Financial & Managerial Accounting
Financial & Managerial Accounting
18th Edition
ISBN: 9781260006520
Author: williams
Publisher: MCG
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Chapter 4, Problem 5AP

a.

To determine

Prepare the adjusting entry as at December 31, Year 1.

a.

Expert Solution
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Explanation of Solution

Adjusting entries: Adjusting entries are those entries which are recorded at the end of the year, to update the income statement accounts (revenue and expenses) and balance sheet accounts (assets, liabilities, and stockholders’ equity) to maintain the records according to accrual basis principle.

Prepare the adjusting entries:

DateAccount titles and ExplanationDebit ($)Credit ($)
December 31Accounts receivable1,500 
Fees earned 1,500
(To record the accrued but uncollected fees earned)  
   
December 31Unearned revenue2,500 
Fees earned 2,500
(To record  the unearned to earned revenue)  
   
December 31Insurance expense (1)300 
Unexpired insurance 300
(To record  the insurance expense)  
   
December 31Rent expense (2)1,000 
Prepaid rent 1,000
(To record the rent expense)  
   
December 31Office supplies expense (3)200 
Office supplies 200
(To record the office supplies expense)  
   
December 31Depreciation expense: Equipment (4)500 
 Accumulated depreciation: Equipment 500
 (To record the depreciation expense)  
   
December 31Interest expense (5)80 
Interest payable 80
(To record the interest expense)  
    
December 31Salaries expense2,700 
 Salaries payable 2,700
 (To record the salaries expense)  
    
December 31Income taxes expense3,000 
 Income taxes payable 3,000
 (To record the income tax expense)  

Table (1)

1. To record the accrued but uncollected fees earned:

  • Accounts receivable is an asset account and it is increased. Therefore, debit accounts receivable with $1,500.
  • Fees earned are a revenue account and it increases the stockholders’ equity account. Therefore, credit fees earned with $1,500.

2. To record the previously unearned revenue to earned revenue:

  • Unearned revenue is a liability account and it is decreased. Therefore, debit unearned revenue with $2,500.
  • Fees earned are a revenue account and it increases the stockholders’ equity account. Therefore, credit fees earned with $2,500.

3. To record the insurance expense:

  • Insurance expense is an expense account and it decreases the stockholders’ equity account. Therefore, debit insurance expense with $300.
  • Unexpired insurance is an asset account and it is decreased. Therefore, credit unexpired insurance with $300.

Working note:

Calculate the amount of insurance expense:

Insurance expense=Policy amountNumber of months =$1,8006Months=$300 (1)

4. To record the rent expense:

  • Rent expense is an expense account and it decreases the stockholders’ equity. Therefore, debit rent expense with $1,000.
  • Prepaid rent is an asset account and it is decreased. Therefore, credit prepaid rent with $1,000.

Working note:

Calculate the amount of rent expense:

Rent expense=Prepaid rentNumber of months paid=$3,0003Months(December to February)=$1,000 (2)

5. To record the office supplies expense:

  • Office supplies expense is an expense account and it decreases the stockholders’ equity account. Therefore, debit office supplies expense with $200.
  • Office supplies are an asset account and it is decreased. Therefore, credit office supplies with $200.

Working note:

Calculate the office supplies expense:

Office supplies expenses=(Office supplies in unadjusted trial balanceOffice supplies in hand)=$600$400=$200 (3)

6. To record the depreciation expense, Equipment:

  • Depreciation expense is an expense account and it decreases the stockholders’ equity account. Therefore, debit depreciation expense with $500.
  • Accumulated depreciation is a contra-account and it decreases the value of asset. Therefore, credit accumulated depreciation with $500.

Working note:

Calculate the amount of depreciation expense:

Depreciation expense=Cost of the equipmentNumber of months depreciated=$60,000120Months=$500 (4)

7. To record the interest expense:

  • Interest expense is an expense account and it decreases the stockholders’ equity. Therefore, debit interest expenses with $80.
  • Interest payable is a liability account and it is increased. Therefore, credit interest payable with $80.

Working note:

Calculate the amount of interest expense:

Interest expense=Note payable amount×Interest rate×Number of monthsMonths in a year=$12,000×8%×1(December)12=$80 (5)

8. To record the salaries expense:

  • Salaries expense is an expense account and it decreases the stockholders’ equity. Therefore, debit salaries expenses with $2,700.
  • Salaries payable is a liability account and it is increased. Therefore, credit salaries payable with $2,700.

9. To record the income tax expense:

  • Income tax expense is an expense account and it decreases the stockholders’ equity. Therefore, debit income tax expenses with $3,000.
  • Income tax payable is a liability account and it is increased. Therefore, credit salaries payable with $3,000.

b.

To determine

Determine the amount for the given accounts that will be reported in the income statement for the Year 1.

b.

Expert Solution
Check Mark

Explanation of Solution

Determine the amount for the given accounts that will be reported in the income statement:

S.NoParticularsAmount ($)
1 Fees earned (unadjusted)$75,000
  Add: Adjusting entry (1)$1,500
          Adjusting entry (2)$2,500
  Fees Earned in Year 1$79,000
   
2 Travel expense $5,000
   
3 Insurance expense (unadjusted)$2,980
  Add: Adjusting entry (3)$300
  Insurance expense incurred in Year 1$3,280
   
4 Rent expense (unadjusted)$9,900
  Add: Adjusting entry (4)$1,000
  Rent expense incurred in Year 1$10,900
   
5 Office supplies expense (unadjusted)$780
  Add: Adjusting entry (5)$200
  Office supplies expense incurred in Year 1$980
   
6 Utilities expense $4,800
   
7 Depreciation expense: equipment (unadjusted)$5,500
  Add: Adjusting entry (6)$500
  Equipment depreciation expense in Year 1$6,000
   
8 Interest expense (unadjusted)$320
  Add: Adjusting entry (7)$80
  Interest expense incurred in Year 1$400
   
9 Salaries expense (unadjusted)$30,000
  Add: Adjusting entry (8)$2,700
  Salaries expense incurred in Year 1$32,700
   
10 Income taxes expense (unadjusted)$12,000
  Add: Adjusting entry (9)$3,000
  Income taxes expense incurred in Year 1$15,000

Table (2)

1. Amount of fee earned that is to be reported in the income statement is $79,000.

2. Amount of travel expense that is to be reported in the income statement is $5,000.

3. Amount of insurance expense that is to be reported in the income statement is $3,280.

4. Amount of rent expense that is to be reported in the income statement is $10,900.

5. Amount of office supplies expense that is to be reported in the income statement is $980.

6. Amount of utilities expense that is to be reported in the income statement is $4,800.

7. Amount of depreciation expense that is to be reported in the income statement is $6,000.

8. Amount of interest expense that is to be reported in the income statement is $400.

9. Amount of salaries expense that is to be reported in the income statement is $32,700.

10. Amount of income tax expense that is to be reported in the income statement is $15,000.

c.

To determine

Explain whether the dividends amounts to $3,000 have paid or not.

c.

Expert Solution
Check Mark

Explanation of Solution

In the adjusted trial balance there is no dividends payable is reported. Thus, the amount $3,000 reported in the unadjusted trial balance is the dividend amount which is already paid.

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Chapter 4 Solutions

Financial & Managerial Accounting

Ch. 4 - Prob. 6DQCh. 4 - Prob. 7DQCh. 4 - Prob. 8DQCh. 4 - Prob. 9DQCh. 4 - Prob. 10DQCh. 4 - Prob. 11DQCh. 4 - 12. How is deferred revenue reported in the...Ch. 4 - 13. How do accrued but unpaid expenses affect the...Ch. 4 - 14. How does accrued but uncollected revenue...Ch. 4 - Prob. 15DQCh. 4 - Prob. 1BECh. 4 - BRIEF EXERCISE 4.2 Prepaid Expenses and Unearned...Ch. 4 - Prob. 3BECh. 4 - BRIEF EXERCISE 4.4 Accounting for Depreciation On...Ch. 4 - Prob. 5BECh. 4 - BRIEF EXERCISE 4.6 Unearned Revenue Jasper’s...Ch. 4 - Prob. 7BECh. 4 - Prob. 8BECh. 4 - BRIEF EXERCISE 4.9 Accruing Unpaid Income...Ch. 4 - Prob. 10BECh. 4 - EXERCISE 4.1 Accounting Terminology Listed as...Ch. 4 - Prob. 2ECh. 4 - EXERCISE 4.3 Preparing Adjusting Entries to...Ch. 4 - EXERCISE 4.4 Preparing Adjusting Entries to...Ch. 4 - EXERCISE 4.5 Preparing Adjusting Entries to Accrue...Ch. 4 - EXERCISE 4.6 Deferred Revenue When Delta Airlines...Ch. 4 - EXERCISE 4.7 Preparing Various Adjusting...Ch. 4 - Prob. 8ECh. 4 - Prob. 9ECh. 4 - EXERCISE 4.10 Adjusting Entries and the Balance...Ch. 4 - Prob. 11ECh. 4 - Prob. 12ECh. 4 - Prob. 13ECh. 4 - EXERCISE 4.14 Accounting Principles For each of...Ch. 4 - EXERCISE 4.15 Using the Financial Statements of...Ch. 4 - PROBLEM 4.1A Preparing Adjusting Entries Florida...Ch. 4 - PROBLEM 4.2A Preparing and Analyzing the Effects...Ch. 4 - Prob. 3APCh. 4 - PROBLEM 4.4A Preparing Adjusting Entries from a...Ch. 4 - Prob. 5APCh. 4 - Prob. 6APCh. 4 - Prob. 7APCh. 4 - Prob. 8APCh. 4 - Prob. 1BPCh. 4 - Prob. 2BPCh. 4 - Prob. 3BPCh. 4 - Prob. 4BPCh. 4 - Prob. 5BPCh. 4 - Prob. 6BPCh. 4 - Prob. 7BPCh. 4 - Prob. 8BPCh. 4 - CASE 4.1 Should This Be Adjusted? Property...Ch. 4 - Prob. 2CTCCh. 4 - Prob. 3CTCCh. 4 - Prob. 4CTC
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