Chapter 4: Income Measurement and Accrual Accounting
Lowen Homes’ December income statement for 2016?
$20,050,000 × 6% = $1,203,000 December commissions accrued
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 – LO: 04-02
FACC.PONO.13.04-05 – LO: 04-05
Bloom’s: Analyzing
220. Calzone, Inc. signs a 9% 4-month $50,000 loan with Reliable Bank on October 1, 2016. Determine the effects on the
accounting equation for the following items:
A.
The signing of the loan on October 1, 2016 by Calzone, Inc.
B.
The recording of the interest on December 31, 2016 by Calzone, Inc.
ANSWER:
A)
Balance Sheet
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net Income
Cash
50,000
Notes
Payable
50,000
B)
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net Income
Interest
Payable
1,125
(1,125)
Interest
Expense
1,125
(1,125)
($50,000 × .09 × 3/12)
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 – LO: 04-02
FACC.PONO.13.04-05 – LO: 04-05
KEYWORDS:
Bloom’s: Analyzing
221. Lowen Homes, Inc. pays its sales personnel 6% commission of the selling price of each home. During November of
2016, sales people sold $18,400,000 of homes. During December, 2016, sales people sold $20,050,000 of homes. Because
its policy is to pay commissions only in the month after the sales, Lowen paid commissions during December for
November, 2016. During January of 2017, Stitt paid its sales people commissions for December, 2016.
A)
If the cash basis of accounting is used, how much is reported commission expense on Lowen
Homes’ income statement for December of 2016?
Chapter 4: Income Measurement and Accrual Accounting
222. Martinez Produce sells fresh vegetables and fruits in Sutton County. The following unadjusted amounts were taken
from the company’s accounting records at December 31, 2016:
Note Payable, 12%, 4-month, dated December 1, 2016, for $20,000
Note Receivable, 10%, 6-month, dated October 1, 2016, for $12,000
A)
Determine the effects on the accounting equation of any adjusting entries that would be
necessary at December 31, 2016, for the notes.
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net Income
B)
Fill in the partial balance sheet below by showing the notes and the effects of any
adjustments related to the notes.
Current Assets
Current Liabilities
ANSWER:
A)
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net
Income
Interest
Receivable*
300
Interest
Payable**
200
100
Interest
Revenue
300
Interest
Expense
200
100
* ($12,000 × .10 × 3/12)
** ($20,000 ×.12×1/12)
B)
Current Assets
Current Liabilities
Note receivable
$12,000
Note payable
$20,000
Interest receivable
300
Interest payable
200
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 – LO: 04-05
KEYWORDS:
Bloom’s: Analyzing
Chapter 4: Income Measurement and Accrual Accounting
=
Liabilities
+
Stockholders’
Revenues
–
Expenses
=
Income
transaction. Expenses would be understated in the amount of $500 if the
Moderate
FACC.PONO.13.04-05 – LO: 04-05
Bloom’s: Analyzing
223. The following unadjusted amounts were taken from Ruben Gifts’ accounting records at December 31, 2016:
Rent Collected in Advance
$ 1,000
Office Supplies
740
A)
Determine the effects on the accounting equation of any adjusting entries necessary for
Ruben Gifts at December 31, 2016, for both of the following transactions:
1)
During December of 2016, Ruben Gifts had received payments from tenants that
were renting storage space in its warehouse. The payments received by Ruben
Gifts were for the period December, 2016, and January, 2017.
2)
At the end of the year, Ruben Gifts determined that $240 of office supplies
remained on hand.
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net Income
B)
What is the effect of omitting these adjustments on the current year’s net income?
ANSWER:
A)
(1)
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net Income
Rent
collected in
advance
(500)
500
Rent
revenue
500
500
(2)
Balance Sheet
Income Statement
Chapter 4: Income Measurement and Accrual Accounting
$18,000 ×3/12 = $4,500) + ($18,000 × 1/12 = $1,500)
=
+
Stockholders’
Equity
Revenues
–
Expenses
=
($60,000 × .30)
Current Liabilities
Unearned subscription revenue
Income taxes payable
Moderate
FACC.PONO.13.04-05 – LO: 04-05
Bloom’s: Analyzing
224. The following unadjusted amount was reported on Rental Entertainment Corporation’s accounting records at
December 31, 2016:
Unearned Subscription Revenue
$ 36,000
A)
Determine the effect on the accounting equation of any adjusting entries necessary at
December 31, 2016, for each of the following transactions:
1)
During the year, Rental Entertainment sold 12-month subscriptions for its newly
developed Internet service. Half of the subscriptions began October 1, 2016, while
the other half began December 1, 2016.
2)
Rental estimates its income taxes to be 30 percent of its estimated income of
$60,000
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net Income
B)
Prepare the current liabilities section of Rental’s balance sheet by listing any current
liabilities and the related amounts as a result of the adjustments in Part A
ANSWER:
A)
(1)
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net
Income
Unearned
Subscription
Revenue
(6,000)
6,000
Subscription
Revenue
6,000
6,000
Chapter 4: Income Measurement and Accrual Accounting
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
225. Motor Repair Shop uses the accrual basis of accounting, and had the following account balances on its financial
statements at December 31, 2016:
Rent Revenue
$ 34,000
Accounts Receivable
8,200
Utilities Payable
1,500
Rent Expense
2,100
Unearned Repair Revenue
700
Depreciation Expense
1,000
Salaries Expense
32,000
Salaries Payable
800
Retained Earnings, January 1
10,000
Dividends
500
Interest Revenue
4,000
On January 1, the Utilities Payable Account had a zero balance. Motor Repair paid cash for utilities totaling $45,000
during 2016. How much should Motor Repair report as utilities expense as of December 31, 2016?
ANSWER:
$46,500
$45,000 (Cash paid) + $1,500 (Utilities payable) = $46,500
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 – LO: 04-05
KEYWORDS:
Bloom’s: Analyzing
226. Motor Repair Shop uses the accrual basis of accounting, and had the following account balances on its financial
statements at December 31, 2016:
Rent Revenue
$ 34,000
Accounts Receivable
8,200
Utilities Payable
1,500
Rent Expense
2,100
Unearned Repair Revenue
700
Depreciation Expense
1,000
Salaries Expense
32,000
Salaries Payable
800
Retained Earnings, January 1
10,000
Dividends
500
Interest Revenue
4,000
On January 1, there was a $0 balance in the salaries payable account. How much cash did Motor Repair pay for salaries
during the year?
ANSWER:
$31,200
$32,000 (Salaries expense) – $800 (Salaries payable) = $31,200
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 – LO: 04-05
KEYWORDS:
Bloom’s: Analyzing
Chapter 4: Income Measurement and Accrual Accounting
Scenic View Foods Corporation
The following is the consolidated statements of income for Scenic View Foods Corporation for the years ending
December 31, 2016 and 2017
Years Ended December 31,
(in millions of dollars)
2017
2016
Revenues
Sales by company-operated restaurants
$ 8,894.9
$ 8,136.5
Revenue from franchised restaurants
3,526.5
3,272.3
Total revenues
12,421.4
11,408.8
Operating costs and expenses
Company-operated restaurants
Food and packaging
2,997.4
2,772.6
Payroll and other employee benefits
2,220.3
2,025.1
Occupancy and other operating expenses
2,043.9
1,851.9
7,261.6
6,649.6
Franchised restaurants-occupancy expenses
678.0
613.9
General, administrative and selling expenses
1,458.5
1,450.5
Made for You and special charges
321.6
Other operating (income) expense
(60.2)
(113.5)
Total operating costs and expenses
9,659.5
8,600.5
Operating income
2,761.9
2,808.3
Interest expense
413.8
364.4
Nonoperating income (expense)
40.7
36.6
Income before provision for income taxes
2,307.9
2,407.3
Provision for income taxes
757.3
764.8
Net income
$ 1,550.1
$ 1,642.5
227. Refer to the consolidated statements of income for Scenic View Foods Corporation.
REQUIRED: Identify three specific accounts of Scenic View Foods that might include expenses accrued as a result of
adjustments. Discuss the ‘effects’ of these on the accounting equation. Ignore amounts.
ANSWER:
The accounts are: Wages expense, interest expense, and income taxes expense, as well as
their corresponding payables, Wages Payable, Interest Payable, and Income Tax Payable.
Other accounts that may be used are food, packaging, payroll, other benefits, etc. The effects
are:
Wages Expense – decrease stockholders’ equity and Wages Payable – increase liabilities;
Income Taxes Expense – decrease stockholders’ equity and Income Taxes Payable – increase
liabilities;
Interest Expense – decrease stockholders’ equity and Interest Payable – increase liabilities
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 – LO: 04-05
KEYWORDS:
Bloom’s: Analyzing
Chapter 4: Income Measurement and Accrual Accounting
228. Refer to the consolidated statements of income for Scenic View Foods Corporation.
Required:
(1) Notice that Scenic View Foods reported “Provision for income taxes.” What type of account is this? What adjustment
would have been made if this accrual were necessary at December 31, 2017?
(2) Scenic View Foods reported $3.1 million and $2.8 million of accrued interest in the liability section of its balance
sheet at December 31, 2017 and 2016, respectively. How much cash did it pay during 2016 for interest?
(3) Is Scenic View Foods income statement an “interim statement”? Explain.
ANSWER:
(1) This account represents income taxes expense. The adjustment necessary would cause an
increase in taxes payable and a decrease in stockholders’ equity (by using tax expense).
(2) $413.5 [Calculation: $413.8 (Interest Expense for 2016) + $2.8 (Interest Payable, Jan. 1)
– $3.1 (Interest Payable, Dec. 31) = $413.5]
(3) No. Interim statements are for periods less than one year, such as monthly or quarterly.
This income statement includes a full reporting year for both 2016 and 2017.
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 – LO: 04-05
FACC.PONO.13.04-06 – LO: 04-06
KEYWORDS:
Bloom’s: Analyzing
229. Refer to the consolidated statements of income for Scenic View Foods Corporation.
Required: Identify three specific accounts of Scenic View Foods that might include expenses accrued as a result of
adjusting journal entries. Show what these entries would look like in journal format. Ignore amounts.
ANSWER:
The accounts are: Wages expense, interest expense, and income taxes expense. Other
accounts that may be used are food, packaging, payroll, other benefits, etc. The entries are:
Wages Expense
xx
Wages Payable
xx
Income Taxes Expense
xx
Income Taxes Payable
xx
Interest Expense
xx
Interest Payable
xx
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 – LO: 04-05
KEYWORDS:
Bloom’s: Analyzing
Chapter 4: Income Measurement and Accrual Accounting
230. Given below are the accounts from Surf Corporation’s ledger accounts after adjustments have been posted at
December 31, 2016.
Sales Revenue
$60,000
Accounts Receivable
$ 8,200
Accounts Payable
1,500
Rent Expense
2,100
Cash
25,600
Prepaid Rent
1,500
Salaries Expense
2,900
Salaries Payable
800
Retained Earnings, Jan. 1
22,100
Dividends
5,000
Depreciation Expense
1,000
Supplies
900
Supplies Expense
2,200
Cost of Goods Sold
40,000
Notes Payable
3,000
Common Stock
2,000
A)
Identify which adjustments that Surf Corporation most likely made that are:
1) Accrued assets
2) Accrued liabilities
B)
Which accounts listed above would not be used in a cash basis system?
ANSWER:
A)
1) Accrued assets: Accounts Receivable
2) Accrued liabilities: Salaries Payable, Accounts Payable
B)
Accounts Payable, Accounts Receivable, Prepaid Rent, Salaries Payable, and perhaps
Depreciation Expense are accounts that would not be used in a true cash-basis system.
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 – LO: 04-02
FACC.PONO.13.04-05 – LO: 04-05
KEYWORDS:
Bloom’s: Analyzing
Chapter 4: Income Measurement and Accrual Accounting
231. At the end of 2016, the unadjusted accounting records for Coney Corporation contain the following selected accounts
and balances.
Interest Revenue
$ 3,600
Wage and Salary Expense
$15,600
Insurance Expense
6,500
Interest Expense
2,400
Depreciation Expense
12,000
Advertising Fees Earned
54,300
Utilities Expense
12,400
Income Tax Expense
5,800
Accounts Receivable
12,300
Dividends
3,000
A)
Coney has not paid its employees for the final 3 days in 2016. The amount owed is $700.
How much wage and salary expense should Bacon report for its year ending December 31,
2016?
B)
What adjustments would you expect Coney to make at year end that would result in
additional revenue as a result of the accounts listed?
ANSWER:
A)
$16,300
$15,600 + $700 = $16,300
B)
Advertising fees earned, accounts receivable and interest revenue could all result in
additional revenues.
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 – LO: 04-05
KEYWORDS:
Bloom’s: Analyzing
Chapter 4: Income Measurement and Accrual Accounting
10,000
10,000
3
4
5
45,000
45,000
6
5,000
7
8
adj 1
-1,000
adj 2
125,800
560,000
-134,400
10,000
5,000
343,000
200,000
45,000
232. Tiva Solutions’ accounting records reflect the following account balances at December 31, 2016:
Building
$560,000
Accumulated Deprec.—Bldg
$112,000
Cash
90,000
Capital Stock
343,000
Supplies
5,000
Retained Earnings
200,000
During 2016, the following transactions occurred:
1)
On March 1, purchased a one-year insurance policy for $1,200 cash.
2)
On April 1, borrowed $10,000 cash from Rock City Bank. The interest rate on the note payable is 6%.
Principal and interest is due in cash in one year.
3)
Employee salaries in the amount of $20,000 were paid in cash.
4)
At the end of the year, $400 of the supplies remained on hand.
5)
Earned $45,000 in tax consulting revenue during 2016 in cash.
6)
At December 31, $5,000 in employee salaries were accrued.
7)
On December 31, received $2,000 in cash representing advance payment for services to be provided in
February of 2017.
8)
The building has a useful life of 25 years and no salvage value.
Required:
A)
Determine the effect on the accounting equation of the preceding transactions including
any related year-end adjusting entries that may be required. Create a table to reflect the
increases and decreases in accounts.
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net Income
B)
Prepare an income statement for Tiva Solutions for 2016. Ignore income tax effects.
C)
Prepare a classified balance sheet for Tiva Solutions at December 31, 2016.
ANSWER:
A)
Trans.
Cash
Supplies
PP Ins
Bldg
A/D Bldg
Notes
Pay.
Int.
Pay
Sal.
Pay
Unearned
Revenue
Capital
Stock
Retained
Earnings
Rev.
Exp.
Beg
90,000
5,000
0
560,000
-112,000
0
0
343,000
200,000
1
-1,200
1,200
Chapter 4: Income Measurement and Accrual Accounting
2
3
4
5
6
40,000
adj 1
adj 2
115,200
1,000
400
50,000
54,000
Dancing lesson revenue
$ 40,800
Expenses
Salary expense
Supplies expense
Rent expense
Net Income
233. Frannie’s Dance Studio accounting records reflect the following account balances at January 1, 2016.
Cash
$100,000
Supplies
$ 4,000
Capital Stock
50,000
Retained Earnings
54,000
During 2016, the following transactions occurred:
1)
On February 1, rented a small studio for a one year period of time. Paid $6,000 cash.
2)
On November 1, received $1,200 cash for dance lessons to be provided evenly over
November, December, and January.
3)
By December 31, used $3,000 of the supplies
4)
At December 31, accrued $3,000 in wages and salaries.
5)
During the year, paid cash for $20,000 in wages and salaries
6)
During the year, earned $40,000 cash in dance lesson revenue.
Required:
A)
Determine the effect on the accounting equation of the preceding transactions.
Create a table to reflect the increases and decreases in accounts.
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net Income
B)
Prepare an income statement for Frannie’s Dance Studio for 2016. Ignore income tax
effects.
C)
Prepare a classified balance sheet for Frannie’s Dance Studio at December 31, 2016.
ANSWER:
A)
Trans
Cash
Supplies
PP
Rent
Sal
Pay
Unearned
Rev
Cap.
Stock
Retained
Earnings
Revenue
Expense
Beg
100,000
4,000
50,000
54,000
1
-6,000
6,000
Chapter 4: Income Measurement and Accrual Accounting
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
234. The Diva Design Group was organized on July 1, 2016 when the two principal owners each contributed $50,000 and
received shares of stock in exchange. Their year-end is December 31. The following events occurred during Diva Design
Group’s first year of operations.
1.
On July 1, acquired a building by paying $50,000 in cash and borrowing $250,000 from
the Flores Bank.
Information regarding the building: The building has a useful life of 30 years and no
salvage value. Diva Design uses straight line depreciation.
Information regarding the note payable: The note payable will be due in full in five years.
Interest is payable annually. The interest rate on the note is 5%.
2.
On July 1, paid cash in the amount of $1,200 for a one-year property insurance policy.
3.
On August 1, purchased two computers for $4,000 cash each. The computers have a
useful life of 5 years and a $100 salvage value. The computers will be depreciated using
the straight line method.
4.
On October 1, receives $120,000 in cash for services to be provided evenly during the
next six months.
Required:
I.(A)
Determine the effect of each of the transactions on the accounting equation.
I.(B)
Determine the effect on the accounting equation of the necessary adjustments at
December 31 for each of the following:
1)
Depreciation on the building
2)
Interest on the promissory note
3)
Recognition of the expired portion of the insurance
4)
Depreciation on the computers
5)
Cash received in advance of services provided
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net Income
II.
For each of the adjusting entries, indicate which of the following type of entry was
recorded:
a. Accrued liability
b. Accrued asset
c. Deferred expense
d. Deferred revenue
III.
Prepare an income statement at December 31, 2016. Diva Design has a tax rate of 30%.
Chapter 4: Income Measurement and Accrual Accounting
=
Liabilities
+
Stockholders’
Revenues
–
Expenses
=
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
=
Liabilities
+
Revenues
–
Expenses
=
ANSWER:
I. (A) 1.
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net Income
Cash
Chapter 4: Income Measurement and Accrual Accounting
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
III.
Diva Design Group
Income Statement
For the Six Months ending December 31, 2016
Consulting revenue
$ 60,000
Expenses:
Depreciation expense
$ 5,650
Insurance expense
600
Interest expense
6,250
12,500
Income before taxes
$ 47,500
Income tax expense
14,250
Net income
$ 33,250
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 – LO: 04-05
FACC.PONO.13.04-06 – LO: 04-06
KEYWORDS:
Bloom’s: Analyzing
235. Malco Tile Shop purchased insurance coverage for two years on July 1, 2016, for its retail shop for $3,600. Malco
recorded the prepayment as an asset. Malco prepares its adjusting entries at year end December 31.
A.
What is the effect on the accounting equation of the adjusting journal entry necessary
at December 31, 2016?
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net Income
B)
How much will be reported on the balance sheet at December 31, 2016 for prepaid
insurance?
C)
How much will be reported on the income statement for the year ended
December 31, 2016, for insurance expense?
D)
If the adjustment in part A is not recorded, by what amount will net income be
over or understated at December 31, 2016?
E)
How much will be reported on the statement of cash flows for the year
ended December 31, 2016? In which activity? (operating, investing, financing)
F)
What adjusting journal entry is necessary at December 31, 2016?
G)
How much will be reported on the balance sheet at December 31, 2016 for prepaid
insurance?
H)
How much will be reported on the income statement for the year ended
December 31, 2016, for insurance expense?
I)
How much will be reported on the statement of cash flows for the year ended
December 31, 2016? In which activity? (operating, investing, financing)
Chapter 4: Income Measurement and Accrual Accounting
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
ANSWER:
A.
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net Income
B)
Prepaid Insurance = $2,700
C)
Insurance Expense = $900
D)
Overstated by $900
E)
Insurance paid $3,600 in the operating activities
section
F)
Insurance Expense
1,800
Prepaid Insurance
1,800
G)
Prepaid Insurance = $900
H)
Insurance Expense = $1,800
I)
Cash Flows = $0
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 – LO: 04-05
KEYWORDS:
Bloom’s: Analyzing
236. Fennel Flooring purchased office supplies for its showroom during the month of April for $2,600. The supplies were
paid for during April. On April 1, the Supplies account had a balance of $350. On April 30, supplies on hand amounted to
$200.
A)
What is the effect on the accounting equation of the adjusting journal entry necessary
at April 30th?
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net Income
B)
How much will be reported on the balance sheet at April 30 for Supplies?
C)
How much will be reported on the income statement for the month of April for
supplies expense?
D)
If the adjustment in part A is not recorded, by what amount will net income be over
or understated at April 30?
Chapter 4: Income Measurement and Accrual Accounting
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
ANSWER:
A.
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net Income
Supplies
(2,750)
(2,750)
Supplies
Expense
2,750
(2,750)
($350 + $2,600 – $200 = $2,750)
B)
Supplies = $200
C)
Supplies Expense = $2,750
D)
Overstated by $2,750
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 – LO: 04-05
KEYWORDS:
Bloom’s: Analyzing
Chapter 4: Income Measurement and Accrual Accounting
(900)
Moderate
FACC.PONO.13.04-05 – LO: 04-05
Bloom’s: Analyzing
237. Super Clean operates an automatic car wash business, The Ultimate Shine. The following amounts were taken from
the company’s unadjusted trial balance at December 31, 2016:
Wages Expense
82,000
Rent Collected in Advance
8,000
Determine the effect on the accounting equation of any adjusting entries necessary at December 31, 2016, for each of the
transactions that follow.
A)
The rent collected in advance represents rent for the period December 1, 2016
through January 31, 2017.
B)
In addition to the wages paid during the year, employees have not been paid for the
last week of December which amounts to $900.
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net Income
ANSWER:
A)
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net Income
Rent
Collected
in
Advance
(4,000)
4,000
Rent
Revenue
4,000
4,000
B)
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net Income