978-1337276337 Test Bank Chapter 4 Part 5

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213. Barker Corp. began operations on November 30, 2017, and immediately paid $48,000 for six months’ rent in advance

for rental of a parking lot for the period beginning December 1, 2017. Barker’s accounting period ends on December 31,

2017. Indicate how much will be reported for each of the following accounts on Barker’s financial statements for the

period ending December 31, 2017. If the amount reported is zero, indicate so by writing $0, and explain why zero is the

appropriate amount.

A. Rent Expense

B. Rent Payable

C. Rent Revenue

D. Prepaid Rent

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214. Ramos Corporation employs 14 workers in its retail service center. Each employee is paid $10 per hour and works

six hours per day, Monday through Friday. Employees are paid every Friday for the workweek just ending. The last

payday was Friday, December 26, on which day the employees were paid through that date.

A. Compute the dollar amount of the weekly payroll.

B.

Determine the effect on the accounting equation of the adjusting entry needed on Wednesday, December 31, the

last day of Ramos Corporation’s fiscal period.

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215. Calzone, Inc. signs a 9%, four-month, $50,000 loan with Reliable Bank on October 1, 2017. Determine the effects on

the accounting equation for the following items:

A. The signing of the loan on October 1, 2017, by Calzone, Inc.

B. The recording of the interest on December 31, 2017, by Calzone, Inc.

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216. Lowen Homes, Inc. pays its sales personnel 6% commission of the selling price of each home. During November

2017, sales people sold $18,400,000 of homes. During December 2017, sales people sold $20,050,000 of homes. Because

its policy is to pay commissions only in the month after the sales, Lowen paid commissions during December for

November 2017. During January 2018, Lowen paid its salespeople commissions for December 2017.

A.

If the cash basis of accounting is used, how much commission expense is reported on Lowen Homes’ income

statement for December of 2017?

B.

If the accrual basis of accounting is used, how much is reported as commission expense on Lowen Homes’ December

income statement for 2017?

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217. Martinez Produce sells fresh vegetables and fruits in Sutton County. The following unadjusted amounts were taken

from the company’s accounting records at December 31, 2017:

Note Payable, 12%, 4-month, dated December 1, 2017, for $20,000

Note Receivable, 10%, 6-month, dated October 1, 2017, for $12,000

A.

Determine the effects on the accounting equation of any adjusting entries that would be necessary at December 31,

2017, for the notes.

Balance Sheet Income Statement

Assets = Liabilities + Stockholders’

Equity Revenues – Expenses = Net Income

B.

Fill in the partial balance sheet below by showing the notes and the effects of any adjustments related to the notes.

Current Assets

Current Liabilities

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218. The following unadjusted amounts were taken from Ruben Gifts’ accounting records at December 31, 2017:

Rent Collected in Advance $1,000

Office Supplies 740

A.

Determine the effects on the accounting equation of any adjusting entries necessary for

Ruben Gifts at December 31, 2017, for both of the following transactions:

1.

During December 2017, Ruben Gifts had received payments from tenants that were renting storage space in its

warehouse. The payments received by Ruben Gifts were for the period December 2017 and January 2018.

2.

At the end of the year, Ruben Gifts determined that $240 of office supplies remained on hand.

Balance Sheet Income Statement

Assets = Liabilities + Stockholders’

Equity Revenues – Expenses = Net Income

B. What is the effect of omitting these adjustments on the current year’s net income?

219. The following unadjusted amount was reported on Rental Entertainment Corporation’s accounting records at

December 31, 2017:

Unearned Subscription Revenue $36,000

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A.

Determine the effect on the accounting equation of any adjusting entries necessary at December 31, 2017, for each

of the following transactions:

1.

During the year, Rental Entertainment sold 12-month subscriptions for its newly developed Internet service. Half

of the subscriptions began October 1, 2017, while the other half began December 1, 2017.

2.

Rental estimates its income taxes to be 30% of its estimated income of $60,000.

Balance Sheet Income Statement

Assets = Liabilities + Stockholders’

Equity Revenues – Expenses = Net Income

B. Prepare the Current Liabilities section of Rental’s balance sheet by listing any current liabilities and the related

amounts as a result of the adjustments in part A.

220. Motor Repair Shop uses the accrual basis of accounting, and had the following account balances on its financial

statements at December 31, 2017:

Rent Revenue $34,000

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Accounts Receivable 8,200

Utilities Payable 1,500

Rent Expense 2,100

Unearned Repair Revenue 700

Depreciation Expense 1,000

Salaries Expense 32,000

Salaries Payable 800

Retained Earnings, January 1 10,000

Dividends 500

Interest Revenue 4,000

On January 1, the Utilities Payable account had a zero balance. Motor Repair paid cash for utilities totaling $45,000

during 2017. How much should Motor Repair report as utilities expense as of December 31, 2017?

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221. Motor Repair Shop uses the accrual basis of accounting, and had the following account balances on its financial

statements at December 31, 2017:

Rent Revenue $34,000

Accounts Receivable 8,200

Utilities Payable 1,500

Rent Expense 2,100

Unearned Repair Revenue 700

Depreciation Expense 1,000

Salaries Expense 32,000

Salaries Payable 800

Retained Earnings, January 1 10,000

Dividends 500

Interest Revenue 4,000

On January 1, there was a $0 balance in the Salaries Payable account. How much cash did Motor Repair pay for salaries

during the year?

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Scenic View Foods Corporation

The following consolidated statements of income are for Scenic View Foods Corporation for the years ending December

31, 2017 and 2018:

Years Ended December 31,

(in millions of dollars) 2018 2017

Revenues

Sales by company-operated restaurants $ 8,894.9 $ 8,136.5

Revenue from franchised restaurants 3,526.5 3,272.3

Total revenues $12,421.4 $11,408.8

Operating costs and expenses

Company-operated restaurants

Food and packaging $ 2,997.4 $ 2,772.6

Payroll and other employee benefits 2,220.3 2,025.1

Occupancy and other operating expenses 2,043.9 1,851.9

$ 7,261.6 $ 6,649.6

Franchised restaurants—occupancy expenses 678.0 613.9

General, administrative; and selling expenses 1,458.5 1,450.5

Made for You and special charges 321.6

Other operating (income) expense (60.2) (113.5)

Total operating costs and expenses $ 9,659.5 $ 8,600.5

Operating income $ 2,761.9 $ 2,808.3

Interest expense 413.8 364.4

Nonoperating income (expense) 40.7 36.6

Income before provision for income taxes $ 2,307.4 $ 2,407.3

Provision for income taxes 757.3 764.8

Net income $ 1,550.1 $ 1,642.5

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222. Refer to the consolidated statements of income for Scenic View Foods Corporation.

Required

Identify three specific accounts of Scenic View Foods that might include expenses accrued as a result of adjustments.

Discuss the “effects” of these on the accounting equation. Ignore amounts.

223. Refer to the consolidated statements of income for Scenic View Foods Corporation.

Required

(1) Notice that Scenic View Foods reported “Provision for income taxes.” What type of account is this? What adjustment

would have been made if this accrual were necessary at December 31, 2018?

(2) Scenic View Foods’ reported $3.1 million and $2.8 million of accrued interest in the Liability section of its balance

sheet at December 31, 2018 and 2017, respectively. How much cash did it pay during 2017 for interest?

(3) Is Scenic View Foods income statement an “interim statement”? Explain.

224. Refer to the consolidated statements of income for Scenic View Foods Corporation.

Required

Identify three specific accounts of Scenic View Foods that might include expenses accrued as a result of adjusting journal

entries. Show what these entries would look like in journal format. Ignore amounts.

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225. Given below are the amounts from Surf Corporation’s ledger accounts after adjustments have been posted at

December 31, 2017.

Sales Revenue $60,000 Accounts Receivable $ 8,200

Accounts Payable 1,500 Rent Expense 2,100

Cash 25,600 Prepaid Rent 1,500

Salaries Expense 2,900 Salaries Payable 800

Retained Earnings, January 1 22,100 Dividends 5,000

Depreciation Expense 1,000 Supplies 900

Supplies Expense 2,200 Cost of Goods Sold 40,000

Notes Payable 3,000 Common Stock 2,000

A. Identify which adjustments that Surf Corporation most likely made that are:

1) Accrued assets

2) Accrued liabilities

B. Which accounts listed above would not be used in a cash-basis system?

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226. At the end of 2017, the unadjusted accounting records for Coney Corporation contain the following selected accounts

and balances.

Interest Revenue $ 3,600 Wage and Salary Expense $15,600

Insurance Expense 6,500 Interest Expense 2,400

Depreciation Expense 12,000 Advertising Fees Earned 54,300

Utilities Expense 12,400 Income Tax Expense 5,800

Accounts Receivable 12,300 Dividends 3,000

A.

Coney has not paid its employees for the final three days in 2017. The amount owed is $700. How much wage and

salary expense should Coney report for its year ending December 31, 2017?

B.

Given the account listed, what adjustments might Coney make at year-end that could result in additional revenue?

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227. Tiva Solutions’ accounting records reflect the following account balances at December 31, 2017:

Building $560,000 Accumulated Depreciation-Building $112,000

Cash 90,000 Capital Stock 343,000

Supplies 5,000 Retained Earnings 200,000

During 2017, the following transactions occurred:

1. On March 1, purchased a one-year insurance policy for $1,200 cash.

2. On April 1, borrowed $10,000 cash from Rock City Bank. The interest rate on the note payable is 6%.

Principal and interest is due in cash in one year.

3. Employee salaries in the amount of $20,000 were paid in cash.

4. At the end of the year, $400 of the supplies remained on hand.

5. Earned $45,000 in tax consulting revenue during 2017 in cash.

6. At December 31, $5,000 in employee salaries were accrued.

7. On December 31, received $2,000 in cash representing advance payment for services to be provided in February

2018.

8. The building has a useful life of 25 years and no salvage value.

Required

A. Determine the effect on the accounting equation of the preceding transactions including any related year-end

adjusting entries that may be required. Create a table to reflect the increases and decreases in accounts.

Balance Sheet Income Statement

Assets = Liabilities + Stockholders’

Equity Revenues – Expenses = Net Income

B. Prepare an income statement for Tiva Solutions for 2017. Ignore income tax effects.

C. Prepare a classified balance sheet for Tiva Solutions at December 31, 2017.

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228. Frannie’s Dance Studio accounting records reflect the following account balances at January 1, 2017.

Cash $100,000 Supplies $ 4,000

Capital Stock 50,000 Retained Earnings 54,000

During 2017, the following transactions occurred:

1. On February 1, rented a small studio for one year. Paid $6,000 cash.

2. On November 1, received $1,200 cash for dance lessons to be provided evenly over November, December, and

January.

3. By December 31, used $3,000 of the supplies

4. At December 31, accrued $3,000 in wages and salaries.

5. During the year, paid $20,000 in cash for wages and salaries.

6. During the year, earned $40,000 cash in dance lesson revenue.

Required

A. Determine the effect on the accounting equation of the preceding transactions.

Create a table to reflect the increases and decreases in accounts.

Balance Sheet Income Statement

Assets = Liabilities + Stockholders’

Equity Revenues – Expenses = Net Income

B. Prepare an income statement for Frannie’s Dance Studio for 2017. Ignore income tax effects.

C. Prepare a classified balance sheet for Frannie’s Dance Studio at December 31, 2017.

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Balance Sheet Income Statement

Assets = Liabilities + Stockholders’

Equity Revenues – Expenses = Net Income

II. For each of the adjusting entries, indicate which of the following type of entry was recorded:

a. Accrued liability

b. Accrued asset

c. Deferred expense

d. Deferred revenue

III. Prepare an income statement at December 31, 2017. Diva Design has a tax rate of 30%.