226)
Using the information presented below, prepare a statement of owner’s equity and balance sheet
from the adjusted trial balance of Dodson Containers. Mr. Dodson’s capital account balance of
$40,340 consists of a $30,340 beginning-year balance plus a $10,000 investment during the current
year.
DODSON CONTAINERS
Adjusted Trial Balance
December 31
Cash
$ 3,050
Accounts receivable…
400
Prepaid insurance ..
830
Office supplies ….....…..
80
Office equipment …
4,200
Accumulated depreciation–office equipment
$ 1,100
Buildings…………..
98,000
Accumulated depreciation–buildings..
28,000
Land….
115,000
Wages Payable………
880
Property taxes payable
1,400
Interest payable…..
2,200
Unearned rent…….
460
Long–term notes payable…………….
150,000
Frank Dodson, Capital .
40,340
Frank Dodson, Withdrawals
21,000
Rent earned ………
67,500
Wages expense …..
29,000
Utilities expense … 1
19 2,900
Utilities expense …
Property taxes expense ……………..
Insurance expense..
Office supplies expense
Depreciation expense–office equipment
Depreciation expense–buildings……..
Interest expense …
________
$291,880
Totals …………….
227)
Using the information given below, prepare an income statement and owner’s equity statement for
Rapid Car Services from the adjusted trial balance. Owner Stella Grafton did not make any
additional investments in the company during the year.
Rapid Car Services
Adjusted Trial Balance
For the year ended December 31
Cash
$ 33,000
Accounts receivable
14,200
Office supplies
1,700
Vehicles
100,000
Accumulated depreciation — Vehicles
45,000
Accounts payable
11,500
Stella Grafton, Capital
71,900
Stella Grafton, Withdrawals
40,000
Fees earned
155,000
Rent expense
13,000
Office supplies expense
2,000
Utilities expense
2,500
Depreciation Expense — Vehicles
15,000
Salary expense
50,000
Fuel expense
12,000
________
Totals
$283,400
$283,400
122
228)
Using the information given below, prepare a balance sheet for Rapid Car Services from the adjusted
trial balance. Owner Stella Grafton did not make any additional investments in the company during
the year.
Rapid Car Services
Adjusted Trial Balance
For the year ended December 31
Cash
$ 33,000
Accounts receivable
14,200
Office supplies
1,700
Vehicles
100,000
Accumulated depreciation — Vehicles
45,000
Accounts payable
11,500
Stella Grafton, Capital
71,900
Stella Grafton, Withdrawals
40,000
Fees earned
155,000
Rent expense
13,000
Office supplies expense
2,000
Utilities expense
2,500
Depreciation Expense — Vehicles
15,000
Salary expense
50,000
Fuel expense
12,000
________
Totals $283,400 $283,400
229)
Abdulla, Co. collected 6-months’ rent in advance from a tenant on October 1 of the current year.
When it collected the cash, it recorded the following entry:
Oct. 01 Cash 15,000
Rent Revenue Earned 15,000
Assuming Abdulla only prepares adjustments at year-end, prepare the required adjusting entry at
December 31 of the current year.
230)
On November 1 of the current year, Salinger Company paid $9,600 cash for a one-year insurance
policy that took effect on that day. On the date of the payment, Salinger recorded the following entry:
Nov. 01 Insurance Expense 9,600
Cash 9,600
Assuming Salinger only prepares adjustments at year-end, prepare the required adjusting entry at
December 31 of the current year.
231)
Carroll Co. is a multi-million dollar business. The business results for the year have been impacted
significantly by a slowing economy. The company wants to increase its net income. It has incurred
$2,900,000 in unpaid salaries at the end of the year and wants to leave those amounts unrecorded at
the end of the year. (a) How would this omission affect the financial statements of Carroll? (b)
Which accrual basis of accounting principles does this omission violate? (c) Would this be
considered an ethical problem?
232)
The following information is available for Hatter Co.
2017
2016
2015
Net income
2,500
1,700
1,900
Net sales
37,000
35,000
32,000
Total assets
420,000
395,000
375,000
From the information provided, calculate Hatter’s profit margin ratio for each of the three years. In
2016, economic conditions and a slowing economy impacted the results of operations. Comment on
the results, assuming that the industry average for the profit margin ratio is 7% for each of the three
years.
233)
The unadjusted trial balance and the adjustment data for Porter Business Institute are given below
along with adjusting entry information. What is the impact on net income if these adjustments are
not recorded? Show the calculation for net income without the adjustments and net income with
the adjustments. Which one gives the most accurate net income? Which accounting principles are
being violated if the adjustments are not made?
Porter Business Institute
Unadjusted Trial Balance
December 31
(in millions)
Cash………
$ 58,000
Accounts receivable…………..
59,000
Prepaid insurance ……………
12,000
Equipment …
8,000
Accumulated depreciation–equipment ………..
$ 2,000
Buildings……
57,500
Accumulated depreciation–buildings…………..
17,500
Land 125
55,000
Land
55,000
Unearned rent.
16,000
Long-term notes payable……….
50,000
Porter, Capital .
115,600
Tuition fees earned ……….
74,000
Training fees earned …….
23,400
Wages expense ……………
32,000
Utilities expense ………….
8,000
Property taxes expense ……
5,000
Interest expense ……………
4,000
________
Totals …….
$ 298,500
$298,500
Additional information items:
a. The Prepaid Insurance account consists of a payment for a 1 year policy. An analysis of the
insurance invoice indicates that one half of the policy has expired by the end of the December 31
year-end.
b. A cash payment for space sublet for 8 months was received on July 1 and was credited to
Unearned Rent.
c. Accrued interest expense on the note payable of $1,000 has been incurred but not paid.
234)
The unadjusted trial balance and the adjustment data for Porter Business Institute are shown below
along with adjusting entry information. What is the impact of the adjusting entries on the balance
sheet? Show the calculation for total assets, total liabilities, and owner’s equity without the
adjustments; show the calculation for total assets, total liabilities, and owner’s equity with the
adjustments. Which one provides the most accurate presentation of the balance sheet?
Porter Business Institute
Unadjusted Trial Balance
December 31
(in millions)
Cash………
$ 58,000
Accounts receivable…………..
59,000
Prepaid insurance ……………
12,000
Equipment …
8,000
Accumulated depreciation–equipment ………..
$ 2,000
Buildings……
57,500
Accumulated depreciation–buildings…………..
17,500
Land
55,000
Unearned rent.
16,000
Long-term notes payable……….
50,000
Porter, Capital .
115,600
Tuition fees earned ……….
74,000
Training fees earned …….
23,400
Wages expense ……………
32,000
Utilities expense ………….
8,000
Property taxes expense ……
5,000
Interest expense ……………
4,000
________
Totals …….
$ 298,500
$298,500
Additional information items:
a. The Prepaid Insurance account consists of a payment for a 1 year policy. An analysis of the
insurance invoice indicates that one half of the policy has expired by the end of the December 31
year-end.
b. A cash payment for space sublet for 8 months was received on July 1 and was credited to
Unearned Rent.
c. Accrued interest expense on the note payable of $1,000 has been incurred but not paid.
235)
Using the selected information given below for Luk Company, calculate the return on assets, debt
ratio, and profit margin. Comment on the results of operations and the financial position of the
company for the year.
Sales
1,050,000
Expenses
795,000
Assets (beginning of the year)
1,500,000
Assets (end of the year)
1,900,000
Liabilities
850,000
Nov. 1
Paid $11,400 for 12 months of insurance coverage through October 31 of next
year.
5
Received $8,000 cash for future services to be provided to a customer.
7
Paid $10,000 for future advertising.
Dec. 31
A portion of the insurance paid for on November 1 has expired. No adjustment
was made in November to the insurance account.
31
Services of $2,500 are not yet provided to the customer who paid on November
236)
Prepare adjusting entries for the year ended December 31, for each of these separate situations.
Assume that prepaid expenses are initially recorded in asset accounts and that fees collected in
advance are initially recorded as liabilities.
a. The Prepaid Rent account has a debit balance of $8,000 before adjustment, representing a
prepayment for four months’ rent made on December 1 of the current year.
b. One-third of the work related to $18,000 of cash received in advance was performed during this
period.
c. Unpaid accrued salaries at December 31 amounts to $15,000
d. Work was completed for a client on December 31 in the amount of $21,000, but was not
previously billed or recorded.
e. Estimated depreciation on office equipment is $27,000.
237)
Gracio Co. had the following transactions in the last two months of its year ended December 31.
Prepare entries for these transactions under the method that records prepaid expenses as expenses
and records unearned revenues as revenues. Also prepare adjusting entries at the end of the year.
130
31
Services of $2,500 are not yet provided to the customer who paid on November
5.
31
Of the advertising paid for on November 7, $1,500 is not yet used.
238)
For each of the following two separate situations, present both the April 30 adjusting entry and the
subsequent entry during May to record the payment of the accrued expenses or receipt of the accrued
revenue. Assume the company does not prepare reversing entries.
a. Nicolas Company has 5 employees, who earn a total of $2,900 in salaries each working day. They
are paid on Monday for the five-day workweek ending on the previous Friday. Assume that fiscal
year ended April 30, is a Thursday and all employees worked each day and will be paid salaries for
five full days on the following Monday.
b. Services of $3,000 have been performed for Clevenger Company through April 30. The client will
pay the entire amount of the contract when services are completed on May 23.
c. Paid the employees’ salaries on May 4.
d. Received payment from Clevenger Company for services that are now completed on May 23.
SHORT ANSWER QUESTIONS
239)
Companies experiencing seasonal variations in sales often choose a fiscal year corresponding to
their ________ year.
240)
________ are required at the end of the accounting period because certain internal transactions and
events remain unrecorded.
241)
Accrual accounting and the adjusting process rely on two principles: the ________ principle and
the ________ principle.
242)
________ basis accounting means that revenues are recognized when cash is received and that
expenses are recorded when cash is paid. ________ basis accounting means that the financial
effects of revenues and expenses are recorded when earned or incurred.
243) Adjusting is a three-step process (1) ________, (2) ________, and (3) ________.
244)
________ refer to costs incurred in a period that are both unpaid and unrecorded. ________ refer to
revenues earned in a period that are both unrecorded and not yet received in cash (or other assets).
245)
Accrued revenues at the end of one accounting period often result in cash ________ in the next
period.
246)
________ revenues are liabilities requiring delivery of products and for services.
247)
If a prepaid expense account were not adjusted for the amount used, on the balance sheet assets
would be ________ and equity would be ________.
248)
Profit margin = divided by net sales.
249)
The ________ depreciation method allocates equal amounts of an asset’s cost to depreciation
during its useful life.
250)
is the process of allocating the cost of plant assets to the income statement over their
expected useful lives.
251)
A ________ account is an account linked with another account, having an opposite normal
balance, and reported as a subtraction from that other account’s balance.
252)
________ expenses are those costs that are incurred in a period but are both unpaid and
unrecorded.
253)
An is a listing of all of the accounts in the ledger with their account balances before
adjustments are made.
254)
An is a listing of all of the accounts in the ledger with their account balances after
adjustments are made.