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125.
End-of-period adjustments
West Laboratory adjusts and closes its accounts at the end of each month. The trial
balance at September 30, 2015, before adjustments, is as follows:
The following information relates to month end adjustments:
(a) Office supplies on hand September 30 amounted to $500.
(b) The useful life of the medical equipment was estimated to be 20 years.
(c) Many patients pay in advance for major medical procedures. Fees of $6,000 were
earned during the month by performing procedures on patients who had paid in advance.
(d) Salaries earned by employees during the month but not yet recorded amounted to
$2,300.
(e) On September 1, West Laboratory had moved and paid 2 month’s rent in advance.
(f) Medical procedures performed during the month but not yet billed or recorded
amounted to $4,600.
Prepare the adjusting entries required at September 30.
126.
The Blue Chip Co. prepared the following income statement for December 31, 2015 but
neglected to make the necessary adjusting entries.
Required: Prepare a corrected income statement after considering the following:
(1.) The company had purchased a truck for $4,800 on January 1, 2015 which was
expected to last 5 years. It was originally debited to the account “Truck” and credited to
cash.
(2.) Salaries of $2,400 were owed to employees but not yet recorded.
(3.) The company owed $640 in accrued interest which was to be paid early in January
2016.
(4.) In November 2015, the company had received $3,600 of advance payments which
were originally recorded as Unearned Revenue. One-third of this was earned in December,
2015.
127.
Murphy’s Auto Co. purchased a large piece of equipment on January 1, 2004. The
equipment is being depreciated, using the straight-line method, at the rate of $16,000 per
year. On January 5, 2015 the book value of the machine was $190,000.
(a) What was the original cost of the machine?
(b) What will the book value be on December 31, 2016?
128.
Materiality
(A.) Identify several factors considered by an accountant in deciding whether an item is
“material.”
(B.) Does the concept of materiality complicate or simplify the process of making
adjusting entries? Give an illustration to support your answer.
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129.
End-of-period adjustments-effect on net income
Before making any year-end adjusting entries, the revenues of Hot Jazz Studio exceeded
expenses by $127,000. However, the following adjustments are necessary:
(A.) Prepaid rent consumed, $1,500.
(B.) Services rendered to clients but not yet billed, $20,000.
(C.) Interest accrued on notes payable, $1,100.
(D.) Depreciation, $4,800.
(E.) Accrued wages payable, $3,900.
(F.) Fees collected in advance which have now been earned, $7,100.
Complete the schedule to determine the net income of Hot Jazz Studio after these
adjustments have been recorded. Show the effect of each adjustment in the space
provided. Compute net income after adjustments and place answer in space provided.
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130.
End-of-period adjustments-effect on net income
Ocean View, Inc. reported revenues of $645,000 and expenses of $360,000 for the month
of May, before making any month-end adjusting entries. The following data are provided
regarding adjusting entries:
(A.) Portion of insurance expiring in May, $2,520.
(B.) A customer has used the facilities for two weeks in May; the fee of $4,200 has not yet
been billed.
(C.) Amount owed for salaries accrued in the last week of May, $1,650.
(D.) Depreciation on equipment for May $1,290.
(E.) Supplies used in May, $13,125.
(F.) Fees collected in advance which have been earned during May, $23,400.
Complete the schedule to determine the net income of Ocean View Inc. for May after
these adjustments have been recorded. Begin your schedule with income before adjusting
entries and then show the effect of each adjustment to arrive at net income after
adjustment.
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131.
Adjusting entries-effect on elements of financial statements
Galaxy Entertainment prepares monthly financial statements. On July 31, the accountant
made adjusting entries to record:
(A.) Depreciation for the month of July.
(B.) The portion of prepaid rent for outdoor stage and seating which had expired in July.
(C.) Earning of ticket revenue for July which had been subscribed in advance. (When
patrons purchase the Summer Jazz Series tickets in advance, the accountant credits
Unearned Ticket Revenue.)
(D.) Amount owed to Galaxy from the caterer who sold food and beverages during the July
performances. The amount due will be paid to the company on August 8.
(E.) Amount owed to the musicians which had accrued since the last pay day in July.
Indicate the effect of each of these adjusting entries on the major elements of the
company’s financial statements-that is, on revenue, expenses, net income, assets,
liabilities, and owners’ equity. Organize your answer in tabular form, using the column
headings shown below and the symbols + for increase, – for decrease, and NE for no
effect.
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132.
Adjusting entries-effect on elements of financial statements
Whoop-It-Up, Inc. prepares monthly financial statements. On March 31, the company’s
accountant made adjusting entries to record:
(A) Depreciation for the month of March.
(B) Amount owed to Whoop-It–Up, Inc. for March from the concessionaire operating a
juice bar in the facility. The amount due will be remitted to Whoop-It-Up, Inc during the
first week in April.
(C) Cost of supplies used in March. (When purchased, the cost of supplies is debited to an
asset account.)
(D) Earning of a portion of annual membership fees which had been collected in advance.
(When customers purchase annual memberships, an Unearned Revenue account is
credited.)
(E) Accrued interest for March owed on a bank loan obtained March 1. No interest
expense has yet been recorded.
Indicate the effect of each of these adjusting entries on the major elements of the
company’s financial statements-that is, on revenue, expenses, net income, assets,
liabilities, and owner’s equity. Organize your answer in tabular form, using the column
headings shown below and the symbols + for increase, – for decrease, and NE for no
effect.
