Test Bank for Intermediate Accounting, Seventeenth Edition
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Ex. 3-130—Analyze adjusted trial balance.
A partial adjusted trial balance of West Company at January 31, 2021, shows the following.
WEST COMPANY
Adjusted Trial Balance
January 31, 2021
Debit Credit
Supplies ……………………………………………………………………………….. $ 2,800
Prepaid Insurance …………………………………………………………………. 9,600
Salaries and Wages Payable ………………………………………………….. $3,200
Unearned Revenue ……………………………………………………………….. 3,000
Supplies Expense ………………………………………………………………….. 3,800
Insurance Expense ………………………………………………………………… 1,600
Salaries and Wages Expense …………………………………………………. 7,200
Service Revenue …………………………………………………………………… 8,000
Instructions
Answer the following questions, assuming the year begins January 1.
(a) If the amount in Supplies Expense is the January 31 adjusting entry, and $3,400 of supplies
was purchased in January, what was the balance in Supplies on January 1?
(b) If the amount in Insurance Expense is the January 31 adjusting entry, and the original
insurance premium was for one year, what was the total premium and when was the policy
purchased?
(c) If $10,000 of salaries was paid in January, what was the balance in Salaries and Wages.
Payable at December 31, 2020?
(d) If $6,400 was received in January for services performed in January, what was the balance in
Unearned Revenue at December 31, 2020?
The Accounting Information System
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Solution 3-130 (cont.)
Ex. 3-131—Adjusting and reversing entries.
When the accounts of Strasberg Inc. are examined, the adjusting data listed below are available
on December 31, the end of the annual period.
1. Interest has accrued on a $20,000, 6% note payable, issued on May 1.
2. On September 1, Rent Revenue was credited for $3,000, representing revenue from a
subrental for a 6-month period beginning on that date.
3. Purchase of supplies for $1,500 during the year was recorded in the Supplies Expense
account. On December 31, supplies of $500 are on hand.
Instructions
Prepare the following in general journal form.
(a) The adjusting entry for each item.
(b) The reversing entry for each item where appropriate.
Test Bank for Intermediate Accounting, Seventeenth Edition
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Ex. 3-132—Financial statements.
The adjusted trial balance of Ryan Financial Planners appears below. Using the information from
the adjusted trial balance, you are to prepare for the month ending December 31, 2020:
1. an income statement.
2. a retained earnings statement.
3. a balance sheet.
RYAN FINANCIAL PLANNERS
Adjusted Trial Balance
December 31, 2020
Debit Credit
Cash …………………………………………………………………………………… $ 3,900
Accounts Receivable ……………………………………………………………… 2,200
Supplies ……………………………………………………………………………….. 1,800
Equipment ……………………………………………………………………………. 16,000
Accumulated Depreciation—Equipment ……………………………………. $ 4,000
Accounts Payable ………………………………………………………………….. 3,800
Unearned Service Revenue ……………………………………………………. 5,000
Common Stock ……………………………………………………………………… 10,000
Retained Earnings …………………………………………………………………. 4,400
Dividends ……………………………………………………………………………… 2,000
Service Revenue …………………………………………………………………… 4,700
Supplies Expense ………………………………………………………………….. 600
Depreciation Expense ……………………………………………………………. 2,500
Rent Expense ……………………………………………………………………….. 2,900 ______
$31,900 $31,900
The Accounting Information System
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Solution 3-132 (20 min)
Test Bank for Intermediate Accounting, Seventeenth Edition
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*Ex. 3-133—Cash basis vs. accrual basis accounting.
Contrast the cash basis of accounting with the accrual basis of accounting.
*Ex. 3-134—Accrual basis.
Sales salaries paid during 2020 were $90,000. Advances to salesmen were $1,100 on January 1,
2020, and $800 on December 31, 2020. Sales salaries accrued were $1,360 on January 1, 2020,
and $1,880 on December 31, 2020. Show the computation of sales salaries on an accrual basis
for 2020.
*Ex. 3-135—Accrual basis.
The records for Todd Inc. showed the following for 2020:
Jan. 1 Dec. 31
Accrued expenses $1,300 $2,150
Prepaid expenses 720 870
Cash paid during the year for expenses, $51,000
Show the computation of the amount of expense that should be reported on the income
statement.
The Accounting Information System
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*Ex. 3-136—Accrual basis.
The records for Kiley Company showed the following for 2020:
Jan. 1 Dec. 31
Unearned revenue $1,100 $2,160
Accrued revenue 1,260 920
Cash collected during the year for revenue, $75,000
Show the computation of the amount of revenue that should be reported on the income
statement.
*Ex. 3-137—Cash basis.
Revenue on the income statement was $140,800. Accounts receivable were $3,500 on January 1
and $3,540 on December 31. Unearned revenue was $1,050 on January 1 and $1,670 on
December 31.
Show the computation of revenue for the year on a cash basis.
Test Bank for Intermediate Accounting, Seventeenth Edition
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PROBLEMS
Pr. 3-138—Adjusting entries and account classification.
Selected amounts from Trent Company‘s trial balance of 12/31/20 appear below:
1. Accounts Payable $ 160,000
2. Accounts Receivable 150,000
3. Accumulated Depreciation—Equipment 200,000
4. Allowance for Doubtful Accounts 20,000
5. Bonds Payable 500,000
6. Cash 150,000
7. Common Stock 60,000
8. Equipment 870,000
9. Prepaid Insurance 30,000
10. Interest Expense 10,000
11. Inventory 300,000
12. Notes Payable (due 6/1/21) 200,000
13. Prepaid Rent 240,000
14. Retained Earnings 818,000
15. Salaries and Wages Expense 328,000
(All of the above accounts have their standard or normal debit or credit balance.)
Part A. Prepare adjusting journal entries at year end, December 31, 2020, based on the
following supplemental information.
a. The equipment has a useful life of 15 years with no salvage value. (Straight-line method being
used.)
b. Interest accrued on the bonds payable is $15,000 as of 12/31/20.
c. Prepaid insurance at 12/31/20 is $22,000.
d. The rent payment of $240,000 covered the six months from November 30, 2020 through May
31, 2021.
e. Salaries and wages earned but unpaid at 12/31/20, $22,000.
Part B. Indicate the proper balance sheet classification of each of the 15 numbered accounts
in the 12/31/20 trial balance before adjustments by placing appropriate numbers after
each of the following classifications. If the account title would appear on the income
statement, do not put the number in any of the classifications.
a. Current assets
b. Property, plant, and equipment
c. Current liabilities
d. Long-term liabilities
e. Stockholders’ equity
The Accounting Information System
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Pr. 3-139—Adjusting entries.
Data relating to the balances of various accounts affected by adjusting or closing entries appear
below. (The entries which caused the changes in the balances are not given.) You are asked to
supply the missing journal entries which would logically account for the changes in the account
balances.
1. Interest receivable at 1/1/20 was $1,000. During 2020 cash received from debtors for interest
on outstanding notes receivable amounted to $5,000. The 2020 income statement showed
interest revenue in the amount of $8,400. You are to provide the missing adjusting entry that
must have been made, assuming reversing entries are not made.
2. Unearned rent at 1/1/20 was $5,300 and at 12/31/20 was $8,000. The records indicate cash
receipts from rental sources during 2020 amounted to $55,000, all of which was credited to
the Unearned Rent Revenue account. You are to prepare the missing adjusting entry.
3. Accumulated depreciation—equipment at 1/1/20 was $230,000. At 12/31/20 the balance of
the account was $280,000. During 2020, one piece of equipment was sold. The equipment
had an original cost of $60,000 and was 3/4 depreciated when sold. You are to prepare the
missing adjusting entry.
4. Allowance for doubtful accounts on 1/1/20 was $50,000. The balance in the allowance
account on 12/31/20 after making the annual adjusting entry was $65,000 and during 2020
bad debts written off amounted to $30,000. You are to provide the missing adjusting entry.
Test Bank for Intermediate Accounting, Seventeenth Edition
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Pr. 3-139 (cont.)
5. Prepaid rent at 1/1/20 was $29,000. During 2020 rent payments of $130,000 were made and
charged to “rent expense.” The 2020 income statement shows as a general expense the item
“rent expense” in the amount of $145,000. You are to prepare the missing adjusting entry that
must have been made, assuming reversing entries are not made.
6. Retained earnings at 1/1/20 was $130,000 and at 12/31/20 it was $190,000. During 2020,
cash dividends of $50,000 were paid and a stock dividend of $40,000 was issued. Both
dividends were properly charged to retained earnings. You are to provide the missing closing
entry.
The Accounting Information System
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Solution 3-139 (cont.)
Pr. 3-140—Adjusting and closing entries.
The following trial balance was taken from the books of Fisk Corporation on December 31, 2020.
Account Debit Credit
Cash $ 9,000
Accounts Receivable 40,000
Notes Receivable 10,000
Allowance for Doubtful Accounts $ 1,800
Inventory 34,000
Prepaid Insurance 4,800
Equipment 100,000
Accumulated Depreciation—Equip. 15,000
Accounts Payable 10,800
Common Stock 44,000
Retained Earnings 55,000
Sales Revenue 260,000
Cost of Goods Sold 126,000
Salaries and Wages Expense 50,000
Rent Expense 12,800
Totals $386,600 $386,600
At year end, the following items have not yet been recorded.
a. Insurance expired during the year, $2,000.
b. Estimated bad debts, 1% of gross sales.
c. Depreciation on equipment, 10% per year on original cost.
d. Interest at 6% is receivable on the note for one full year.
*e. Rent paid in advance at December 31, $5,400 (originally charged to expense).
f. Accrued salaries and wages at December 31, $5,800.
Instructions
(a) Prepare the necessary adjusting entries.
(b) Prepare the necessary closing entries.
Test Bank for Intermediate Accounting, Seventeenth Edition
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Solution 3-140
*Pr. 3-141—Cash to accrual accounting.
The following information is available for Renn Corporation’s first year of operations:
Payment for merchandise purchases $315,000
Ending merchandise inventory 135,000
Accounts payable (balance at end of year) 60,000
Collections from customers 280,000
The balance in accounts payable relates only to merchandise purchases. All merchandise items
were marked to sell at 30% above cost. What should be the ending balance in accounts
receivable, assuming all accounts are deemed collectible?
The Accounting Information System
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*Solution 3-141
*Pr. 3-142—Accrual accounting.
Yates Company’s records provide the following information concerning certain account balances
and changes in these account balances during the current year. Transaction information is
missing from each item below.
Instructions
Prepare the entry to record the missing information for each account. (Consider each inde–
pendently.)
1. Accounts Receivable: Jan. 1, balance $41,000, Dec. 31, balance $55,000, uncollectible
accounts written off during the year, $6,000; accounts receivable collected during the year,
$159,000. Prepare the entry to record sales revenue.
2. Allowance for Doubtful Accounts: Jan. 1, balance $4,000, Dec. 31, balance $7,500,
uncollectible accounts written off during the year, $20,000. Prepare the entry to record bad
debt expense.
3. Accounts Payable: Jan. 1, balance $25,000, Dec. 31, balance $54,000, purchases on account
for the year, $150,000. Prepare the entry to record payments on account.
4. Interest Receivable: Jan. 1 accrued, $3,000, Dec. 31 accrued, $2,100, recognized for the
year, $45,000. Prepare the entry to record cash interest received.
Test Bank for Intermediate Accounting, Seventeenth Edition
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Solution 3-142 (cont.)
The Accounting Information System
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*Pr. 3-143—Accrual basis.
Grier & Associates maintains its records on the cash basis. You have been engaged to convert its
cash basis income statement to the accrual basis. The cash basis income statement, along with
additional information, follows:
Grier & Associates
Income Statement (Cash Basis)
For the Year Ended December 31, 2020
Cash receipts from customers $425,000
Cash payments:
Salaries and wages $170,000
Income taxes 65,000
Insurance 40,000
Interest 25,000 300,000
Net income $125,000
Additional information:
Balances at 12/31
2020 2019
Accounts receivable $50,000 $30,000
Salaries and wages payable 10,000 20,000
Income taxes payable 24,000 19,000
Prepaid insurance 8,000 4,000
Accumulated depreciation 95,000 80,000
Interest payable 3,000 9,000
No plant assets were sold during 2020.
Test Bank for Intermediate Accounting, Seventeenth Edition
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*Pr. 3-144—Eight-column work sheet.
The trial balance of Winsor Corporation is reproduced below. The following information below is
relevant to the preparation of adjusting entries needed to both properly match revenues and
expenses for the period and reflect the proper balances in the real and nominal accounts.
Instructions
As the accountant for Winsor Corporation, you are to prepare adjusting entries based on the
following data, entering the adjustments on the work sheet and completing the additional columns
with respect to the income statement and balance sheet. Carefully key your adjustments and
label all items. (Due to time constraints, an adjusted trial balance is not required.) Round all
computations to the nearest dollar.
(a) Winsor determined that one percent of sales will become uncollectible.
(b) Depreciation is computed using the straight-line method, with a ten-year life and $5,000
salvage value.
(c) Salesmen are paid commissions of 15% of sales. Commissions on sales for December have
not been paid.
(d) The note was issued on October 1, bearing interest at 8%, due Feb. 1, 2021.
(e) A physical inventory of supplies indicated $440 of supplies currently in stock.
(f) Provisions of a lease contract specify payments must be made one month in advance, with
monthly payments at $800/mo. This provision has been complied with as of Dec. 31, 2020.
Winsor Corporation
Work Sheet
For the Year Ended December 31, 2020
Trial Balance Adjustments Income Statement Balance Sheet
Accounts Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 12,400
Equity Invest. 14,050
Accounts Rec. 30,000
Allow. for D. A. 420
Inventory 16,800
Supplies 1,040
Equipment 65,000
Accum. Depr.-Equip. 9,500
Accounts Payable 4,400
Notes Payable 10,000
Common Stock 40,000
Ret. Earnings 29,690
Sales Revenue 360,000
Cost of Goods Sold 245,520
Salaries and
Wages Exp. 20,800
Sales Comm. Exp. 39,000
Rent Expense 7,200
Misc. Expense 2,200
Totals 454,010 454,010
The Accounting Information System
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Solution 3-144
Test Bank for Intermediate Accounting, Seventeenth Edition
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Solution 3-144 (cont.)
The Accounting Information System
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IFRS QUESTIONS
True / False
1. As rules for accounting for specific events sometimes differ across countries, the double-entry
accounting system is difficult to implement as the basis of worldwide accounting system.
2. IASB is working to establish high-quality auditing and assurance quality standards throughout
the world.
Answers to True / False questions:
Multiple Choice:
3. Icon International, a software company, incorporated on January 1, 2019 is planning to
convert to IFRS. The company decided to present its first IFRS statements for the year ended
December 31, 2021. What is the transition date of Icon International?
a. January 1, 2019
b. January 1, 2021
c. December 31, 2021
d. December 31, 2019
4. Icon International, a software company, incorporated on January 1, 2019 is planning to
convert to IFRS. The company decided to present its first IFRS statements for the year ended
December 31, 2021. What is the reporting date of Icon International?
a. January 1, 2019
b. January 1, 2021
c. December 31, 2021
d. December 31, 2019
5. Which of the following is a reason for recasting prior financial statements based on IFRS?
a. To increase the market value of a company’s shares
b. To report a high income for attracting investors
c. To report a low taxable income reducing the tax liability
d. To provide financial statement users with comparable information
Test Bank for Intermediate Accounting, Seventeenth Edition
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6. IFRS 1 requires information in a company’s first IFRS statement to:
a. be same as in GAAP statement.
b. be transparent.
c. be as lengthy as possible.
d. provide a suitable ending point.
7. Which of the following is the first step to be taken by a company deciding to convert to IFRS?
a. Preparing an opening balance sheet at the date of transition
b. Identifying the timing of first IFRS statement
c. Selecting accounting principles that comply with IFRS
d. Implementing accounting principles retrospectively
Answers to Multiple Choice: