Solutions Chapter 4 – Set B Exercises – Libby 7e
E4–1B.
Req. 1
The annual reporting period for this company is January 1 through December 31, 2011.
(a)
1. Wages expense is incurred.
3. Amount: $8,400 given
Adjusting entry –
Wages payable (+L) ……………………………….
8,400
(b)
1. Interest revenue is now earned.
2. Cash will be received in the future – an accrued revenue needs to be recorded.
3. Amount: $2,300 given
Adjusting entry –
Interest receivable (+A) …………………………………
2,300
Interest revenue (+R, +SE) ……………………..
2,300
Req. 3
Adjusting entries are necessary at the end of the accounting period to ensure that all revenues
E4–2B.
Req. 1
Prepaid Insurance is a deferred expense that needs to be adjusted each period for the amount
used during the period.
The amount of expense is computed as follows: $3,600 x 3/36 = $300 used
Adjusting entry:
Insurance expense (+E, −SE) …………………………………….. 300
Adjusting entry:
Shipping supplies expense (+E, −SE) ………………………….. 51,000
Shipping supplies (−A) ……………………………………. 51,000
Req. 3
Prepaid Insurance
Insurance Expense
10/1 3,600
AJE 300
AJE 300
AJE 51,000
Req. 4
2011 Balance sheet:
Prepaid insurance $ 3,300
Shipping supplies $24,000
E4–3B.
Req. 1
a.
Accrued revenue
b.
Deferred expense
Req. 2 Computations
a.
Rent receivable (+A) …………………………………………………..
1,280
$640 x 2 months
Rent revenue (+R, +SE) …………………………………….
1,280
= $1,280 earned
b.
Depreciation expense (+E, −SE) ………………………………….
14,100
Given
Accumulated depreciation (+XA, −A)
14,100
c.
Insurance expense (+E, −SE) ………………………………………
$1,380 x 6/24 =
Prepaid insurance (−A) ………………………………………
$345 used
d.
Unearned rent revenue (−L) ………………………………………..
$9,000 x 2/6 =
e.
Repair accounts receivable (+A) …………………………………..
Given
Repair shop revenue (+R, +SE) …………………………..
Wages expense (+E, −SE) …………………………..……………..
Given
Wages payable (+L) ………………………………………….
2,750
Office supplies expense (+E, −SE) ……………………………….
$425 + $550
used
Deferred expense
d.
Deferred revenue
e.
Accrued revenue
Accrued expense
g.
Deferred expense
E4–4B.
Req. 1
a.
Accrued expense
b.
Deferred revenue
Req. 2 Computations
a.
Interest expense (+E, −SE) …………………………………………
6,500
$325,000 x .12
Interest payable (+L) ………………………………………….
6,500
x 2/12 (since last
payment) = $6,500
incurred
b.
Unearned storage revenue (−L) …………………………..……….
540
$3,240 x 1/6 =
Storage revenue (+R, +SE) ………………………………..
540
$540 earned
Accumulated depreciation (+XA, −A)
Supplies expense (+E, −SE) ………………………………………..
$17,500 +
Supplies (−A) ……………………………………………………
$44,000 – $10,400
= $51,100 used
e.
Wages expense (+E, −SE) …………………………..……………..
3,950
Given
Wages payable (+L) ………………………………………….
Service revenue (+R, +SE) …………………………………
g.
Advertising expense (+E, −SE) …………………………………….
1,350
$1,800 x 9/12 =
Prepaid advertising (−A) …………………………………….
$1,350 used
Deferred expense
d.
Deferred expense
e.
Accrued expense
g.
Deferred expense
E4–5B.
Balance Sheet
Income Statement
Transaction
Assets
Liabilities
Stockholders’
Equity
Revenues
Expenses
Net
Income
(a)
+1,280
NE
+1,280
+1,280
NE
+1,280
(b)
–14,100
NE
–14,100
NE
+14,100
–14,100
E4–6B.
Balance Sheet
Income Statement
Transaction
Assets
Liabilities
Stockholders’
Equity
Revenues
Expenses
Net
Income
(a)
NE
+6,500
–6,500
NE
+6,500
–6,500
(b)
NE
(c)
NE
(d)
–51,100
NE
–51,100
NE
+51,100
–51,100
(e)
NE
+3,950
–3,950
NE
+3,950
–3,950
NE
NE
(g)
NE
NE
(c)
NE
NE
(d)
NE
(e)
NE
NE
NE
–2,750
NE
–2,750
(g)
NE
NE
E4–7B.
Selected Balance Sheet Amounts at December 31, 2012
Assets:
Equipment (recorded at cost per cost principle)
$16,000
Accumulated depreciation (for one year, as given)
(1,500)
Selected Income Statement Amounts for the Year Ended December 31, 2012
Expenses:
Depreciation expense (for one year, as given)
$ 1,500
Office supplies expense (used, $1,800 – $450 on hand)
Insurance expense (for 6 months, $840 x 6/24 months)
Net book value of equipment (difference)
Office supplies (on hand, as given)
Prepaid insurance (remaining coverage, $840 x 18/24 months)
E4–8B.
Balance Sheet
Income Statement
Date
Assets
Liabilities
Stockholders’
Equity
Revenues
Expenses
Net
Income
Note 1:
April 1, 2011
+34,000/
–34,000
NE
NE
NE
NE
NE
Note 2:
August 1, 2011
+ 36,000
+ 36,000
NE
NE
NE
NE
December 31, 2011c
NE
+ 1,800
– 1,800
NE
+ 1,800
– 1,800
January 31, 2012d
– 38,160
– 37,800
– 360
NE
+ 360
– 360
(a) $34,000 principal x .10 annual interest rate x 9/12 of a year = $2,550
+37,400/
–36,550
E4–9B.
Req. 1 Adjusting entries that were or should have been made at December 31:
(a) No entry was made. Entry that should have been made:
Rent receivable (+A) …………………………………………………. 1,600
Rent revenue (+R, +SE) ………………………………….. 1,600
Entry that should have been made:
Interest expense (+E, −SE) ……………………………………….. 315
Interest payable (+L) ………………………………………. 315
($21,000 x .09 x 2/12 months)
Prepaid insurance (−A) …………………………………… 750
Req. 2
Balance Sheet
Income Statement
Transaction
Assets
Liabilities
Stockholders’
Equity
Revenues
Expenses
Net
Income
(a)
U 1,600
NE
U 1,600
U 1,600
NE
U 1,600
(c)
U 1,900
U 1,900
NE
U 1,900
(e)
O 750
NE
O 750
E4–10B.
Selected Balance Sheet Amounts at December 31, 2012
Assets:
Equipment (recorded at cost per cost principle)
$19,000
Accumulated depreciation (for one year, as given)
(1,800)
Net book value of equipment (difference)
17,200
Selected Income Statement Amounts for the Year Ended December 31, 2012
Expenses:
Depreciation expense (for one year, as given)
$ 1,800
Office supplies expense (used, $1,750 – $400 on hand)
Insurance expense (for 6 months, $960 x 6/24 months)
Office supplies (on hand, as given)
Prepaid insurance (remaining coverage, $960 x 18/24 months)