2.

Deferrals (Prepayments)

1. SUPPLIES
DR CR
A Supplies 50,000
Cash 50,000

B 30,000

C
C.1 Understated
C.2 Overstated
C.3 Overstated
C.4 Overstated

D Supplies expense 20,000

Supplies 20,000

2. INSURANCE

A Prepaid Insurance 48,000

Cash 48,000

B 4,000

C
C.1 Understated
C.2 Overstated
C.3 Overstated
C.4 Overstated

D Insurance expense 4,000

Prepaid Insurance 4,000

3. RENT
A Prepaid Rent 240,000
Cash 240,000

B 100,000

C
C.1 Understated
C.2 Overstated
C.3 Overstated
C.4 Overstated

D Rent expense 100,000

Prepaid Rent 100,000
UNEARNED INCOME (LIABILITY METHOD)

CASE (1)
A Cash 1,000,000
Unearned Fees 1,000,000

B 400,000

C
C.1 Understated
C.2 Understated
C.3 Overstated
C.4 Understated

D Unearned Fees 400,000

Fees Earned 400,000

CASE (2)
A Cash 120,000
Unearned Advertising Revenue 120,000

B 20,000

C
C.1 Understated
C.2 Understated
C.3 Overstated
C.4 Understated

D Unearned Adverstising Revenue 20,000

Advertising Revenue 20,000

3. ACCRUALS

1. UTILITIES
A. NO ENTRY

B. 19,100

C
C.1 Understated
C.2 Overstated
C.3 Understated
C.4 Overstated

D Utilities expense 19,100

Utilities payable/ Accrued Utilities Expense 19,100
2. INTEREST EXPENSE (CASE 1)

A NO ENTRY

B 140,000 140,000

C
C.1 Understated
C.2 Overstated
C.3 Understated
C.4 Overstated

D Interest expense 140,000

Interest payable/Accrued interest expense 140,000

E Loans payable 666,667

Interest payable 140,000
Interest expense 100,000
Cash 906,667

3. INTEREST EXPENSE (CASE 2)

A 10,000

B Interest expense 10,000

Interest payable 10,000

C Note payable 1,000,000

Interest payable 10,000
Interest expense 20,000
Cash 1,030,000

D
A 120,000

B Interest expense 120,000

Interest payable 120,000

E
A 10,000

B Interest expense 10,000

Interest payable 10,000

4. SALARIES AND WAGES (CASE 1)

A 24,000

B
B.1 Understated
B.2 Overstated
B.3 Understated
B.4 Overstated

C Salaries expense 24,000

Salaries payable/ Accrued Salaries expense 24,000

D Salaries expense 6,000

Salaries payable/ Accrued Salaries expense 24,000
Cash 30,000
5. SALARIES AND WAGES (CASE 2)

A 1,950

B Salaries expense 1,950

Salaries payable/ Accrued Salaries expense 1,950

B. ACCRUED INCOME

1. ACCRUED REVENUE

A NO ENTRY

B 150,000

C
C.1 Understated
C.2 Understated
C.3 Understated
C.4 Understated

D Accounts Receivable 50,000

Fees Earned/ Service Income 50,000

2. INTEREST RECEIVABLE

A Notes Receivable 400,000

Sales 400,000

B Interest Receivable 36,000

Interest income 36,000

C Cash 248,000
Notes Receivable 200,000
Interest Receivable 36,000
Interest Income 12,000

D Interest Receivable 18,000

Interest income 18,000

E Cash 224,000
Notes Receivable 200,000
Interest Receivable 18,000
Interest Income 6,000

F 36,000

G 12,000

H 6,000
4. DEPRECIATION

A Computer equipment 370,000

Cash 370,000

B Depreciation expense - computer equipment 120,000

Accumulated Depreciation - computer equipment 120,000

C
1. 2015 120,000
2. 2016 120,000
3. 2017 30,000

D
1. 12/31/2015 370,000
2. 12/31/2016 370,000

E
1. 12/31/2015 120,000
2. 12/31/2016 240,000

F
1. 12/31/2015 250,000
2. 12/31/2016 130,000

G
1 Cash 130,000
270,000
Accumulated Depreciation - Computer equipment
Computer equipment 370,000
Gain on sale from disposal of property 30,000

2 Cash 80,000
270,000
Accumulated Depreciation - Computer equipment
Loss on sale from disposal of property 20,000
Computer equipment 370,000
6. ALTERNATIVE METHOD OF RECORDING DEFERRALS

C. PREPAID EXPENSES ( EXPENSE METHOD)

1. SUPPLIES

A Supplies expense 50,000

Cash 50,000

B 30,000

C
C.1 Overstated
C.2 Understated
C.3 Understated
C.4 Understated

D Supplies 20,000
Supplies expense 20,000

2. INSURANCE

A Insurance expense 48,000

Cash 48,000

B 4,000

C
C.1 Overstated
C.2 Understated
C.3 Understated
C.4 Understated

D Prepaid Insurance 44,000

Insurance expense 44,000
 3. RENT

A Rent expense 240,000

Cash 240,000

B 100,000

C
C.1 Overstated
C.2 Understated
C.3 Understated
C.4 Understated

D Prepaid Rent 140,000

Rent Expense 140,000

D. UNEARNED INCOME (REVENUE METHOD)

1. CASE 1
A Cash 1,000,000
Fees Earned 1,000,000

B 400,000

C
C.1 Overstated
C.2 Overstated
C.3 Understated
C.4 Overstated

D Fees Earned 600,000

Unearned Fees 600,000

2. CASE 2
A Cash 120,000
Adverstinsing Revenue 120,000

B 20,000

C
C.1 Overstated
C.2 Overstated
C.3 Understated
C.4 Overstated

D Advertising Revenue 100,000

Unearned Advertising Revenue 100,000