Chpt4 Question 1 Assignment Print View PDF

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10/3/21, 9:58 AM

1.

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



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Divtek’s Variety Store is completing the accounting process for the year just ended on December 31, 2020. The transactions during 2020 have been journalized and posted. The following data with respect to adjusting entries are available: a. Wages earned by employees during December 2020, unpaid and unrecorded at December 31, 2020, amounted to $2,700. The last payroll was December 28; the next payroll will be January 11, 2021. b. Office supplies inventory at January 1, 2020 was $450. Office supplies purchased and debited to office supplies inventory during the year amounted to $500. The year-end count showed $275 of supplies on hand. c. One-fourth of the basement space is rented to Heald’s Specialty Shop for $560 per month, payable monthly. On December 31, 2020, the rent for November and December 2020 had not been collected or recorded. Collection is expected January 10, 2021. d. The store used delivery equipment that cost $60,500; the estimated depreciation for 2020 was $12,100. e. On July 1, 2020, a two-year insurance premium amounting to $2,400 was paid in cash and debited in full to prepaid insurance. Coverage began on July 1, 2020. f. The remaining basement space of the store is rented for $1,600 per month to another merchant, M. Carlos Inc. Carlos sells compatible, but not competitive, merchandise. On November 1, 2020, the store collected six months’ rent in the amount of $9,600 in advance from Carlos; it was credited in full to deferred rent revenue when collected. g. Divtek’s Variety Store operates a repair shop to meet its own needs. The shop also does repairs for M. Carlos. At the end of December 31, 2020, Carlos had not paid $800 for completed repairs. This amount has not yet been recorded as repair shop revenue. Collection is expected during January 2021. Required: 1. Identify each of these transactions as a deferred revenue, deferred expense, accrued revenue, or accrued expense.

a.

Accrued expense



b.

Deferred expense



c.

Accrued revenue



d.

Deferred expense



e.

Deferred expense



f.

Deferred revenue



g.

Accrued revenue



2. Prepare for each situation the adjusting entry that should be recorded for Divtek’s Variety Store at December 31, 2020. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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10/3/21, 9:58 AM

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No

Transaction

1

a.

General Journal Wages payable Wages expense

2

b.

Office supplies inventory Office supplies expense

3

c.

Debit 

2,700

Credit 





500



1,120

Deferred rent revenue



1,120

d.

Accumulated depreciation – delivery equipment Depreciation expense

5

e.

Prepaid insurance

f.

1,120



12,500



12,500





2,400



g.

 



 





7







6

675



Rent revenue

4







Rent receivable

2,700



 

*Red text indicates no response was expected in a cell or a formula-based calculation is incorrect; no points deducted.

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References Worksheet

Learning Objective: 04-01 Explain the purpose of adjusting entries and analyze the adjustments necessary at the end of the period to update revenues and expenses and related statement of financial position accounts.

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Divtek’s Variety Store is completing the accounting process for the year just ended on December 31, 2020. The transactions during 2020 have been journalized and posted. The following data with respect to adjusting entries are available: a. Wages earned by employees during December 2020, unpaid and unrecorded at December 31, 2020, amounted to $2,700. The last payroll was December 28; the next payroll will be January 11, 2021. b. Office supplies inventory at January 1, 2020 was $450. Office supplies purchased and debited to office supplies inventory during the year amounted to $500. The year-end count showed $275 of supplies on hand. c. One-fourth of the basement space is rented to Heald’s Specialty Shop for $560 per month, payable monthly. On December 31, 2020, the rent for November and December 2020 had not been collected or recorded. Collection is expected January 10, 2021. d. The store used delivery equipment that cost $60,500; the estimated depreciation for 2020 was $12,100.

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e. On July 1, 2020, a two-year insurance premium amounting to $2,400 was paid in cash and debited in full to prepaid insurance. Coverage began on July 1, 2020. f. The remaining basement space of the store is rented for $1,600 per month to another merchant, M. Carlos Inc. Carlos sells compatible, but not competitive, merchandise. On November 1, 2020, the store collected six months’ rent in the amount of $9,600 in advance from Carlos; it was credited in full to deferred rent revenue when collected. g. Divtek’s Variety Store operates a repair shop to meet its own needs. The shop also does repairs for M. Carlos. At the end of December 31, 2020, Carlos had not paid $800 for completed repairs. This amount has not yet been recorded as repair shop revenue. Collection is expected during January 2021. Required: 1. Identify each of these transactions as a deferred revenue, deferred expense, accrued revenue, or accrued expense.

a. Accrued expense b. Deferred expense c. Accrued revenue d. Deferred expense e. Deferred expense f.

Deferred revenue

g. Accrued revenue

2. Prepare for each situation the adjusting entry that should be recorded for Divtek’s Variety Store at December 31, 2020. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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No

Transaction

1

a.

General Journal Wages expense

Debit

Credit

2,700

Wages payable

2

b.

Office supplies expense

2,700

675

Office supplies inventory

3

c.

Rent receivable

675

1,120

Rent revenue

4

d.

Depreciation expense

1,120

12,100

Accumulated depreciation – delivery equipment

5

e.

Insurance expense

12,100

600

Prepaid insurance

6

f.

Deferred rent revenue

600

3,200

Rent revenue

7

g.

Accounts receivables Repair shop revenue

3,200

800 800

 Explanation: 2. b. Supplies used in 2020 ($450 + $500 − $275) = $675. c. Rent earned in 2020 ($560 × 2) = $1,120. e. [$2,400 × (6/24 months)] = $600. f. ($1,600 × 2 months) = $3,200. 

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