387) 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
388) 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.
389) 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.
Paid $11,400 for 12 months of insurance coverage through October 31 of next
year.
Received $8,000 cash for future services to be provided to a customer.
Paid $10,000 for future advertising.
A portion of the insurance paid for on November 1 has expired. No adjustment
was made in November to the insurance account.
Services of $2,500 are not yet provided to the customer who paid on November
5.
Of the advertising paid for on November 7, $1,500 is not yet used.
Nov. 1
Insurance Expense
11,400
Cash
11,400
Nov. 5
Cash
8,000
Fees Earned
8,000
Nov. 7
Advertising Expense
10,000
Cash
10,000
Dec. 31
Prepaid Insurance
9,500
Insurance Expense
9,500
($11,400 * 10/12=$9,500)
Dec. 31
Fees Earned
2,500
Unearned Fees
2,500
Dec. 31
Prepaid Advertising
1,500
Advertising Expense
1,500
390) 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.
183
391) a) Prepare a classified balance sheet for Martin Air Freight based on the adjusted trial
balance shown below. b) Prepare the required closing entries.
Martin Air Freight
Adjusted Trial Balance
December 31
Debit
Credit
Cash……………………………………………………………………
$18,200
Accounts receivable ……………………………………………..
34,200
Supplies………………………………………………………………
2,100
Long-term investments …………………………………………
25,000
Shipping equipment………………………………………………
45,000
Accumulated depreciation–Shipping equipment……..
$11,080
Patent…………………………………………………..
16,000
Accounts payable …………………………………………………
16,200
Wages payable …………………………………………………….
4,120
Long-term notes payable * …………………………………………
20,000
Common stock ……………………………………………….
10,000
Retained earnings ……………………………………………….
30,400
Dividends ……………………………………….
15,000
Shipping fees earned …………………………………………….
145,000
Rent expense ……………………………………………………….
8,000
Wages expense…………………………………………………….
62,000
Supplies expense…………………………………………………..
2,500
Depreciation expense–Shipping equipment ……………..
4,050
Interest expense……………………………………………………
1,000
Utilities expense…………………………………………………..
3,750
Totals………………………………………………………………….
$236,800
$236,800
* $2,000 of the long-term note payable is due during the next year.
186
392) The calendar year-end adjusted trial balance for Blessinger Co. follows:
BLESSINGER CO.
Adjusted Trial Balance
December 31
Cash
$ 112,000
Accounts receivable
27,000
Prepaid rent
15,000
Prepaid Insurance
9,000
Office supplies
3,300
Office equipment
38,000
Accumulated depreciation–Equipment
$3,200
Building
288,000
Accumulated depreciation–Building
42,000
Land
700,000
Accounts payable
25,800
Salaries payable
14,500
Interest payable
2,500
Long-term note payable
72,000
Common stock
200,000
Retained earnings
710,000
Dividends
200,500
Service fees earned
430,800
Salaries expense
90,000
Insurance expense
5,200
Rent expense
5,000
Depreciation expense–Equipment
800
Depreciation expense–Building
7,000
Totals
$1,500,800
$1,500,800
Required:
(a) Prepare a classified year-end balance sheet. (Note: A $9,000 installment on the long-term
note payable is due within one year.)
(b) Prepare the required closing entries.
189
393) The calendar year-end adjusted trial balance for Blessinger Co. follows:
BLESSINGER CO.
Adjusted Trial Balance
December 31
Cash
$ 112,000
Accounts receivable
27,000
Prepaid rent
15,000
Prepaid Insurance
9,000
Office supplies
3,300
Office equipment
38,000
Accumulated depreciation–Equipment
$3,200
Building
288,000
Accumulated depreciation–Building
42,000
Land
700,000
Accounts payable
25,800
Salaries payable
14,500
Interest payable
2,500
Long-term note payable
72,000
Common stock
200,000
Retained earnings
710,000
Dividends
200,500
Service fees earned
430,800
Salaries expense
90,000
Insurance expense
5,200
Rent expense
5,000
Depreciation expense–Equipment
800
Depreciation expense–Building
7,000
Totals
$1,500,800
$1,500,800
Required:
(a) Determine the amounts of current assets and current liabilities. (Note: A $9,000 installment
on the long-term note payable is due within one year.)
(b) Calculate the current ratio. Comment on the ability of Blessinger Co. to meets its short-term
debts.
394) Companies experiencing seasonal variations in sales often choose a fiscal year
corresponding to their ________ year.
395) ________ are required at the end of the accounting period because certain internal
transactions and events remain unrecorded.
396) Accrual accounting and the adjusting process rely on two principles: the ________
principle and the ________ principle.
397) ________ 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.
398) Adjusting is a three-step process (1) ________, (2) ________, and (3) ________.
399) ________ 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).
400) Accrued revenues at the end of one accounting period often result in cash ________ in the
next period.
401) ________ revenues are liabilities requiring delivery of products and for services.
402) If a prepaid expense account were not adjusted for the amount used, on the balance sheet
assets would be ________ and equity would be ________.
403) Profit margin = ________ divided by net sales.
404) The ________ depreciation method allocates equal amounts of an asset’s cost to
depreciation during its useful life.
405) ________ is the process of allocating the cost of plant assets to the income statement over
their expected useful lives.
406) 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.
407) ________ expenses are those costs that are incurred in a period but are both unpaid and
unrecorded.
408) An ________ is a listing of all of the accounts in the ledger with their account balances
before adjustments are made.
409) An ________ is a listing of all of the accounts in the ledger with their account balances
after adjustments are made.