120. Entries for the following items were either omitted or recorded incorrectly in preparing the financial
statements for Year 3. Indicate the amount and nature [understatement (U), overstatement (O), no effect (N)] of
the effect of the omission on total assets, total liabilities, and net income for Year 3. Ignore income tax effects.
Use the following format:
Total Assets
Total Liabilities
Net Income
a.
On December 1, Year 3, a firm debits Prepaid Rent (Advances to Car Rental Agency) for $600 for 6 months’ rent on an automobile. The
firm has neglected to make the adjusting entry on December 31.
b.
A firm debits Administrative Expenses for $6,000 for a microcomputer acquired on July 1, Year 3. The microcomputer has an expected
useful life of 3 years and zero estimated salvage value.
c.
A firm rents out excess office space for the 6-month period beginning January 1, Year 3. It received the rental check for this period of
$600 on December 26, Year 2, and correctly credited Advances from Tenants. It made no further journal entries during Year 3.
d.
Interest on Notes Receivable of $500 had accrued by December 31, Year 3, but the firm overlooked making an entry to record this
interest.
e.
A firm receives a check for $250 from a customer on December 31, Year 3, in settlement of an account receivable. The firm recorded
this entry with a credit to Sales.
f.
A firm records as $470 an expenditure of $740 for travel during December, Year 3.
Total Assets
Total Liabilities
Net Income
O; 100
N
O; 100
N
O; 600
U; 600
U; 500
N
U; 500
O; 250
N
O; 250
121. When examining the work an accountant performs for many organizations, many of the challenges revolve
around creating adjusting entries that bring the accounts into an accrual accounting basis. Four such adjusting
entries may include accounting for accrued revenues (unrecorded revenues), accrued expenses (unrecorded
expenses), deferred revenue (previously recorded revenues), and deferred expenses (previously recorded
expenses).
Required:
For each type of adjusting entry listed above, discuss an example adjusting entry that a lighting retailer might
make.
122. Assume that a firm uses the accrual basis of accounting. Indicate the amount of expense the firm
recognizes during the month of November for each independent transaction.
a.Rent of $3,600 is paid on November 1 for the months November through January.
b.Inventory costing $2,500 is ordered on account. The invoice is received on November 25 and the goods are
received on December 5.
c.Insurance premium of $900 is paid for a full year of coverage starting November 1.
d.On December 3, an invoice for November utilities of $325 is received.
e.On November 1, supplies costing $2,200 are purchased. At November 30, $500 of supplies remained on
hand.
123. On the next page is the unadjusted trial balance of Bogo Department Store on December 31, Year 6. The
company closes its books annually. You are asked to indicate the adjusting entries required on December 31,
Year 6 to conform the books to accrual accounting principles.
1.
Bogo neglected to record unpaid charges for telephone services for December in the amount of $13,700.
2.
The balance in the Advances from Customers account represents the amount received from a lessee on November 1, Year 6 for the rental
of excess warehouse space owned by Bogo. The rental period is for the six months ended April 30, Year 7.
3.
Bogo acquired a warehouse on July 1, Year 6 and correctly recorded the acquisition cost of $600,000 in its accounts. The warehouse has a
30-year estimated life and zero salvage value. Bogo neglected to record depreciation on the warehouse, although it has correctly recorded
depreciation on all other depreciable assets for Year 6.
4.
Bogo debited Selling and Administrative Expenses for salaries paid during Year 6. Salaries remaining unpaid as of December 31, Year 6
total $3,700.
5.
Sales made on account during the last two days of December, Year 6 totaled $12,000. Bogo incorrectly recorded these sales by debiting
accounts payable. These accounts had not been collected by year end.
6.
Bogo sold a piece of equipment during Year 6 for $1,800 that had originally cost $6,000 and had accumulated depreciation of $4,200.
Bogo recorded this sale by debiting Cash for $1,800 and crediting Equipment for $1,800.
7.
The balance in the Prepaid Insurance account represents the balance as of January 1, Year 6. Bogo renewed its only insurance policy on
March 1, Year 6 and charged the one-year premium of $5,100 to Selling and Administrative Expenses.
8.
A physical inventory of store supplies on December 31, Year 6 revealed that supplies costing $1,850 were on hand.
9.
The note receivable was received from a corporate officer on December 1, Year 6. The note bears interest at 6 percent. The interest is
payable with the principal amount borrowed at maturity on June 1, Year 7.
Bogo Department Store
Unadjusted Trial
Balance
December 31, Year 6
Letter
Account
Debit
Credit
A.
Accounts Payable
—
$ 390,000
B.
Accounts Receivable
$ 490,000
—
C.
Accumulated Depreciation
—
980,000
D.
Advances from Customers
—
3,600
E.
Building
1,500,000
—
F.
Bonds Payable
—
1,200,000
G.
Cash
12,700
—
H.
Common Stock
—
400,000
I.
Cost of Goods Sold
2,290,000
—
J.
Depreciation Expense
150,000
—
K.
Equipment
620,000
—
L.
Interest Expense
96,000
—
M.
Interest Receivable
—
—
N.
Interest Revenue
—
—
O.
Merchandise Inventory
570,000
—
P.
Note Receivable
30,000
—
Q.
Other Current Liabilities
—
130,000
R.
Prepaid Insurance
800
—
S.
Rent Revenue
—
—
T.
Retained Earnings
—
89,040
U.
Salaries Payable
—
4,500
V.
Sales Revenue
—
3,000,000
W.
Selling and Administrative Expenses
430,000
—
X.
Supplies Inventory
7,640
—
Totals
$6,197,140
$6,197,140
Required:
Indicate the letters in the unadjusted trial balance corresponding to the accounts debited and credited and the amount in each debit and credit entry.
Use only the accounts listed in the unadjusted trial balance. More than one account may be debited or credited in a particular adjusting entry. If no
adjusting entry is needed, indicate “No Entry” by the number of the entry. Remember that asset increases and liability and shareholders’ equity
decreases are recorded with debits and asset decreases and liability and shareholders’ equity increases are recorded with credits.
124. The records of Horner Corp. show the following information:
(a)
Purchased a three-year insurance policy for $10,800 on September 1, 2013, and recorded the premium payment in the asset
account.
(b)
Borrowed $60,000 on a 1-year, 12% note on August 1, 2013. Interest is payable at maturity.
(c)
Collected $8,400 on September 1, 2013, to cover six months’ rent paid in advance, and recorded the receipt in a revenue
account.
(d)
Machinery purchased on January 1, 2013, for $600,000 is to be depreciated over four years, with no salvage value at the
end of this period.
1,200
(b)
3,000
Interest Payable …………………….……………………
3,000
Unearned Rental Income …………………….……….
2,800
(e)
Depreciation Expense—Machinery …….……..……..
150,000
Accumulated Depreciation—Machinery……………
150,000
D
1,200
S
1,200
J
10,000
C
10,000
U
W
B
12,000
A
12,000
R
W
W
5,790
X
5,790
M
N
125. The post-closing trial balance of the Falisari Import Company at March 31 is as follows.
Debit
Credit
Cash
$ 321,000
Accounts Receivable
201,000
Inventory
504,000
Building and Equipment
1,560,000
Accumulated Depreciation
$ 240,000
Accounts Payable
246,000
Salaries Payable
45,000
Common Stock
1,410,000
Retained Earnings
_______
645,000
$2,586,000
$2,586,000
Transactions during April and additional information follow.
1.
Sales on account
$300,000
2.
Cash sales
195,000
3.
Cash collected on accounts receivable
240,000
4.
Salaries paid in cash
150,000
5.
Salaries earned on April 29 and 30, but not yet paid
15,000
6.
Miscellaneous expenses paid in cash
30,000
7.
Merchandise purchased on account
330,000
8.
Accounts payable paid in cash
270,000
9.
Merchandise inventory, April 30
540,000
10.
Depreciation expense in April
9,000
Required:
Prepare an income statement for the month of April and a post-closing trial balance at April 30.
Sales
$495,000
Less Expenses
Cost of Goods Sold
$294,000
Salary Expense
120,000
Depreciation Expense
9,000
Miscellaneous Expense
30,000
Total Expenses
453,000
Net Income
$ 42,000
Cash
$ 306,000
Accounts Receivable
261,000
Inventory
540,000
Building and Equipment
1,560,000
Accumulated Depreciation
$ 249,000
Accounts Payable
306,000
Salaries Payable
15,000
Common Stock
1,410,000
Retained Earnings
_________
687,000
Totals
$2,667,000
$2,667,000
126. As a new employee in the accounting department of The Education Company, you noticed that the
company’s financial software generates common-size financial statements. However, your supervisor stated that
the common-size statements are not of importance. The statements are in fact trashed and never reviewed by
upper management. Write a memo to your supervisor describing common-size financial statements (balance
sheet and income statement) and explain how these statements might be utilized.
127. How are period expenses recognized and measured?
RECOGNITION OF PERIOD EXPENSES
128. Describe the steps used for the accounting record-keeping process.
OVERVIEW OF THE ACCOUNTING RECORD-KEEPING PROCESS
129. What are common-size income statements?
COMMON-SIZE INCOME STATEMENT
130. Describe the closing entries process at the end of the accounting period..
CLOSING ENTRIES
131. Describe the relationship between the balance sheet and the income statement.
RELATIONSHIP BETWEEN THE BALANCE SHEET AND THE INCOME STATEMENT
132. The balance sheet portrays the effects of a firm’s investing and financing decisions. In analyzing these
decisions, what two principles guide financing decisions:
BALANCE SHEET RELATIONS
133. Describe the relationship between the balance sheet and the income statement.
RELATIONSHIP BETWEEN THE BALANCE SHEET AND THE INCOME STATEMENT