insurance

20,250

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Set up a Prepaid Insurance T-account. Consider each situation by recalling that prepaid insurance expires and becomes an expense with the passage of time. The insurance expense is the amount needed to arrive at the given ending balance. Complete your adjusting entry by making sure that the entry affects at least one income statement account and one balance sheet account. Learning Objective 3 .

b. The amount of unexpired insurance applicable to future periods is $6,750.

✔ Insurance Expense

20,250

✔ Prepaid Insurance

20,250

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The unexpired amount is the ending balance to the account. Learning Objective 3 .

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Correct

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Flow of Accounts into Financial Statements The balances for the accounts that follow appear in the Adjusted Trial Balance columns of the end-of-period spreadsheet. Indicate whether each account would flow into the income statement, retained earnings statement, or balance sheet. 1. Accumulated Depreciation—Building Balance sheet 2. Cash

Balance sheet

3. Fees Earned

Income statement

4. Insurance Expense

Income statement

5. Prepaid Rent

Balance sheet

6. Supplies

Balance sheet

7. Dividends

Retained earnings statement

8. Wages Expense

Income statement

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Revenue and expense accounts flow into the income statement, and asset, liability, and stockholders' equity accounts flow into the balance sheet. Net income and the dividends account flow into the statement of retained earnings. Learning Objective 1.

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Retained earnings statement

Instructions Blake Knudson owns and operates Grab Bag Delivery Services. On January 1, 2018, Retained Earnings had a balance of $918,000. During the year, no additional common stock was issued, and $15,000 of dividends were paid. For the year ended December 31, 2018, Grab Bag Delivery reported a net loss of $43,500.

Prepare a retained earnings statement for the year ended December 31, 2018. If a net loss is incurred or dividends were paid, enter that amount as a negative number using a minus sign. Refer to the list of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the heading of the statement.

Labels and Amount Descriptions

Labels December 31, 2018 For the Year Ended December 31, 2018 For the Year Ended January 1, 2018 January 1, 2018 Amount Descriptions Additional investment during 2018 Change in retained earnings Dividends Retained earnings, January 1, 2018 Retained earnings, December 31, 2018 Net income Net loss

Retained Earnings Statement

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