(a)
Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle. All adjusting entries affect at least one income statement account (revenue or expense), and one balance sheet account (asset or liability).
Rules of Debit and Credit:
Following rules are followed for debiting and crediting different accounts while they occur in business transactions:
Ø Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and
Ø Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.
Accrual basis of accounting:
Accrual basis of accounting refers to recognizing the financial transactions during the period in which the event occurs, even if the cash is not exchanged.
Income statement:
This is the financial statement of a company which shows all the revenues earned and expenses incurred by the company over a period of time.
Balance sheet:
This is the financial statement of a company which shows the grouping of similar assets and liabilities under subheadings.
To prepare: The adjusting entries in the books of Company AC at the end of the year.
(b)
The effects on the income statement, if adjusting entries are not recorded.
(c)
The effects on the balance sheet, if adjusting entries are not recorded.
(d)
The effects on the “net increase or decrease in cash” on the statement of cash flow , if adjusting entries are not recorded.
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Chapter 3 Solutions
Accounting
- Accounting for Assets: Receivables Johnson company’s financial year ended on December 31, 2010. All the transactions related to the company’s uncollectible accounts are can be found below: January 15 Wrote of $440 account of Miller Company as uncollectible April 2nd Re-establish the account of Louisa Teller and record the collection of $1,050 as payment in full for her account which had been written off earlier July 31 Received 40% of the $700 balance owed by William John and wrote off the remainder as uncollectible August 15 Wrote off as uncollectible the accounts of Sherwin Company, $1,700 and V. Vasell $2,200 September 26 Received 25% of the $1,140 owed by Grant Company and wrote off the remainder as uncollectible October 16 Received $741 from M. Fuller in full payment of his account which had been written off earlier as uncollectible December 31 Estimated uncollectible accounts expense for the year to be 1.5% of net credit sales…arrow_forwardAccounting for Assets: Receivables Johnson company’s financial year ended on December 31, 2010. All the transactions related to the company’s uncollectible accounts are can be found below: January 15 Wrote of $440 account of Miller Company as uncollectible April 2nd Re-establish the account of Louisa Teller and record the collection of $1,050 as payment in full for her account which had been written off earlier July 31 Received 40% of the $700 balance owed by William John and wrote off the remainder as uncollectible August 15 Wrote off as uncollectible the accounts of Sherwin Company, $1,700 and V. Vasell $2,200 September 26 Received 25% of the $1,140 owed by Grant Company and wrote off the remainder as uncollectible October 16 Received $741 from M. Fuller in full payment of his account which had been written off earlier as uncollectible December 31 Estimated uncollectible accounts expense for the year to be 1.5% of net credit sales…arrow_forwardThe following selected transactions were taken from the records of Rustic Tables Company for the year ending December 31: June 8. Wrote off account of Kathy Quantel, $8,150. Aug. 14. Received $5,790 as partial payment on the $14,590 account of Rosalie Oakes. Wrote off the remaining balance as uncollectible. Oct. 16. Received the $8,150 from Kathy Quantel, whose account had been written off on June 8. Reinstated the account and recorded the cash receipt. Dec. 31. Wrote off the following accounts as uncollectible (record as one journal entry): Wade Dolan $2,360 Greg Gagne 1,470 Amber Kisko 5,620 Shannon Poole 3,260 Niki Spence 900 Dec. 31. If necessary, record the year-end adjusting entry for uncollectible accounts. If no entry is required, select "No entry" and leave the amount boxes blank. If an amount box does not require an entry, leave it blank. a. Journalize the transactions under the direct write-off method. June 8 Bad Debt Expense Accounts Receivable-Kathy Quantel Aug. 14 Cash…arrow_forward
- UNCOLLECTIBLE ACCOUNTSALLOWANCE METHOD Lewis Warehouse used the allowance method to record the following transactions, adjusting entries, and closing entries during the year ended December 31, 20--: Selected accounts and beginning balances on January 1, 20--, are as follows: REQUIRED 1. Open the three selected general ledger accounts. 2. Enter the transactions and the adjusting and closing entries in a general journal (page 6). After each entry, post to the appropriate selected accounts. 3. Determine the net realizable value as of December 31, 20--.arrow_forwardAsset Efficiency Ratios Rumsford Inc.s financial statements for 2019 indicate the following account balances: Required: 1. Using this information, calculate Rumsfords receivable turnover ratio. (Note: Round to two decimal places.) 2. Using this information, calculate Rumsfords asset turnover ratio and also convert the ratio into days.arrow_forwardPayroll accounts and year-end entries The following accounts, with the balances indicated, appear in the ledger of Garcon Co. on December 1 of the current year: The following transactions relating to payroll, payroll deductions, and payroll taxes Occurred during December: Dec. 2. Issued Check No. 410 for 3,400 to Jay Bank to invest in a retirement savings account for employees. 2. Issued Check No. 411 to Jay Bank for 27,046, in payment of 9,273 of social security tax, 2,318 of Medicare tax, and 15,455 of employees federal income tax due. 13. Journalized the entry to record the biweekly payroll. A summary of the payroll record follows: Dec. 13. Issued Check No. 420 in payment of the net amount of the biweekly payroll to fund the payroll bank account. 13. Journalized the entry to record payroll taxes on employees earnings of December13: social security tax, 4,632; Medicare tax, 1,158; state unemployment tax, 350; federal unemployment tax, 125. 16. Issued Check No. 424 to Jay Bank for 27,020, in payment of 9,264 of social security tax, 2,316 of Medicare tax, and 15,440 of employees federal income tax due. 19. Issued Check No. 429 to Sims-Walker Insurance Company for 31,500, in payment of the semiannual premium on the group medical insurance policy. 27. Journalized the entry to record the biweekly payroll. A summary of the payroll record follows: 27. Issued Check No. 541 in payment of the net amount of the biweekly payroll to fund the payroll bank account. 27. Journalized the entry to record payroll taxes on employees earnings of December27: social security tax, 4,668; Medicare tax, 1,167; state unemployment tax, 225; federal unemployment tax, 75. 27. Issued Check No. 543 for 20,884 to State Department of Revenue in payment of employees state income tax due on December 31. 31. Issued Check No. 545 to Jay Bank for 3,400 to invest in a retirement savings account for employees. 31. Paid 45,000 to the employee pension plan. The annual pension cost is 60,000. (Record both the payment and unfunded pension liability.) Instructions 1. Journalize the transactions. 2. Journalize the following adjusting entries on December 31: a. Salaries accrued: operations salaries, 8,560; officers salaries, 5,600; office salaries,1,400. The payroll taxes are immaterial and are not accrued. b. Vacation pay, 15,000.arrow_forward
- Payroll accounts and year-end entries The following accounts, with the balances indicated, appear in the ledger of Garcon Co. on December 1 of the current year: The following transactions relating to payroll, payroll deductions, and payroll taxes occurred during December: Instructions 1. Journalize the transactions. 2. Journalize the following adjusting entries on December 31: a. Salaries accrued: operations salaries, 8,560; officers salaries, 5,600; office salaries, 1,400. The payroll taxes are immaterial and are not accrued. b. Vacation pay, 15,000.arrow_forwardAnalysis of Receivables Method At the end of the current year, Accounts Receivable has a balance of $2,150,000; Allowance for Doubtful Accounts has a debit balance of $10,500; and sales for the year total $51,850,000. Using the aging method, the balance of Allowance for Doubtful Accounts is estimated as $110,000. a. Determine the amount of the adjusting entry for uncollectible accounts.$ b. Determine the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense. Accounts Receivable $ Allowance for Doubtful Accounts $ Bad Debt Expense $ c. Determine the net realizable value of accounts receivable.arrow_forwardDiscussion question: Ace Company uses the Aging of receivables method to account for uncollectible accounts. The company had the following balances on January 01, 2019. Part A Accounts receivable...........................................$2,800,000 Allowance for uncollectible accounts...................$88,800 (credit) The company completed the following transactions during 2019. April 20-- Wrote off the balance of $1,000 from Shari Wickham’s account as uncollectible. November 27- Re-instated the account of Louis Benn and recorded the collection of $1,500 as payment in full for her account which had been written off earlier. December 31st- Recorded the uncollectible account expense based on the aging schedule. The schedule showed that $124,500 of accounts receivable was estimated as uncollectible. Made the closing entry for the uncollectible expense account. Requirements: Prepare journal entries for each transaction (No narrations required) Prepare the Allowance for…arrow_forward
- Analysis of Receivables Method At the end of the current year, Accounts Receivable has a balance of $630,000; Allowance for Doubtful Accounts has a debit balance of $5,500; and sales for the year total $2,840,000. Using the aging method, the balance of Allowance for Doubtful Accounts is estimated as $25,400. a. Determine the amount of the adjusting entry for uncollectible accounts. 22,900 X b. Determine the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense. Accounts Receivable Allowance for Doubtful Accounts Bad Debt Expense c. Determine the net realizable value of accounts receivable. 601,200 X Feedback 630,000 ✓ 28,400 X 22,900 X Check My Work The analysis of receivables method is based on the assumption that the longer an account receivable is outstanding the less likely that it will be collected. The amount of the adjusting entry is the amount that will yield an adjusted balance for Allowance for Doubtful Accounts.arrow_forwardReporting Uncollectible Accounts and Accounts Receivable (FSET) LaFond Company analyzes its accounts receivable at December 31 and arrives at the aged categories below along with the percentages that are estimated as uncollectible. \table [[Age Group, Accounts Receivable, \table [[Estimated], [Loss %]]], [Current (not past due), $375,000, 0.50%arrow_forwardQuestion Content Area Analysis of receivables method At the end of the current year, Accounts Receivable has a balance of $880,000; Allowance for Doubtful Accounts has a credit balance of $8,000; and sales for the year total $3,960,000. Using the aging method, the balance of Allowance for Doubtful Accounts is estimated as $36,800. a. Determine the amount of the adjusting entry for uncollectible accounts.fill in the blank 1 of 1$ b. Determine the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense. Line Item Description Amount Accounts Receivable $fill in the blank 2 Allowance for Doubtful Accounts $fill in the blank 3 Bad Debt Expense $fill in the blank 4 c. Determine the net realizable value of accounts receivable.fill in the blank 1 of 1$arrow_forward
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