Homework 04A

01. (LO 04-02) Match the type of account (a through e) with the business transactions that
follow.
a. Prepaid expense
b. Accrued expense
c. Unearned revenue
d. Accrued revenue
e. None of these choices

Type of
Business Transaction
account
Paid for one year’s insurance policy.
Paid for a six-month magazine subscription.
Annual property taxes that are paid at the end of the year.
Electric bill to be paid next month.
Retainer fee received from a client for future legal representation.
Services provided that have not been recorded.
Received payment covering a six-month magazine subscription.
Provided tutoring for a student that will be invoiced next month.
Received six months of rental payments from a tenant.
Paid six months of rental payments to the landlord.
Annual depreciation on equipment, recorded on a monthly basis.
A contract to provide tutoring services beginning next month was signed.
02. Identify the effect (a through h) that omitting each of the following events would have on
the balance sheet.
a. Assets and owner's equity overstated
b. Assets and owner's equity understated
c. Assets overstated and owner's equity understated
d. Assets understated and owner's equity overstated
e. Liabilities and owner's equity overstated
f. Liabilities and owner's equity understated
g. Liabilities overstated and owner's equity understated
h. Liabilities understated and owner's equity overstated
Event Effect
No adjustment was made for supplies used up during the month.
Wages are paid every Friday for the five-day workweek. The month ended on
Monday and no adjustment was recorded.
Interest earned on a note receivable was not recorded.
Services provided to customers on the last day of the month were not billed.
An attorney has earned half of a retainer fee that was received and recorded last
month. No adjustment was recorded for the amount earned.
Property taxes are paid annually. The estimated monthly amount for the taxes was
not recorded.
Depreciation on equipment was not recorded.
A tenant paid six months' rent in advance when he moved in on the first day of the
month. No entry was made on the last day of the month.

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03. (LO 04-01) Under the accrual basis, some accounts in the ledger require updating (adjusting)
at the end of the period. Discuss the three (3) main reasons for this updating and give an
example of each.

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04. (LO 04-02) For each of the following, journalize the necessary adjusting entry:

(a) A business pays weekly salaries of $22,000 on Friday for a five-day week ending on that
day. Journalize the necessary adjusting entry at the end of the fiscal period, assuming that
the fiscal period ends (1) on Tuesday or (2) on Wednesday.
(b) The balance in the prepaid insurance account before adjustment at the end of the year is
$18,000. Journalize the adjusting entry required under each of the following alternatives:
(1) the amount of insurance expired during the year is $5,300 or (2) the amount of
unexpired insurance applicable to a future period is $2,700.
(c) On July 1 of the current year, a business pays $54,000 to the city for license taxes for the
coming fiscal year. The same business is also required to pay an annual property tax at the
end of the year. The estimated amount of the current year's property tax allocated to July
is $4,800. (1) Journalize the two adjusting entries required to bring the accounts affected
by the taxes up to date as of July 31. (2) What is the amount of tax expense for July?
(d) The estimated depreciation on equipment for the year is $32,000.

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05. (LO 04-02) REM Consulting is completing the accounting information processing at the end
of the fiscal year, December 31. The following trial balances are available.

Unadjusted Trial Adjusted Trial

Accounts
Balance Balance
Debit Credit Debit Credit
Cash $13,000 $13,000
Accounts Receivable 1,500 1,800
Prepaid Insurance 600 200
Supplies 3,800 3,000
Machines 30,000 30,000
Accumulated Depreciation 12,000 17,500
Wages Payable 900
Unearned Fees 6,700 6,500
Owner’s Capital 24,000 24,000
Owner’s Drawing 4,800 4,800  
Fees Earned 25,000 25,500
Wages Expense 14,000 14,900  
Depreciation Expense 5,500  
Supplies Expense 800  
Insurance Expense 400
67,700 67,700 74,400 74,400

(a) Reconstruct the adjusting entries and give a brief explanation of each.
(b) What is the amount of net income?

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06. (LO 04-04) The following data were taken from the Adjusted Trial Balance columns of the
end-of-period spreadsheet for April 30, for Abigail Company:

Accumulated Depreciation $42,400

Prepaid Rent 6,800
Supplies 850
Unearned Fees 7,310
Trucks 49,300
Cash 3,400
Abigail, Capital ?

Prepare a classified balance sheet.

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07. (LO 04-04) The following is the adjusted trial balance for Nadia Company.

Nadia Company
Adjusted Trial Balance
December 31
Account Debit Credit
No. Balances Balances
Cash 11 5,130
Accounts Receivable 12 3,300
Prepaid Expenses 13 420
Equipment 18 12,400
Accumulated Depreciation 19 2,200
Accounts Payable 21 700
Notes Payable (due on June 30) 22 3,070
Nadia Porter, Capital 31 13,000
Nadia Porter, Drawing 32 700
Fees Earned 41 10,930
Wages Expense 51 2,450
Rent Expense 52 1,900
Utilities Expense 53 1,475
Depreciation Expense 54 1,150
Miscellaneous Expense 59 975
Totals 29,900 29,900

Prepare an income statement, statement of owner’s equity, and balance sheet. Assume that
the capital account started with a beginning balance of $10,000 and that the owner made an
additional investment of $3,000 during the period.

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08. (LO 04-05) Robert Evans owns a business, Beachside Realty, that rents condominiums and
furnishings.  Below is the adjusted trial balance at December 31.

Debit Credit
Account No.
Balances Balances
Cash 11 1,500
Accounts Receivable 12 2,000
Interest Receivable 13 100
Prepaid Insurance 14 1,600
Notes Receivable (long-term) 16 2,800
Equipment 18 15,000
Accumulated Depreciation 19 3,000
Accounts Payable 21 2,400
Accrued Expenses Payable 22 3,920
Income Taxes Payable 23 2,700
Unearned Rent Fees 24 500
Robert Evans, Capital 31 7,700
Robert Evans, Drawing 32 2,000
Rent Fees Earned 41 37,000
Furniture Rental Revenue 42 1,200
Interest Revenue 43 100
Wages Expense 51 19,000
Depreciation Expense 52 1,800
Utilities Expense 53 320
Insurance Expense 54 700
Maintenance Expense 55 9,000
Income Tax Expense 56 2,700
58,520 58,520

Prepare the entry required to close the revenue and expense accounts at the end of the period.

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09. (LO 04-05) On the basis of the following data taken from the Adjusted Trial Balance columns
of the work sheet for the year ended March 31 for Banes Domino's Company, journalize the
closing entries.

Cash $30,000
Accounts Receivable 45,200
Supplies 5,000
Equipment 169,900
Accumulated Depreciation $32,000
Accounts Payable 12,500
Jack Banes, Capital 71,600
Jack Banes, Drawing 47,000
Fees Earned 510,000
Salary Expense 244,500
Rent Expense 48,000
Depreciation Expense 25,000
Supplies Expense 9,500
Miscellaneous Expense 2,000
$626,100 $626,100

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10. (LO 04-06) The following are all the steps in the accounting cycle. List them in the order in
which they should be done.
 Closing entries are journalized and posted to the ledger.
 An unadjusted trial balance is prepared.
 An optional end-of-period spreadsheet (work sheet) is prepared.
 A post-closing trial balance is prepared.
 Adjusting entries are journalized and posted to the ledger.
 Transactions are analyzed and recorded in the journal.
 Adjustment data are assembled and analyzed.
 Financial statements are prepared.
 An adjusted trial balance is prepared.
 Transactions are posted to the ledger.

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