Homework chapter 3

P3.2

a) Adjusting entries May 31. Accounting period is 1 month

1. Prepaid insurance is a 1-year policy starting May 1, 2020.

Dr Insurance expense 2,400/12=200

Cr Prepaid Insurance 200

2. A count of supplies shows €750 of unused supplies on May 31.

Supplies

OB: 2,080
1,330
CB: 750

Dr Supplies expense 1,330

Cr Supplies 1,330

3. Annual depreciation is €3,600 on the buildings and €1,500 on equipment.

Dr Depreciation expense (3,600+1,500)/12= 425

Cr Accumulated depreciation – Equipment 1,500/12 = 125
Cr Accumulated depreciation – Building 3,600/12 = 300

Open “Accumulated depreciation” for each individual PPE accounts

4. The mortgage interest rate is 6%. (The mortgage was taken out on May 1.)
Face value= 40,000
Monthly interest = (40,000 x 6%)/12 = 200

Dr Interest expense 200

Cr Interest payable 200

5. Two-thirds of the unearned rent revenue is recognized as Rent revenue.

Unearned rent revenue

OB: 3,300

2,200
CB: 1,100

Dr Unearned rent revenue 2,200

Cr Rent revenue 2,200
6. Salaries of €750 are accrued and unpaid at May 31.

Dr SW expense 750
Cr SW payable 750

b) Post to ledger: of all accounts involve in adjusting entries

Insurance Prepaid
exp insurance
200 (1) OB: 200 (1)
2,400
Total: CB:
200 2,200

Supplies Accu
expense Dep Equip
1,330 OB: 0
(2) 125 (3)
Total: CB:
1,330 125

Deprec Accu
exp Dep Buil
425 (3) OB: 0
300
(3)
Total: CB:
425 300

Interest Interest
exp payable
200 (4) OB: 0
200
(4)
Total: CB:
200 200

Rent SW
revenue exp
10,300 3,300
2,200 750 (6)
(5)
Total: Total:
12,500 4,050
 SW
payable
OB: 0
750 (6)
CB:
750

Lazy River Resort

Adjusted trial balance
May 31
Monetary unit: E
Accounts Debit Credit
Cash 3,400
Supplies 750
Prepaid insurance 2,200
Land 12,000
Building 60,000
Equipment 14,000
Accu Dep –Equipment 125
Accu Dep – Building 300
Account payable 4,700
Unearned rent revenue 1,100
SW payable 750
Interest payable 200
Mortgage payable 40,000
Share capital 41,380
Rent revenue 12,500
Depreciation exp 425
Interest exp 200
SW exp 4,050
Advertising exp 600
Utilities exp 900
Insurance exp 200
Supplies exp 1,330
Dividends 1,000
Total 101,055 101,055

Lazy River Resort

Income statement
For a month ended May 31
Monetary unit: E
Revenues
 Rent revenue 12,500
Total revenue 12,500

Less: expenses
Depreciation exp 425
Interest exp 200
SW exp 4,050
Advertising exp 600
Utilities exp 900
Insurance exp 200
Supplies exp 1,330
Total expenses 7,705

Net Income 4,795

Lazy River Resort

RE statement
For a month ended May 31
Monetary unit: E
RE, May 1 0
Add Net income of May 4,795
Less: dividends 1,000
RE, May 31 3,795

Lazy River Resort

Balance sheet
May 31
Monetary unit: E
Assets Equity and Liabilities
Cash 3,400 Equity
Supplies 750 Share Capital 41,380
Prepaid insurance 2,200 RE 3,795
Land 12,000 Total Equity 45,175
Building 60,000 Liabilities
Less: Accu Dep – 300 Account payable 4,700
Building
Equipment 14,000 Unearned rent 1,100
revenue
Less: Accu Dep – 125 SW payable 750
Equipment
Interest payable 200
Mortgage 40,000
payable
Total liabilities 46,750
Total assets 91,925 Total Equity 91,925
 and Liabilities

P3.3
Accounting period is 1 quarter
(a) Journalize the annual adjusting entries that were made.
Accounts Unadjusted trial Adjusted trial balance Change
balance
Dr Cr Dr Cr
AR 10,400 11,500 In 1,100
Supplies 1,500 650 De 850
Prepaid Rent 2,200 500 De 1,700
Accu Dep- Equip 0 700 In 700
SW payable 0 725 In 725
Interest payable 0 100 In 100
Unearned rent 1,900 450 De 1,450
revenue
Ser Revenue 16,000 17,100 In 1,100
Rent revenue 1,410 2,860 In 1,450
SW exp 8,000 8,725 In 725
Rent exp 1,900 3,600 In 1,700
Depreciation exp 0 700 In 700
Supplies exp 0 850 In 850
Interest exp 0 100 In 100

(1) Dr Supplies exp 850

Cr Supplies 850
(2) Dr Rent exp 1,700
Cr Prepaid rent 1,700
(3) Dr Depreciation exp 700
Cr Accumulated Depreciation –Equipment 700
(4) Dr Interest exp 100
Cr Interest payable 100
(5) Dr Unearned rent revenue 1,450
Cr Rent revenue 1,450
(6) Dr Account receivable 1,100
Cr Service revenue 1,100
(7) Dr SW expense 725
Cr SW payable 725

(b) Prepare an income statement and a retained earnings statement for 3 months ended Sept 30
and a statement of financial position at Sept 30.
 Use information in “Adjusted column”
Income statement
Company: Alena
for the quarter ended Sept 30, 2020
 Monetary unit: $
Revenues
Service revenue 17,100
Rent revenue 2,860
Total revenues 19,960
Less: expenses
SW expense 8,725
Interest exp 100
Depreciation exp 700
Supplies exp 850
Rent exp 3,600
Utilities exp 1,510
Total expenses 15,485
Net Income 4,475

Retained earnings statement

Company: Alena
for the quarter ended Sept 30, 2020

Monetary unit: $
RE, July 1 0
Add: Net Income of the quarter 4,475
Less: Dividends 1,600
RE, Sept 30 2,875

Statement of financial position (Balance sheet)

Company: Alena
On Sept 30, 2020

Monetary unit: $
Assets
Equipment 18,000
Accumulated Depreciation-Equipment (700)
Prepaid rent 500
Supplies 650
AR 11,500
Cash 8,700
Total assets 38,650
Equity and Liabilities
Equity
Share capital 22,000
Retained earnings 2,875
Total Equity 22,875
Liabilities
Note payable 10,000
 Account payable 2,500
Unearned rent revenue 450
SW payable 725
Interest payable 100
Total liabilities 13,775
Total Equity and Liabilities 38,650

c) If the note bears interest at 12%, how many months has it been outstanding?

Interest of 12% per year equals a monthly rate of 1%; monthly interest is $100 ($10,000 X
1%). Since total interest expense is $100, the note has been outstanding one month.

P3.6*
a) Adjusting entries
Accounting period is semi-annual (6 months)
1. The €3,700 balance in Supplies Expense represents supplies purchased in January.
Dr Supplies expense 3,700
Cr Cash or Account payable 3,700

At June 30, €1,300 of supplies are on hand -> CB of supplies is 1,300

 Supplies have been used is 3,700 – 1,300 = 2,400 is supplies expense

Supplies Supplies
exp

OB 3,700
(Jan 1): 0 (jan 1)

1,300 1,300

CB: Total:
1,300 2,400
 Adjusting entries:

Dr Supplies 1,300

Cr Supplies Expense 1,300

2. The note payable was issued on February 1. It is a 6%, 6-month note.

Dr Interest Expense(€20,000 x 6% x 5/12) 500

Cr Interest Payable 500

3. The balance in Insurance Expense is the premium on a one-year policy, dated April 1,
2020.

When purchase insurance

Dr Insurance expense 2,700

Cr Cash/AP 2,700

Insurance expense month = 2,700/12 = 225

Insurance expense 3 months = 675

Insurance premium leftover is 2,700 – 675 = 2,025 cover for the next 9 months -> closing
balance of prepaid insurance account

Prepaid Insurance
insurance expense

OB: 0 2,700

2,025 2,025

CB: Total:
2,025 675
Adjusting entries:

Dr Prepaid Insurance 2,025

Cr Insurance exp 2,025

4. Service revenues are credited to revenue when received cash.

Dr Cash 58,100

Cr Service revenue 58,100

At June 30, services revenue of €1,300 are unearned. -> closing balance of unearned revenue
account

Unearned Service
revenue revenues

OB: 0 58,100

1,300 1,300

CB: Total:
1,300 56,800

Adjusting entries:

Dr Service revenue 1,300

Cr Unearned revenue 1,300

5. Revenue for services performed but unrecorded at June 30 totals €2,000.

Dr Account receivable 2,000

Cr Service revenue 2,000

6. Depreciation is €2,250 per year.

Dr Depreciation exp 2,250/2

Cr Accumulated Depreciation-Equipment 2,250/2

b. Prepare adjusted trial balance

Total debit = total credit = 112,725
c. Financial statements
Net income = 19,000
Retained earnings at the end = 19,000
Total assets = 71,800