Concept explainers
(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. The purpose of adjusting entries is to adjust the revenue, and the expenses for the period in which they actually occurred.
Adjusting entries are classified into two categories. They are as follows,
- Deferrals, or
- Accruals.
Deferrals:
Deferrals refer to the revenues that are collected in advance before the services are provided or sales are made to the customer, and the expenses are paid in advance before the expenses are incurred.
Deferrals are classified into two types. They are prepaid expenses, and unearned revenues.
Prepaid expenses: The expenses are paid in cash, before they are incurred.
Unearned revenue: The cash is received, before the services are performed.
To identify: Theitems that may result in adjusting entries for deferrals.
(b)
Accruals:
Accruals refer to the revenues that are generated from goods delivered or, service performed to the customer, but cash is not yet received from the customer, and the expenses are incurred, but cash is not yet paid.
Accruals are classified into two types. They are accrued revenues, and accrued expenses.
Accrued revenues: Revenues are generated but not yet received in cash.
Accrued expenses: Expenses are incurred but not yet paid in cash.
To identify: The two items that may result in adjusting entries for accruals.
(c)
To identify: The amount of depreciation and amortization expense for 2014 and 2013, and identify where it is reported
(d)
To identify: The amounts of income tax reported in the
Want to see the full answer?
Check out a sample textbook solutionChapter 4 Solutions
Financial Accounting: Tools for Business Decision Making, 8th Edition
- The following selected accounts and their current balances appear in the ledger of Clairemont Co. for the fiscal year ended May 31, 2019: Instructions 1. Prepare a multiple-step income statement. 2. Prepare a statement of owners equity. 3. Prepare a balance sheet, assuming that the current portion of the note payable is 50,000. 4. Briefly explain how multiple-step and single-step income statements differ.arrow_forwardOn January 1, 2019, Northern Manufacturing Company bought a piece of equipment by signing a non-interest-bearing $80,000, 1-year note. The face value of the note includes the price of the equipment and the interest. The effective interest rate is an annual rate of 16%, and the note is to be paid in four $20,000 quarterly installments on March 31, June 30, September 30, and December 31. The price of the equipment is the present value of the four payments discounted at the effective interest rate.arrow_forwardIf the errors were discovered in January 2018, what must be the entry to adjust 2017 Net Income/Retained Earnings assuming the books in 2017 are already closed? (Show your solutions, including the adjusting journal entry, in your attached working paper but just put the total debits/credits in the google form). *arrow_forward
- The unadjusted trial balance and the income statement amounts from the December​ 31, 2017​, adjusted trial balance of Winwood Portraits Ltd. follow.  Requirement 1. Use the data in the partial worksheet to prepare Winwood Portraits​ Ltd.'s classified balance sheet at December​ 31, 2017. Use the report format. First you must compute the adjusted balance for several of the balance sheet accounts. ​Let's prepare the balance sheet for Winwood.arrow_forwardDelicious Catering completed the following selected transactions during May 2018: (Click the icon to view the transactions.) Read the requirements Requirement 1. Show whether each transaction would be handled as a revenue or an expense using both the cash basis and accrual basis accounting systems by completing the table provided. (Expenses should be shown in parentheses.) Also indicate the dollar amount of the revenue or expense. The May 1 transaction has been completed as an example. (Enter "0" for any transactions that do not affect revenues or expenses.) Date May May 5 May 9 May 14 May 23 May 31 May 31 May 31 Amount of Revenue (Expense) for May Cash Basis Amount of Revenue (Expense) $ (3,600) rent salary depr The Accrual Basis Amount of Revenue (Expense) $ 0 Requirement 2. After completing the table, calculate the amount of net income or net loss for Delicious Catering under the accrual basis and cash basis accounting systems for May. (Use parentheses or a minus sign to indicate a…arrow_forwardConsider the following note payable transactions of Cargo Video Productions. i (Click the icon to view the transactions.) Requirements 1. Journalize the transactions for the company. 2. Considering the given transactions only, what are Cargo Video Productions' total liabilities on December 31, 2025? Requirement 1. Journalize the transactions for the company. (Record debits first, then credits. Select explanations on the last line of the journal entry.) Sep. 1, 2024: Purchased equipment costing $270,000 by issuing a nine-year, 7% note payable. The note requires annual principal payments of $30,000 plus interest each September 1. Date Accounts and Explanation Debit Credit 2024 Sep. 1 Equipment 270,000 Notes Payable 270,000 Purchased equipment by issuing a 9-year, 7% note. Dec 31, 2024: Accrued interest on the note payable. Date Accounts and Explanation Debit Credit 2024 Dec. 31 Interest Expense 6,300 Interest Payable 6,300 Recognized accrued interest. Sep. 1, 2025: Paid the first…arrow_forward
- Locate Gap Inc.’s 2020 Annual Report (for fiscal year 2/2/20-1/30/21)  There are 10 sections of questions. You will find the information necessary to answer the questions in “Item 8. Financial Statements and Supplementary Data,” of the report. Read through the questions carefully and answer in the space provided.  What are the following amounts at 1/30/21:  Total Assets : Total Liabilities: Total Owner’s Equity : At 1/30/21:  What is the percentage of debt used to finance Gap? What is the percentage of owner’s equity used to finance Gap?  What is the significance of these two percentages?arrow_forwardThe following accounts are from XYZ, Inc. Balance Sheet as of December 31, 2020: Requirements: 1. What is the amount of XYZ's total Non-Current assets as of December 31, 2020? 2. Identify the accounts listed above that are Current liabilities. 3. What is the amount of XYZ's retained earnings as of December 31, 2020? (Hint: use the extended accounting equation) 4. Prepare a balance sheet for XYZ as of December 31, 2020.arrow_forwardOn January 15, 2017, the accountant of Beshie Appliance Company prepared an income statement for the year ended December 31, 2016. The accountant used the following heading. 1) BESHIE APPLIANCE COMPANY Income Statement January 15, 2017 a. Prepare a corrected heading.arrow_forward
- Prepare a classified balance sheet (Statement of Financial Position) for Yu Company from the following account balances as of Dec. 31, 2017. Use report form with supporting notes.arrow_forwardRequired: a. Assuming that purchases are recorded at net amounts and that discounts lost are treated as financial expenses:1. Prepare general journal entries to enter the transactions.2. Prepare the adjusting entry necessary on August 31 if financial statements are to be prepared at that time.3. Describe how the various items would be shown in the financial statements.b. Which of the two methods do you prefer and why?arrow_forwardAB Ltd. presents the following selected accounts, all balances are after adjusting journal entries. All accounts have normal balances (accounts which are normally debits have debit balances here and visa-versa). Prepare a multi-step income statement. Advertising Expense Advetising Payable Interest Expense Interest Payable 1,300 1,520 350 1,050 Inventory at beginning of the period Inventory at the end of the period Equipment - Accumulated Depreciation Equipment - Depreciation Expense Purchases Purchases Discounts Purchases Returns and Allowance Salary and Wages Expense Salary and Wages Payable Sales Sales Discounts Sales Returns and Allowances Transportation In Transportation Out Utilities Expense Required 1: AB's Net Sales for the period must have been: $[ Required 2: AB's Cost of Goods Available for Sale for the period must have been: $ Required 3: AB's Cost of Goods Sold for the period must have been: $ Required 4: AB's Gross Profit on Sales in dollars for the period must have been:…arrow_forward
- Financial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning