ACCY 201 Exam 1 Study Guide

Prepare adjusting journal entries on December 31 (in proper form) to record the following unrelated year-end adjustments for Bryce Company.

a.Bryce Company employs 5 employees whom each earn $100 per day for a five-day workweek. (Monday-Friday). The employees were last paid on Friday, December 27 and have worked full days on Monday (Dec 30) and Tuesday (Dec 31).

b.On October 1, Bryce Company received an advance payment of $6,000 for consulting services to cover a 6-month period. The original $6,000 was credited to Unearned Consulting Revenue.

c. Bryce Company performed $2,000 worth of consulting services to a client, but the client has not yet paid.

d. Estimated depreciation on office equipment for the year is $2,500.

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a. Dec. 31 Salaries Expense................................................................ 1,000Salaries Payable......................................................... 1,000

How did we get that answer??:

DECEMBER

Sunday Monday Tuesday Wednesday Thursday Friday Saturday

27P Pay

Day!

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29 30

Employees:

We worked today but we haven’t been paid for today!!! The 5 of us in total EARNED $500 today!!

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Employees:

We worked today but we haven’t been paid for today!!! The 5 of us in total EARNED $500 today!!

So as of Dec 31, the 5 employees worked 2 days (earned $1,000) but they have not been paid, therefore, you haven’t recorded that expense yet. So we must do an adjusting entry to record the expense and the liability (since we have not paid them yet-so we’re LIABLE to pay them later).

b. Dec. 31 Unearned Consulting Revenue......................................... 3,000Consulting Revenue Earned..................................... 3,000

Or

Dec. 31 Unearned Consulting Revenue......................................... 3,000Consulting Revenue.................................................. 3,000

Either is fine

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How did we get that answer??:Originally (on Oct 1) we did the entry Oct 1 Cash..................................................................................... 6,000

Unearned Consulting Revenue................................. 6,000But as of Dec 31, we have earned 3 months worth (all of Oct, all of Nov, all of Dec). So we should reduce the liability by half (the debit) and recognize half of the revenue (since we now earned it)(the credit).

c. Dec. 31 Accounts Receivable.......................................................... 2,000Consulting Revenue Earned..................................... 2,000

Or

Dec. 31 Accounts Receivable.......................................................... 2,000Consulting Revenue.................................................. 2,000

d. Dec. 31 Depreciation Expense – Office Equipment...................... 2,500Accumulated Depreciation – Office Equipment...... 2,500

[Note]Remember the DEAD entry?!

Depreciation Expense

Accumulated Depreciation

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Wigor Inc. completed the following transactions during the year ended December 31, 2009, its first year of operations:

a. Bill Wiggins personally invests $30,000 in the new business in exchange for common stock and deposits the cash in a bank account opened under the name of Wigor Inc.

b. Equipment for use in the business was purchased for $9,000. Two-thirds of the price was paid in cash; the rest was due in a year.

c. Service fees earned were $60,000; $6,000 of this was on credit.

d. Operating expenses incurred were $35,000; $4,000 was on credit.

e. Wigor Co. collected half the money owed to it.

f. Wigor Co. paid off $2,000 it owed.

g. Wiggins bought a car for $12,000 for his personal use, half paid for now from his personal savings and half to be paid in a year.

Required:

1. Prepare journal entries for each of the events.

2. Prepare a trial balance at the end of the year for Wigor Inc.

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1. Dr. Cr.

a. Cash............................................................... 30,000Common Stock....................................... 30,000

b. Equipment.................................................... 9,000Cash........................................................ 6,000Accounts Payable................................... 3,000

c. Cash............................................................... 54,000Accounts Receivable.................................... 6,000

Service Fee Earned................................ 60,000

d. Operating Expenses..................................... 35,000Cash........................................................ 31,000Accounts Payable................................... 4,000

e. Cash............................................................... 3,000Accounts Receivable.............................. 3,000

f. Accounts Payable......................................... 2,000Cash........................................................ 2,000

g. No entry because this is a personal transactions

2.WIGOR INC.Trial Balance

December 31, 2009Dr. Cr.

Cash..................................................................................... $48,000Accounts receivable............................................................ 3,000Equipment........................................................................... 9,000Accounts payable................................................................ $ 5,000Common Stock................................................................... 30,000Service fees earned............................................................. 60,000Operating expenses............................................................ 35,000 ______Totals................................................................................... $95,000 $95,000

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On July 1, 2009, Howard M. Tenant, Inc., rents office space from John Q. Landlord for two years, starting immediately, at a rate of $100 per month, or $2,400 in total. The full $2,400 was paid on this date.

Required:

Record the original transaction and the appropriate adjusting entries in 2009, 2010, and 2011 from the point of view of Tenant and Landlord.

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Tenant Landlord7/1/09Prepaid Rent.................... 2,400 Cash.................................. 2,400

Cash 2,400 Unearned Rent Rev......................... 2,400

12/31/09Rent Expense................... 600 Unearned Rent Rev. 600

Prepaid Rent........... 600 Rent Revenue 60012/31/10Rent Expense................... 1,200 Unearned Rent Rev. 1,200

Prepaid Rent........... 1,200 Rent Revenue 1,20012/31/11Rent Expense................... 600 Unearned Rent Rev. 600

Prepaid Rent........... 600 Rent Revenue 600

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The trial balance of Large Company, Inc. at the end of its annual accounting period is as follows:

LARGE COMPANY, INC.Trial Balance

December 31, 2009

Cash................................................................................... $ 4,000Prepaid Insurance............................................................ 1,600Supplies ............................................................................ 2,100Equipment ....................................................................... 20,000Accumulated depreciation equipment........................... $ 2,000Common stock ................................................................. 10,000Retained earnings............................................................ 7,000Revenue............................................................................. 33,000Salaries expense................................................................ 18,300Rent expense .................................................................... 6,000 ______Totals................................................................................. $52,000 $52,000

Additional information:

Expired insurance, $600.

Unused supplies, per inventory, $800.

Estimated depreciation, $1,000.

Earned but unpaid salaries, $700.

Required:

1. Prepare adjusting entries.

2. Prepare closing entries.

3. Prepare a post-closing trial balance.

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1. Insurance Expense............................................................ 600

Prepaid Insurance..................................................... 600

Supplies Expense............................................................... 1,300

Supplies...................................................................... 1,300

Depreciation Expense Equip............................................ 1,000

Accumulated Depreciation Equip........................... 1,000

Salaries Expense................................................................ 700

Salaries Payable........................................................ 700

2. Revenue.............................................................................. 33,000

Income Summary...................................................... 33,000

Income Summary.............................................................. 27,900

Salaries Expense........................................................ 19,000

Rent Expense............................................................. 6,000

Insurance Expense.................................................... 600

Supplies Expense....................................................... 1,300

Depreciation Expense............................................... 1,000

Income Summary.............................................................. 5,100

Retained Earnings..................................................... 5,100

3. LARGE COMPANY, INC.Post-Closing Trial Balance

December 31, 2009

Dr. Cr.

Cash.................................................................................... $4,000

Prepaid Insurance............................................................. 1,000

Supplies.............................................................................. 800

Equipment......................................................................... 20,000

Accumulated depreciation, equipment........................... $ 3,000

Salaries payable................................................................. 700

Common stock................................................................... 10,000

Retained earnings............................................................. ______ 12,100

Totals.................................................................................. $25,800 $25,800

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The following information for Nelsen Company is available on June 30, 2005, the end of a monthly accounting period. You are to prepare the necessary adjusting journal entries for Nelsen Company for the month of June for each situation given. Appropriate adjusting entries had been recorded in previous months. You may omit journal entry explanations.

1. Nelsen Company purchased a 2-year insurance policy on February 1, 2005 and debited Prepaid Insurance for $1,800.

2. On January 1, 2005, a tenant in an apartment building owned by Nelsen Company paid $5,700 which represents six months' rent in advance. The amount received was credited to the Unearned Rent account.

3. On June 1, 2005, the balance in the Office Supplies account was $200. During June, office supplies costing $480 were purchased. A physical count of office supplies at June 30 revealed that there was $240 still on hand.

4. On March 31, 2005, Nelsen Company purchased a delivery van for $42,000. It is estimated that the annual depreciation will be $6,000.

5. Nelsen Company has two employees who earn $80 and $120 per day, respectively. They are paid each Friday for a five-day work week that begins each Monday. Assume June 30 is a Wednesday in 2005.

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1. Insurance Expense .............................................................................................. 75 Prepaid Insurance ..................................................................................... 75

2. Unearned Rent ..................................................................................................... 950 Rent Revenue ............................................................................................ 950

3. Office Supplies Expense ..................................................................................... 440 Office Supplies .......................................................................................... 440

4. Depreciation Expense – Delivery Van................................................................. 500 Accumulated Depreciation—Delivery Van .............................................. 500

5. Salaries Expense ................................................................................................. 600 Salaries Payable ........................................................................................ 600

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As of Dec 31, 2008, a company had $50,000 worth of assets. During 2009, liabilities decreased by $10,000 and at Dec 31, 2009 they equaled $30,000. Assets increased $5,000 during 2009. Calculate the beginning and ending values of equity? 

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Assets = Liabilities + EquityBeg. 50,000 40,000 10,000Activity 5,000 (10,000) 15,000End. 55,000 30,000 25,000

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14. An adjusted trial balance a. is prepared after the financial statements have been prepared. b. proves the equality of the debits and the credits of the ledger accounts. c. is required by GAAP. d. is prepared after the post-closing trial balance.

Use the following information from the Income Statement for the month of June, 2006 of Little’s Housesitting Enterprises to answer questions 16-20. Revenues $7,000 Expenses: Wages Expense $2,000 Advertising Expense 200 Rent Expense 1,000 Supplies Expense 300 Insurance Expense 100 Total expenses 3,600 Net income $3,400

16. The entry to close the revenue account includes a. a debit to Income Summary for $3,400. b. a credit to Income Summary for $3,400. c. a debit to Income Summary for $7,000. d. a credit to Income Summary for $7,000.

17. The entry to close the expense accounts includes a. a debit to Income Summary for $3,400. b. a credit to Rent Expense for $1,000, c. a credit to Income Summary for $3,600. d. a debit to Wages Expense for $2,000.

18. After the revenue and expense accounts have been closed, the balance in Income Summary will be a. $0. b. a debit balance of $3,400. c. a credit balance of $3,400. d. a credit balance of $7,000.

19.The entry to close Income Summary to Retained Earnings includes a. a debit to Revenue for $7,000. b. credits to Expenses totalling $3,600. c. a credit to Income Summary for $3,400 d. a credit to Retained Earnings for $3,400.

20. At June 1, 2006, Pet Sitters reported Retained Earnings of $35,000. The company paid no dividends during June. At June 30, 2006, the company will report a Retained Earnings balance of a. $35,000 credit. b. $42,000 credit. c. $38,400 credit. d. $31,600 credit.

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14. B 16. D 17. B 18. C 19. D 20. C

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11. The standards and rules that are recognized as a general guide for financial reporting are called a. generally accepted accounting standards. b. generally accepted accounting principles. c. operating guidelines. d. standards of financial reporting

14. Which of the following is not a goal of financial reporting? a. To provide information that is useful to those making investment decisions b. To provide information that is useful to those making credit decisions c. To provide information that is useful in understanding everything about the company d. To provide information that identifies changes in resources and claims

15. Which one of the following is not a qualitative characteristic of useful accounting information? a. Relevance b. Reliability c. Materiality d. Comparability

16. In order for accounting information to be relevant, it must a. have very little cost. b. have predictive or feedback value. c. not be reported to the public. d. be used by a lot of different firms.

17. Accounting information should be verifiable in order to enhance a. comparability. b. reliability. c. consistency. d. feedback value.

18. The assumption that states that the activities of each company be kept separate from the activities of its owners and all other companies is the a. economic entity assumption. b. going concern assumption. c. monetary unit assumption. d. time period assumption.

19. The economic entity assumption states that a. the economic life of a business can be divided into artificial time periods. b. economic events can be identified with a particular entity. c. the accounting period should not exceed one year. d. it is assumed that the business will operate indefinitely.

20. The going concern assumption assumes that the business a. will be liquidated in the near future. b. will be purchased by another business. c. is in a growth industry. d. will continue in operation long enough to carry out its existing objectives and commitments.

21. The time period assumption states that the economic life of a business can be divided into a. equal time periods. b. cyclical time periods. c. artificial time periods. d. perpetual time periods.

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22. The basic principles of accounting include each of the following except the a. cost principle. b. full disclosure principle. c. going concern principle. d. matching principle.

23. The revenue recognition principle a. states that revenue should be recognized in the period when received. b. states that expense recognition is tied to revenue recognition. c. requires that revenue be recognized in the accounting period when it is earned. d. requires that events which make a difference to financial statement users be disclosed.

24. The principle that dictates that expense be matched with revenues in the period in which efforts are made to generate revenues is the a. revenue recognition principle. b. matching principle. c. cost expiration principle. d. cash flow principle.

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11. B 14. C 15. C 16. B 17. B 18. A 19. B 20. D 21. C 22. C – It’s the going concern assumption, not principle23. C 24. B

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Part 1Company A

(a) Equity on December 31, 2008:

Assets...................................................................... $33,000 Liabilities................................................................. (27,060)Equity ...................................................................... $ 5,940

(b) Equity on December 31, 2009:

Equity, December 31, 2008..................................... $ 5,940 Plus owner investments......................................... 6,000 Plus net income...................................................... 7,760 Less cash dividends............................................... (3,500)Equity, December 31, 2009.................................... $16,200

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(c) Liabilities on December 31, 2009:

Assets...................................................................... $36,000 Equity ...................................................................... (16,200)Liabilities................................................................. $19,800

The way I would work the problem: First, fill in all the info the problem gives you for Company A (in green). Next, fill in the blanks (in blue) Assets of 33,000 – liabilities of 27,060 = 5,940 of equity (beginning balance). Assets increased from 33,000 to 36,000, so there must have been an increase of 3,000 during 2009. The beginning balance of equity was 5,940 and we know that during 2009 there was an increase of 10,260 (+7,760+6,000-3,500). So the ending balance of equity is 16,200. Assets of 36,000 – equity of 16,200 = 19,800 of liabilities (ending balance). Beg. Bal. of liabilities was 27,060 and the end. Bal. was 19,800, so the activity during 2009 must have been a decrease of 7,260. [This particular problem doesn’t ask you for the liabilities during 2009, but this is how I would find any missing info.

Assets = Liabilities + Equity

+Net Income* + Common Stock - Dividends

Beginning

Balance

(12/31/08) 33,000 27,060 5,940

During 2009

(Activity) 3,000 (7,260) +7,760+6,000-3,500

Ending

Balance

(12/31/09) 36,000 19,800 16,200

*Net Income is +Revenues - Expenses

Part 2Company B

(a) and (b)

Equity: 12/31/2008 12/31/2009

Assets............................................ $25,740 $25,920 Liabilities....................................... (18,018) (17,625) Equity............................................ $ 7,722 $ 8,295

(c) Net income for 2009: Equity, December 31, 2008.................................. $ 7,722 Plus owner investments...................................... 1,400 Plus net income................................................... ? Less cash dividends............................................ (2,000)

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Equity, December 31, 2009.................................. $ 8,295

Therefore, net income must have been $ 1,173

Part 3Company C

First, calculate the beginning balance of equity:Dec. 31, 2008

Assets...................................................................... $21,120 Liabilities................................................................. (11,404)Equity ...................................................................... $ 9,716

Next, find the ending balance of equity by completing this table:

Equity, December 31, 2008..................................... $ 9,716Plus owner investments......................................... 9,750Less net loss........................................................... (1,289)Less cash dividends............................................... (5,875)Equity, December 31, 2009..................................... $12,302

Finally, find the ending amount of assets by adding the ending balance of equity to the ending balance of liabilities:

Dec. 31, 2009

Liabilities................................................................. $11,818Equity ...................................................................... 12,302Assets...................................................................... $24,120

Part 4Company D

First, calculate the beginning and ending equity balances:12/31/2008 12/31/2009

Assets............................................... $58,740 $65,520 Liabilities.......................................... (40,530) (31,449)Equity ............................................... $18,210 $34,071

Then, find the amount of owner investments during 2009:

Equity, December 31, 2008........................................ $18,210 Plus owner investments............................................ ?  Plus net income......................................................... 8,861Less cash dividends.................................................. 0Equity, December 31, 2009........................................ $34,071

Thus, owner investments must have been.............. $ 7,000

Part 5

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Company E

First, compute the balance of equity as of December 31, 2009:

Assets...................................................................... $ 99,360 Liabilities................................................................ (78,494)Equity ...................................................................... $ 20,866

Next, find the beginning balance of equity as follows:

Equity, December 31, 2008..................................... $ ?  Plus owner investments......................................... 6,500 Plus net income...................................................... 7,348 Less cash dividends............................................... (11,000)Equity, December 31, 2009.................................... $20,866

Thus, the beginning balance of equity is: $18,018

Finally, find the beginning amount of liabilities by subtracting the beginning balance of equity from the beginning balance of assets:

Dec. 31, 2008

Assets...................................................................... $90,090Equity ...................................................................... (18,018)Liabilities................................................................ $72,072

2. Taco Hut pays the current month’s rent, $600. This transaction a. increases revenues by $600. b. increases assets by $600. c. decreases liabilities by $600. d. decreases stockholders’ equity by $600.

3. A corporation with total stockholders’ equity of $85,000 paid a $5,000 business debt. As a result of this transaction, total stockholders’ equity a. did not change. b. increased by $5,000.

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c. decreased by $5,000. d. increased to $90,000.

4. The right side of an account is always a. the debit side. b. the credit side. c. the balance of that account. d. carried forward to the next accounting period.

5. Posting is the process of a. preparing a chart of accounts. b. adding a column of figures. c. transferring journal entries to ledger accounts. d. recording entries in a journal.

6. Warton Company depreciates its equipment at the rate of $500 per month. The January 31 entry to record depreciation expense would include a. a debit to Equipment for $500. b. a credit to Retained Earnings for $500. c. a credit to Accumulated Depreciation for $500. d. a credit to Depreciation Expense for $500.

7. Logan Company debited Prepaid Insurance for $960 on July 1, 2005 for a one-year fire insurance policy. If the company prepares monthly financial statements, failure to make an adjusting entry on July 31 for the amount of insurance that has expired would cause a. assets to be overstated by $960 and expenses to be understated by $960. b. expenses to be overstated by $80 and assets to be understated by $80. c. assets to be overstated by $80 and expenses to be understated by $80. d. expenses to be overstated by $960 and assets to be understated by $960.

8. Which one of the following accounts is not closed at the end of an accounting period? a. Common Stock b. Dividends c. Service Revenue d. Insurance Expense

9. The second set of debit and credit columns on a work sheet is generally used for a. closing entries. b. the trial balance. c. the balance sheet figures. d. the adjustments. 2. d 3. a 4. b5. c6. c7. c8. a9. d

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Match the items below by entering the appropriate letter in the space. ____ 1. Partnership ____ 2. Liabilities ____ 3. Accrued expenses ____ 4. General ledger ____ 5. Matching principle ____ 6. Unearned revenues ____ 7. Income summary ____ 8. Intangible assets ____ 9. Depreciation

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A. A liability created when cash is received in advance of performing a service for a customer. B. Noncurrent resources that do not have a physical substance. C. An economic entity which is not a separate legal entity. D. The process of allocating the cost of an asset to expense over its useful life. E. The matching of efforts (expenses) with accomplishments (revenues). F. Creditor’s claims on total assets. G. A temporary account used in closing revenue and expense accounts. H. Contains all assets, liabilities, and stockholders’ equity accounts. I. Expenses incurred but not yet paid in cash or recorded

1. C 2. F 3. I 4. H5. E6. A7. G8. B9. D

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The end of the period account balances after adjustments of Dryer Cleaners and Laundry are as follows:

Account Balances (After Adjustments)

Cash $ 9,000 Cleaning Supplies 3,500 Prepaid Rent 3,600 Equipment 128,000 Accumulated Depreciation—Equipment 20,000 Accounts Payable 8,500 Retained Earnings 6,400

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Common Stock 100,000 Dividends 8,000 Dry Cleaning Revenues 25,000 Laundry Revenues 4,000 Cleaning Supplies Expense 5,000 Depreciation Expense 3,000 Rent Expense 900 Salaries Expense 2,400 Utilities Expense 500

Instructions Prepare the end of the period closing entries for Dryer Cleaners and Laundry. You may omit journal entry explanations.

Dry Cleaning Revenues ............................................................................................. 25,000 Laundry Revenues ...................................................................................................... 4,000

Income Summary ..................................................................................................... 29,000

Income Summary ........................................................................................................ 11,800 Cleaning Supplies Expense ..................................................................................... 5,000 Depreciation Expense .............................................................................................. 3,000 Rent Expense ............................................................................................................. 900 Salaries Expense ....................................................................................................... 2,400 Utilities Expense ........................................................................................................ 500

Income Summary ........................................................................................................ 17,200 Retained Earnings..................................................................................................... 17,200

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Retained Earnings........................................................................................................ 8,000 Dividends................................................................................................................... 8,000

1. The periodicity principle assumes that an organization's activities can be divided into specific time periods including:

a.  Months

b.  Quarters

c.  Years

d.  All of the above. 2. The accounting principle that requires revenue to be reported when earned is the:

a.  Matching Principle.

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b.  Revenue Recognition Principle

c.  Time Period Principle

d.  Going-Concern Principle. 3. Adjusting entries

a.  Affect only income statement accounts.

b.  Affect only balance sheet accounts.

c.  Affect both income statement and balance sheet accounts.

d.  Affect only cash flow statement accounts. 4. Revenues, expenses, and owner's withdrawal accounts, which are closed at the end of each accounting period,

are referred to as:

a.  Real Accounts

b.  Temporary Accounts

c.  Closing Accounts

d.  Permanent Accounts 5. The recurring steps performed each accounting period, starting with analyzing and recording transactions in

the journal and continuing through the post-closing trial balance, is referred to as the:

a.  Accounting Period.

b.  Operating Cycle.

c.  Accounting Cycle.

d.  Closing Cycle.6. A classified balance sheet:

a.  Measures a company's ability to pay its bills on time.

b.  Organizes assets and liabilities into important subgroups.

c.  Presents revenues, expenses, and net income.

d.  Reports operating, investing, and financing activities. 7. If a company failed to make an adjusting entry at the end of its accounting period to record depreciation for

this period, the omission will cause:

a.  An understatement of expenses

b.  An overstatement of revenues.

c.  An understatement of assets.

d.  An overstatement of liabilities. 8. The total amount of depreciation recorded against an asset or group of assets during the entire time the asset or

assets have been owned:

a.  Is referred to as depreciation expense.

b.  Is referred to as accumulated depreciation.

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c.  Is shown on the income statement in the final period.

d.  Is only recorded when an asset is disposed of. 9. Which of the following assets is not depreciated?

a.  Store Fixtures

b.  Computers

c.  Land

d.  Buildings

1. d 2. b 3. c 4. b 5. c 6. b 7. a 8. b 9. c

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The following are steps in the accounting cycle. List them in the order in which they are completed

  Preparing Adjusted Trial Balance

  Posting

  Preparing an Unadjusted Trial Balance

  Journalizing

  Preparing the Financial Statements

  Closing the Temporary Accounts

  Adjusting the Accounts

  Preparing a Post-Closing Trial Balance

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  Analyze Transactions

6 Preparing Adjusted Trial Balance

3 Posting

4 Preparing an Unadjusted Trial Balance

2 Journalizing

7 Preparing the Financial Statements

8 Closing the Temporary Accounts

5 Adjusting the Accounts

9 Preparing a Post-Closing Trial Balance

1 Analyze Transactions

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Classified balance sheets commonly include the following categories:

a. Current Assetsb. Investmentsc. Plant Assetsd. Intangible Assetse. Current Liabilitiesf. Long-Term Liabilitiesg. Equity

Indicate the typical classification of each item listed below by placing the letter of the correct balance sheet category a through g in the blank space next to the item.

1.   Buildings used in business operations

2.   Office Supplies

3.   Land held for future plant expansion

4.   Long-term note payable

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5.   Accounts Receivable

6.   Retained Earnings

7.   Accounts Payable

8.   Merchandise Inventory

9.   Patents

10.   Wages Payable

11.   Prepaid Expenses

12.   Cash

1. c Buildings used in business operations

2. a Office Supplies

3. b Land held for future plant expansion

4. f Long-term note payable

5. a Accounts Receivable

6. g Retained Earnings

7. e Accounts Payable

8. a Merchandise Inventory

9. d Patents

10. e Wages Payable

11. a Prepaid Expenses

12. a Cash

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Following are selected accounts and their balances for a company after the adjustments as of May 31, the end of its fiscal year. (All accounts have normal balances).

Common Stock $20,000Retained Earnings 10,000Dividends 6,000Service Revenue 20,000Salaries Expense 7,000Insurance Expense 350Utilities Expense 75Supplies Expense 500Supplies 400Salaries Payable 300Depreciation Expense 425

Prepare all necessary closing entries for this company.

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Close the Revenue Accounts

Service Revenue 20,000  

       Income Summary   20,000

     Close the Expense Accounts

Income Summary 8,350  

       Salaries Expense   7,000

       Insurance Expense   350

       Utilities Expense   75

       Supplies Expense   500

       Depreciation Expense   425

     Close the Income Summary Account

Income Summary 11,650  

       Retained Earnings   11,650

     Close the Dividends Account

Retained Earnings 6,000  

       Dividends   6,000

In general journal form, record the December 31 adjusting entries for the

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following transactions and events. Assume that December 31 is the end of the annual accounting period.

a. The Prepaid Insurance account shows a debit balance of $2,340, representing the cost of a three-year fire insurance policy that was purchased on October 1 of the current year.

b. The Office Supplies account has a debit balance of $400; a year-end inventory count reveals $80 of supplies still available.

c. On November 1 of the current year, Rent Earned was credited for $1,500. This amount represented the rent earned for a three-month period beginning November 1.

d. Depreciation on office equipment is $600.e. Accrued salaries amount to $400.

Solution

Insurance Expense 195  

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       Prepaid Insurance   195

              ($2,340/36 = $65/mo; $65 x 3 mos = $195)

Office Supplies Expense 320  

       Office Supplies ($400 - $80)   320

Rent Earned 500  

       Unearned Rent ($1500/3)   500

Depreciation Expense - Office Equipment 600  

       Accumulated Depreciation - Office Equip

  600

Salaries Expense 400  

       Salaries Payable   400

More explanation on c:The company received 1,500 on Nov 1st for 3 months of rent that they would provide. The company recognized the revenue on that date. As of Dec 31, they had recognized 2 months of the revenue, so they have to do an adjusting entry to move 1 month to unrecognized rent revenue. They cannot report revenue that is not yet earned on the financial statements.

The following items are from the 2009 balance sheet of Kellogg Company. (All dollars are in millions.)

Common stock $ 577Other assets 5,632Notes payable—current 44Other current assets 221Cash and cash equivalents 334Other long-term liabilities 1,802Retained earnings 1,698

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Accounts payable 1,077Other current liabilities 1,167Accounts receivable, net 1,093Property, net 3,010Inventories 910Long-term debt 4,835

InstructionsPrepare a classified balance sheet for Kellogg Company as of December 31, 2009.

KELLOGG COMPANYBalance Sheet

December 31, 2009(in millions)

AssetsCurrent assets

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Cash and cash equivalents................................. $ 334Accounts receivable, net..................................... 1,093Inventories............................................................ 910Other current assets............................................ 221

Total current assets...................................... $ 2,558Property, net................................................................. 3,010Other assets................................................................. 5,632

Total assets...........................................................$11,200

Liabilities and Stockholders’ EquityCurrent liabilities

Notes payable....................................................... $ 44Accounts payable................................................. 1,077Other current liabilities........................................ 1,167

Total current liabilities.................................. $ 2,288Long-term liabilities

Long-term debt.....................................................  4,835Other long-term liabilities.................................... 1,802

Total long-term liabilities............................. 6,637

Total liabilities....................................................... 8,925Stockholders’ equity

Common stock...................................................... 577Retained earnings................................................ 1,698

Total stockholders’ equity........................... 2,275

Total liabilities and stockholders’ equity...........$11,200

These items are taken from the financial statements of Tilley, Inc.

Prepaid insurance $ 1,400

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Equipment 31,000Salaries and wages expense 36,000Utilities expense 2,100Accumulated depreciation—equipment 8,600Accounts payable 8,200Cash 5,100Accounts receivable 4,900Salaries and wages payable 2,000Common stock 6,000Depreciation expense 4,300Retained earnings (beginning) 14,000Dividends 2,600Service revenue 53,000Maintenance and repairs expense 2,600Insurance expense 1,800

InstructionsPrepare an income statement, a retained earnings statement, and a classified balance sheet as of December 31, 2012.

TILLEY, INC.Income Statement

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For the Year Ended December 31, 2012

RevenuesService revenue......................................................$53,000

ExpensesSalaries and wages expense................................. $36,000Depreciation expense............................................   4,300Maintenance and repairs expense........................   2,600Utilities expense.....................................................   2,100Insurance expense................................................. 1,800

Total expenses............................................... 46,800Net income..................................................................... $ 6,200

TILLEY, INC.Retained Earnings Statement

For the Year Ended December 31, 2012

Retained earnings, January 1...................................................................................................................$14,000Plus: Net income.......................................................... 6,200

20,200Less: Dividends............................................................ 2,600Retained earnings, December 31.............................................................................................................$17,600

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TILLEY, INC.Balance Sheet

December 31, 2012

AssetsCurrent assets

Cash....................................................................... $ 5,100Accounts receivable.............................................   4,900Prepaid insurance................................................ 1,400

Total current assets......................................$11,400

Property, plant, and equipmentEquipment............................................................. 31,000Less: Accumulated depreciation...................... 8,600

22,400Total assets...........................................................$33,800

Liabilities and Stockholders’ EquityCurrent liabilities

Accounts payable................................................. $8,200Salaries and wages payable................................ 2,000

Total current liabilities..................................$10,200

Stockholders’ equityCommon stock......................................................  6,000Retained earnings................................................ 17,600

Total stockholders’ equity........................... 23,600

Total liabilities and stockholders’ equity...........$33,800

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If preparing adjusting entries:

1. When debiting interest expense, the following account should be crediteda. notes payable b. interest payable c. interest revenue d. interest receivable

2. When debiting unearned service revenue, the following account should be crediteda. accounts receivable b. notes payable c. accounts payable d. service revenue

3. When crediting prepaid insurance, the following account should be debiteda. accounts receivable b. insurance expense c. accounts payable d. cash

4. When debiting accounts receivable, the following account should be crediteda. service revenueb. unearned service revenue c. cashd. accounts payable

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1. B2. D3. B4. A

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Online practice quizzes

http://www.accountingcoach.com/online-accounting-course/05Dpg01.html

http://www.dwmbeancounter.com/BCTutorSite/TestLectures/Tests/Quizzes/Intro/DrCr.html

http://www.dwmbeancounter.com/BCTutorSite/TestLectures/Tests/Quizzes/Intro/TermsQuiz3.html

http://www.dwmbeancounter.com/BCTutorSite/TestLectures/Tests/Quizzes/Intro/TermsQuiz2.html

These refer to dividends as draws. It means the same thing. Dividends are payments to owners and some refer to this as draws (owner’s withdrawals).http://www.dwmbeancounter.com/BCTutorSite/TestLectures/Tests/SkillsTests/Intro/EqTran.html

http://www.dwmbeancounter.com/BCTutorSite/TestLectures/Tests/SkillsTests/Intro/DrCrSkills1.html

http://www.dwmbeancounter.com/BCTutorSite/TestLectures/Tests/SkillsTests/Intro/DrCrSkills2.html

http://www.dwmbeancounter.com/BCTutorSite/TestLectures/Tests/Quizzes/Intro/TermsQuiz1.html

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