4-38 Test Bank – Chapter 4 – The Mechanics of Financial Accounting
17. Given below is a listing of selected accounts before adjusting entries for Duane
Corporation as of December 31.
Account Names
Account Balances
Unadjusted
Adjusted
Cash
$11,700
Supplies
3,000
Prepaid Rent
0
Salaries and wages
Payable
0
Unearned Revenue
0
Common Stock
20,000
Retained Earnings
9,400
Service Revenue
45,000
Supplies Expense
0
Salaries and Wages
Expense
24,600
Rent Expense
1,300
Complete the ‘Adjusted Account Balances’ column on the basis of the following
information:
a. Unused supplies amount to $400 on December 31.
b. $300 of rent is prepaid on December 31.
c. Unpaid salaries amount to $500 on December 31.
d. $1,200 of the $45,000 service revenue is not yet earned on December 31.
Solution:
18. If interest payable on January 1 is $3,000, and during the current year interest expense
is $62,000, and cash payments for interest is $63,000, then what is the balance in the T–
account, Interest Payable, on December 31?
Cash
Supplies
Prepaid Rent
Payable
Unearned Revenue
Common Stock
Retained Earnings
Service Revenue
Supplies Expense
Salaries and Wages
Expense
Rent Expense
Test Bank – Chapter 4 – The Mechanics of Financial Accounting 4-39
4-40 Test Bank – Chapter 4 – The Mechanics of Financial Accounting
19. If interest payable on January 1 is $1,000, and during the current year interest is accrued
for $2,200, and cash payments for interest amount to $2,000, then what is the balance in
the T-account, Interest Expense, on December 31?
20. If accounts receivable on January 1 totals $21,000, and during the current year sales
revenue is $310,000, and cash receipts from customers is $296,000, then what is the
balance in Accounts Receivable on December 31?
21. On July 1, Sanders, Inc. borrowed $12,000 from another company on a 12%, one-year
note. Prepare the journal entries to record the note on July 1 and to accrue interest on
December 31.
22. Accounts receivable on January 1 and December 31 is $18,000 and $21,500,
respectively. During the year, sales revenue is $260,000. What is the current year’s cash
received from customers?
Test Bank – Chapter 4 – The Mechanics of Financial Accounting 4-41
23. Inventory on January 1 and December 31 is $41,500 and $47,000, respectively. During
the year, cash paid to suppliers of inventory is $100,000. If all purchases of inventory are
for cash, how much is the current year’s cost of goods sold?
24. Interest receivable on January 1 and December 31 totals $4,800 and $3,600,
respectively. During the year, cash received from interest is $20,000. Determine interest
revenue for the current year.
25. Marian Company collected $8,000 cash in advance during March for services to be
performed in April and May. At the end of April an adjusting entry was made to debit
Unearned Revenue and credit Service Revenue for $4,200. The ending balance in the
Unearned Revenue account was $3,800.
A. What entry was made during March when the original $8,000 was collected?
B. How much will Marian report on its balance sheet as a liability at the end of April as a
result of the transactions?
26. On October 1, 2018, Edinboro Company rented a building from another company for
$90,000 for a two-year time period. Edinboro Company debited Rent Expense on
October 1 when the payment was made. What adjustment for rent is necessary at
December 31, 2018?
4-42 Test Bank – Chapter 4 – The Mechanics of Financial Accounting
27. The following are amounts from the accounting records of Farley Company before
adjusting entries have been for the year ending December 31, 2018.
Cash
$ 3,200
Accounts receivable
2,600
Supplies
2,100
Investment in Coca-Cola stock
10,000
Equipment
80,000
Accumulated depreciation-equip.
20,000
Accounts payable
4,800
Note payable 8%
20,000
Common stock
24,500
Retained earnings
11,800
Service revenue
42,600
Interest revenue
1,200
Supplies expense
5,000
Salaries and Wages expense
20,000
Depreciation expense
0
Interest expense
2,000
The following adjustments have not been made as of December 31, 2018:
1. Wages accrued on 12/31/18 amounts to $1,100.
2. Three months’ interest on the note payable has not been paid or recognized.
3. Depreciation for 2018 amounts to $3,000.
4. Supplies on hand at 12/31/18 amounts to $700.
Prepare Farley’s balance sheet at December 31, 2018 after the adjusting process is
completed. Omit the heading.
Test Bank – Chapter 4 – The Mechanics of Financial Accounting 4-43
4-44 Test Bank – Chapter 4 – The Mechanics of Financial Accounting
28. Given below is the Accounts Receivable T-account. Accounts Receivable on January 1
was $3,700. During the year, customers charged on account sales totaling $255,000.
The current year’s cash received from customers is $250,000. Post all amounts to this
account and calculate the account balance.
Accounts Receivable
29. On January 1, 2018, Somerville Co. received $3,600 for a three-year service
subscription. Somerville credited a revenue account on January 1 for the cash received.
What adjusting entry must be made on December 31, 2018?
Service Revenue
2,400
Unearned Revenue
30.
Use the information that follows taken from the unadjusted accounting records of
Sheena, Inc. for the year ending December 31, 2018..
Cash
$ 500
Accounts Receivable
700
Prepaid Insurance
100
Supplies
200
Equipment
3,500
Accumulated Depreciation-Equip.
$ 1,000
Accounts Payable
1,600
Unearned Revenue
400
Contributed Capital
1,200
Retained Earnings
800
Dividends
800
Service Revenue
4,900
Salaries and Wages Expense
2,000
Rent Expense
1,500
Supplies Expense
600
_____
Totals
$9,900
$9,900
The following information is needed for adjusting entries at the end of December.
Test Bank – Chapter 4 – The Mechanics of Financial Accounting 4-45
a. On December 31, 2018, the insurance expired amounted to $80.
b. Of the unearned revenue, $250 of services had been performed.
c. Services have been performed for customers that have not yet been billed or paid
totaling $180.
d. The equipment computation for 2018 depreciation amounts to $200.
What is the effect on net income of each of the adjusting entries necessary for Sheena, Inc.?
Solution:
4-46 Test Bank – Chapter 4 – The Mechanics of Financial Accounting
31.
Use the information that follows taken from the unadjusted accounting records of
Sheena, Inc. for the year ending December 31, 2018..
Cash
$ 500
Accounts Receivable
700
Prepaid Insurance
100
Supplies
200
Equipment
3,500
Accumulated Depreciation-Equip.
$ 1,000
Accounts Payable
1,600
Unearned Revenue
400
Contributed Capital
1,200
Retained Earnings
800
Dividends
800
Service Revenue
4,900
Salaries and Wages Expense
2,000
Rent Expense
1,500
Supplies Expense
600
_____
Totals
$9,900
$9,900
The following information is needed for adjusting entries at the end of December.
a. On December 31, 2018, the insurance expired amounted to $80.
b. Of the unearned revenue, $250 of services had been performed.
c. Services have been performed for customers that have not yet been billed or paid
totaling $180.
d. The equipment computation for 2018 depreciation amounts to $200.
How much net income will Sheena report for the year ending December 31, 2018?
32.
Service Fees Revenue ($4,900 + $250 + $180)
$ 5,330
Expenses:
Wages Expense
$2,000
Rent Expense
1,500
Insurance Expense
Total Expenses
4,380
Net income
Test Bank – Chapter 4 – The Mechanics of Financial Accounting 4-47
Use the information that follows taken from the unadjusted accounting records of
Sheena, Inc. for the year ending December 31, 2018..
Cash
$ 500
Accounts Receivable
700
Prepaid Insurance
100
Supplies
200
Equipment
3,500
Accumulated Depreciation-Equip.
$ 1,000
Accounts Payable
1,600
Unearned Revenue
400
Contributed Capital
1,200
Retained Earnings
800
Dividends
800
Service Revenue
4,900
Salaries and Wages Expense
2,000
Rent Expense
1,500
Supplies Expense
600
_____
Totals
$9,900
$9,900
The following information is needed for adjusting entries at the end of December.
a. On December 31, 2018, the insurance expired amounted to $80.
b. Of the unearned revenue, $250 of services had been performed.
c. Services have been performed for customers that have not yet been billed or paid
totaling $180.
d. The equipment computation for 2018 depreciation amounts to $200.
Determine total liabilities for Sheena, Inc. at December 31, 2018.
33. Inventory on January 1 and December 31 is $50,000 and $35,000, respectively.
Accounts payable on January 1 and December 31 are $25,000 and $29,000,
respectively. During the year, cost of goods sold is $180,000. How much are the current
year’s cash payments to suppliers of inventory?
4-48 Test Bank – Chapter 4 – The Mechanics of Financial Accounting
34. Retained earnings on January 1 and December 31 are $72,000 and $69,000,
respectively. During the year, net income is $100,000. How much dividends did the
company declare and pay to the shareholders?
Test Bank – Chapter 4 – The Mechanics of Financial Accounting 4-49
35. During the first year of business, office supplies were purchased for cash in the amount
of $2,000 and the amount was debited to Supplies Expense. At the end of the first year,
the physical count indicated that $500 of supplies was unused. How much should be
reported on the income statement at year end for supplies expense? On the balance
sheet for supplies?
4-50 Test Bank – Chapter 4 – The Mechanics of Financial Accounting
SHORT ESSAY QUESTIONS
1. Dora Manufacturing, a capital-intensive company that manufactures commercial snow
blowers, announced that it is expecting a record loss of $7,000,000 in 2018. However, it
also stated that its business is generating sufficient cash to meet its obligations due in
2018. How can Dora lose $7 million and still generate cash necessary to meet
obligations?
Solution:
2. How does the information presented in an income statement relate to the information
reported in a statement of shareholders’ equity?
3. Describe a debit. How does it impact the accounts?
Test Bank – Chapter 4 – The Mechanics of Financial Accounting 4-51
4. How do the concepts of economic events and objectivity relate?
Solution:
5. Why are ‘expenses paid for in advance’ reported as assets? What happens to this
‘asset’ as time passes?
Solution:
6. Name two components of shareholders’ equity and describe what each consists of.
7. What are journal entries and how they used in accounting?
4-52 Test Bank – Chapter 4 – The Mechanics of Financial Accounting
8. What are revaluation adjustments?
Solution:
9. Why is the acquisition of merchandise inventory capitalized as an asset?
Solution:
10. How does the accrual for wages relate to the cash paid for salaries and wages expense?
Solution:
11. What purpose does a gain or loss associated with the sale of a plant asset serve?
Test Bank – Chapter 4 – The Mechanics of Financial Accounting 4-53
12. Why are ‘unearned revenues’ considered liabilities?
13. Why do managers need to understand how economic events affect the financial
statements?
14. What is depreciation?
15. Explain the difference between temporary and permanent accounts. Please give four
examples of each.
Solution:
4-54 Test Bank – Chapter 4 – The Mechanics of Financial Accounting
16. Explain what is meant by a “contra account” and give two examples of contra accounts
that would be found on the balance sheet.