125) On July 1, 2019, Bass Company paid a two-year insurance premium. On that date the
following journal entry was made:
Prepaid insurance
4,800
Cash
4,800
The annual accounting period ends on December 31, 2019.
A. How much of the premium should be reported as expense on the 2019 income statement?
B. What is the amount of prepaid insurance that should be reported on the balance sheet at
December 31, 2019?
C. Prepare the adjusting entry that should be made on December 31, 2019, assuming no
adjusting entries have been made during the year.
$4,800 × 6/24 = 1,200.
$4,800 × 18/24 = 3,600.
Insurance expense
Prepaid insurance
126) For each of the following transactions, indicate the direction of effects of the adjusting entry
on the elements of the balance sheet and income statement. Using the following format, indicate
+ for increase, – for decrease, and NE for no effect. Do not leave any blank spaces.
Transactions:
A. Wages of $5,800 have been earned, but not paid to employees at the end of the year.
B. Supplies in the amount of $2,000 were used during the year, which are currently recorded in
the office supplies (inventory) account.
C. Interest has accrued on a note payable.
Balance Sheet
Income Statement
Assets
Liabilities
Stockholders’
Equity
Revenues
Expenses
Net
Income
Transaction
Balance Sheet
Income Statement
Assets
Liabilities
Stockholders’
Equity
Revenues
Expenses
Net
Income
127) Explain how adjusting entries provide for potential manipulation by managers. In addition,
discuss how compensation arrangements may result in incentives for such manipulation to occur.
128) On September 1, 2019, Fast Track, Inc. was started with $30,000 invested by the owners as
contributed capital. On September 30, 2019, the accounting records contained the following
amounts:
Accounts payable
$1,800
Dividends declared
and paid
$1,900
Accounts
receivable
2,200
Office equipment
25,000
Accumulated
depreciation
500
Office supplies
1,750
Cash
10,000
Office supplies
expense
600
Consulting fees
revenue
19,200
Rent expense
2,400
Common stock
30,000
Telephone expense
250
Depreciation
expense
500
Wages expense
6,900
Prepare an income statement for September for the first month of Fast Track’s operation. Ignore
income taxes.
Consulting Fees Revenue
Total operating expenses
Net income
129) On September 1, 2019, Fast Track, Inc. was started with $30,000 invested by the owners as
contributed capital. On September 30, 2019, the accounting records contained the following
amounts:
Accounts payable
$1,800
Dividends declared and paid
$1,900
Accounts
receivable
2,200
Office equipment
25,000
Accumulated
depreciation
500
Office supplies
1,750
Cash
10,000
Office supplies expense
600
Consulting fees
revenue
19,200
Rent expense
2,400
Common stock
30,000
Telephone expense
250
Depreciation
expense
500
Wages expense
6,900
Prepare a statement of stockholders’ equity for September, the first month of operation. Ignore
income taxes.
Beginning balance
September 1, 2019
Stock issued
Net income
8,550
Dividends declared
Ending balance
September 30, 2019
130) On September 1, 2019, Fast Track, Inc. was started with $30,000 invested by the owners as
contributed capital. On September 30, 2019, the accounting records contained the following
amounts:
Accounts payable
$1,800
Dividends declared and paid
$1,900
Accounts receivable
2,200
Office equipment
25,000
Accumulated depreciation
500
Office supplies
1,750
Cash
10,000
Office supplies expense
600
Consulting fees revenue
19,200
Rent expense
2,400
Common stock
30,000
Telephone expense
250
Depreciation expense
500
Wages expense
6,900
Prepare a balance sheet for Fast Track, Inc. as of September 30, 2019.
Cash
$10,000
Accounts payable
$1,800
Accounts receivable
2,200
Stockholders’ equity:
Office supplies
1,750
Common stock
30,000
Retained earnings*
6,650
Office equipment
25,000
Depreciation
(500)
Total Assets
$38,450
Stockholders’ Equity
$38,450
131) The results or a balance on one financial statement may affect the results or a balance on
another financial statement.
Prepare a response to the following items.
A. Describe how the income statement is related to the statement of stockholders’ equity.
B. Describe how the statement of stockholders’ equity is related to the balance sheet.
C. Describe how the statement of cash flows is related to the balance sheet.
132) Modern Mother Magazine (MMM) has received cash subscriptions on April 1, 2019 in the
amount of $3,600,000 for the next three years. The year-end for MMM is December 31, 2019.
Magazine delivery occurs monthly and started on April 1, 2019. These were the only
subscription sales for the year.
Answer the following questions for the year ended December 31, 2019.
A. What amount of cash should be reported for the year on the statement of cash flows?
B. What amount of subscriptions revenue should be reported on the income statement?
C. What amount would be reported as unearned subscriptions revenue on the balance sheet as of
December 31, 2019?
133) What does the total asset turnover ratio measure and how is it calculated? Give two
examples of transactions that decrease the ratio.
134) The adjusted trial balance of Tahoe Company at the end of the accounting year, December
31, 2019, showed the following:
Account Titles
Adjusted Trial Balance
Debits
Credits
Cash
$20,000
Machinery
90,000
Accumulated
depreciation
$16,000
Accounts payable
7,000
Capital stock
20,000
Retained earnings
59,000
Service revenue
40,000
Interest expense
4,000
Operating expenses
17,000
Depreciation expense
11,000
Total
$142,000
$142,000
A. Prepare all the required closing entries for Tahoe Company at December 31, 2019.
B. Calculate the 2019 ending balance in retained earnings.
Service revenue
Retained earnings
Retained earnings
Interest expense
Operating expenses
Depreciation expense
135) Air Cargo Company recorded the following adjusting entries at the end of the accounting
year, December 31, 2019:
Wages expense
2,000
Wages payable
2,000
Interest receivable
1,000
Interest revenue
1,000
Before these adjusting entries were recorded, a partial unadjusted trial balance reflected the
following:
Account
Balance
Debits
Credits
Service revenue
80,000
Operating expenses
53,000
Wage expense
28,000
Wages payable
-0-
Interest receivable
8,000
Interest revenue
9,000
Prepare the closing entries for Air Cargo Company at December 31, 2019.
Service revenue
Interest revenue
Retained earnings
b.
Retained earnings
Operating expenses
Wages expense
136) At December 31, 2019, the following adjusting entries were recorded in the accounts of
ABD Company.
Interest receivable
2,000
Interest revenue
2,000
Wages expense
10,000
Wages payable
10,000
There were no other accrued receivables or payables on ABD’s books in 2019.
Calculate the balances in the following accounts immediately after the closing entries were
posted.
Transactions
Accounts
Debit
Credit
1.
Interest receivable
$
$
2.
Interest revenue
$
$
3.
Wages expense
$
$
4.
Wages payable
$
$
1.
Interest receivable
2.
Interest revenue
3.
Wages expense
4.
Wages payable
88
137) Determine the effect of the following errors on the financial statements. Code your answers
as follows and do not leave any blank spaces.
O: If the error results in an overstatement of the financial statement component.
U: If the error results in an understatement of the financial statement component.
N: If the error does not affect the financial statement component.
Error 1: A company failed to record accrued wage expense at year-end.
Revenue _____
Expenses _____
Net income _____
Assets _____
Liabilities _____
Stockholders’ equity _____
Error 2: A company failed to accrue revenue earned at year-end.
Revenue _____
Expenses _____
Net income _____
Assets _____
Liabilities _____
Stockholders’ equity _____
Error 3: A company recorded revenue when cash was received from a customer for services to be
provided in the future.
Revenue _____
Expenses _____
Net income _____
Assets _____
Liabilities _____
Stockholders’ equity _____
90
138) Determine the effect of the following errors on the financial statements. Code your answers
as follows and do not leave any blank spaces.
O: If the error results in an overstatement of the financial statement component.
U: If the error results in an understatement of the financial statement component.
N: If the error does not affect the financial statement component.
Error 1: A company failed to adjust the prepaid insurance account for insurance that was used
during the period.
Revenue _____
Expenses _____
Net income _____
Assets _____
Liabilities _____
Stockholders’ equity _____
Error 2: A company failed to record depreciation expense at year-end.
Revenue _____
Expenses _____
Net income _____
Assets _____
Liabilities _____
Stockholders’ equity _____
Error 3: A company did not adjust the unearned revenue account for revenue earned during
the year.
Revenue _____
Expenses _____
Net income _____
Assets _____
Liabilities _____
Stockholders’ equity _____