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Chapter 2

By Phillip Hill,2014-06-27 23:00
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Chapter 2 ...

    Chapter 4 Adjusting Accounts for

     Financial Statements

    EXERCISES

    Exercise 4-1 (10 minutes)

1. a 7. c

    2. e 8. f

    3. c 9. f

    4. b 10. f

    5. f 11. d

    6. b 12. f

    Copyright ? 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 4 203

Exercise 4-2 (25 minutes)

     2011 a) Dec. 31 Amortization Expense, Equipment ...................... 32,000

     Accumulated Amortization, Equipment ....... 32,000

     To record amortization expense for the year. b) 31 Insurance Expense................................................ 11,920

     Prepaid Insurance .......................................... 11,920

     To record insurance coverage that expired

     during the year; $14,000 $2,080.

    c) 31 Office Supplies Expense ...................................... 5,252

     Office Supplies ............................................... 5,252

     To record office supplies consumed during

     the year; $600 + $5,360 $708.

    d) 31 Unearned Fee Revenue......................................... 20,000

     Fee Revenue ................................................... 20,000

     To record earned portion of fee received in

     advance; $30,000 × 2/3 = $20,000.

    e) 31 Insurance Expense................................................ 9,200

     Prepaid Insurance .......................................... 9,200

     To record insurance coverage that expired

     during the year.

    f) 31 Wages Expense ..................................................... 8,000

     Wages Payable ............................................... 8,000

     To record wages accrued but not yet paid.

     2012 g) Jan. 6 Wages Payable ...................................................... 8,000

     Wages Expense ..................................................... 12,000

     Cash................................................................ 20,000

     To record the payment of wages.

Copyright ? 2007 by McGraw-Hill Ryerson Limited. All rights reserved.

    204 Fundamental Accounting Principles, Twelfth Canadian Edition

Exercise 4-3 (20 minutes)

     2011 a) Dec. 31 Unearned Revenue ...................................................... 16,000

     Revenue ................................................................ 16,000

     To record earned revenue;

     $18,500 - $2,500 = $16,000.

    b) 31 Amortization Expense, Building ................................ 10,500

     Accumulated Amortization, Building ................. 10,500

     To record amortization expense.

    c) 31 Spare Parts Expense ................................................... 350

     Spare Parts Inventory .......................................... 350

     To record the use of spare parts inventory;

     $450 - $100 = $350.

    d) 31 Accounts Receivable .................................................. 3,550

     Revenue ................................................................ 3,550

     To record accrued revenue.

    e) 31 Utilities Expense ......................................................... 1,300

     Utilities Payable (or Accounts Payable)............. 1,300

     To record accrued utilities.

     2012 f) Jan. 4 Cash ............................................................................. 3,550

     Accounts Receivable .......................................... 3,550

     To record collection of accrued revenues.

    g) 14 Utilities Payable (or Accounts Payable) .................... 1,300

     Cash ..................................................................... 1,300

     To record payment of accrued utilities. Exercise 4-4 (20 minutes)

     2011 a) Sept. 30 Unearned Revenue .................................................... 12,000

     Revenue .............................................................. 12,000

     To record earned revenue.

    b) 30 Amortization Expense, Furniture ............................. 150

     Accumulated Amortization, Furniture .............. 150

     To record amortization for one month;

     7,200/4 yrs = 1,800/yr; 1,800/12 months =

    150/month.

    Copyright ? 2007 by McGraw-Hill Ryerson Limited. All rights reserved.

    Solutions Manual for Chapter 4 205

    Exercise 4-4 (continued) c) Sept. 30 Office Supplies Expense ......................................... 5,000

     Office Supplies .................................................. 5,000

     To record the use of office supplies.

    d) 30 Accounts Receivable ............................................... 28,000

     Revenue ............................................................. 28,000

     To record accrued revenue.

    e) 30 Rent Expense ........................................................... 7,000

     Rent Payable (or Accounts Payable) .............. 7,000

     To record accrued rent.

    f) Oct. 3 Cash ...................................................................... 28,000

     Accounts Receivable ................................... 28,000

     To record collection of accrued revenue.

    g) 4 Rent Payable (or Accounts Payable).................. 7,000

     Cash .............................................................. 7,000

     To record payment of accrued rent. Exercise 4-5 (25 minutes)

     2011 a) Mar. 31 Unearned Rent .................................................................. 7,500

     Rent Earned ................................................................ 7,500

     Earned five months’ rent previously paid in

    advance;

     $1,500 x 5 = $7,500.

    b) 31 Rent Receivable ................................................................ 2,700

     Rent Earned ................................................................ 2,700

     Earned two months’ rent that has not yet

     been collected; $1,350 x 2 = $2,700.

    c) Apr. 22 Cash ................................................................................... 4,050

     Rent Receivable ......................................................... 2,700

     Rent Earned ................................................................ 1,350

     Collected rent for February, March, and April.

Copyright ? 2007 by McGraw-Hill Ryerson Limited. All rights reserved.

    206 Fundamental Accounting Principles, Twelfth Canadian Edition

Exercise 4-6 (15 minutes)

     2011 a) Dec. 31 Accounts Receivable .................................................... 2,000

     Fees Earned (or Revenue) ..................................... 2,000

     To record accrued fees earned.

    b) 31 Rent Expense................................................................. 8,000

     Prepaid Rent ........................................................... 8,000

     To record expired rent.

    c) 31 Amortization Expense, Machinery ............................... 400

     Accumulated Amortization, Machinery ................ 400

     To record amortization expense.

    d) 31 Unearned Fees............................................................... 2,800

     Fees Earned (or Revenue) ..................................... 2,800

     To record fees earned.

    e) 31 Salaries Expense ........................................................... 5,000

     Salaries Payable ..................................................... 5,000

     To record accrued salaries.

Exercise 4-7 (15 minutes)

    a. $1,650 (300 + 2,100 750 = 1,650)

    b. $5,700 (1,600 + 5,400 1,300 = 5,700)

    c. $10,080 (9,600 + 1,840 1,360 = 10,080)

    d. $1,375 (6,575 + 800 6,000 = 1,375)

    Proof:

     (a) (b) (c) (d) Supplies on handJanuary 1 ....................... $ 300 $1,600 $ 1,360 $1,375 Supplies purchased during the year ............ 2,100 5,400 10,080 6,000 Total supplies available ................................. $2,400 $7,000 $11,440 $7,375 Supplies on handDecember 31 .................. (750 ) (5,700) (1,840 ) (800) Supplies expense for the year ....................... $1,650 $1,300 $ 9,600 $6,575

Copyright ? 2007 by McGraw-Hill Ryerson Limited. All rights reserved.

    Solutions Manual for Chapter 4 207

Exercise 4-8 (15 minutes)

    Adjusting entry:

    2012

    Dec. 31 Wages Expense ................................................................ 1,000

     Wages Payable .......................................................... 1,000

     Adjusting entry to record accrued wages for one

     day; 5 × $200.

    Payday entry:

    2013

    Jan. 4 Wages Expense ................................................................ 3,000

     Wages Payable ................................................................. 1,000

     Cash ........................................................................... 4,000

     Paid employees' accrued and current wages;

     5 employees x $200/day x 4 days = $4,000.

    Exercise 4-9 (25 minutes)

     2011 a) Apr. 30 Interest Expense ....................................................... 2,080

     Interest Payable ................................................. 2,080

     To record accrued interest expense;

     0.8% × $780,000 × 10/30.

     May 20 Interest Payable ........................................................ 2,080

     Interest Expense ....................................................... 4,160

     Cash .................................................................... 6,240

     To record payment of accrued and current

     expense; 0.8% × $780,000 × 20/30.

     2011 b) Apr. 30 Salaries Expense ...................................................... 3,600

     Salaries Payable................................................. 3,600

     To record accrued salaries;

     $9,000/5 days = $1,800/day;

     2 days x $1,800 = $3,600.

     May 3 Salaries Payable ......................................................... 3,600

     Salaries Expense ....................................................... 5,400

     Cash ..................................................................... 9,000

     To record payment of accrued and current

     salaries; 3 days x $1,800 = $5,400.

Copyright ? 2007 by McGraw-Hill Ryerson Limited. All rights reserved.

    208 Fundamental Accounting Principles, Twelfth Canadian Edition

Exercise 4-9 (concluded)

     2011 c) Apr. 30 Legal Fees Expense ................................................... 2,500

     Legal Fees Payable ............................................. 2,500

     To record accrued legal fees.

     May 12 Legal Fees Payable .................................................... 2,500

     Cash ..................................................................... 2,500

     To pay accrued legal fees. Exercise 4-10 (25 minutes)

    2011

    Dec. 31 Accounts Receivable ....................................................... 3,600

     Fees Earned ............................................................... 3,600

     To record unbilled fees; 30% × $12,000.

     31 Unearned Fees .................................................................. 8,400

     Fees Earned ............................................................... 8,400

     To record earned fees that had been

     collected in advance; 70% × $12,000.

     31 Amortization Expense, Computers ................................. 3,000

     Accumulated Amortization, Computers .................. 3,000

     To record amortization on computers.

     31 Amortization Expense, Office Furniture ......................... 3,500

     Accumulated Amortization,

     Office Furniture ..................................................... 3,500

     To record amortization on office furniture.

     31 Salaries Expense .............................................................. 4,900

     Salaries Payable ........................................................ 4,900

     To record accrued salaries.

     31 Insurance Expense ........................................................... 2,600

     Prepaid Insurance ..................................................... 2,600

     To record expired prepaid insurance.

     31 Office Supplies Expense ................................................. 960

     Office Supplies .......................................................... 960

     To record use of office supplies.

     31 Utilities Expense ................................................................. 140

     Utilities Payable .......................................................... 140

     To record unpaid utility costs.

Copyright ? 2007 by McGraw-Hill Ryerson Limited. All rights reserved.

    Solutions Manual for Chapter 4 209

Exercise 4-10 (concluded)

    Analysis component:

    The GAAP of matching and revenue recognition requires that adjusting entries be

    recorded at the end of each accounting period to ensure revenues and expenses are

    allocated to the period in which they were incurred. If the December 31, 2011

    adjustments for Javelin Company were not recorded, revenues would be understated by

    $12,000; expenses would be understated by $15,100; and net income would be

    overstated by the difference of $3,100 ($15,100 - $12,000 = $3,100).

Exercise 4-11 (25 minutes)

    Ayotte Music

    Partial Work Sheet

    February 28, 2011

     Unadjusted Adjusted Trial Account Trial Balance Adjustments Balance

     Debit Credit Debit Credit Debit Credit Cash ................................................. 5,000 5,000 Accounts receivable ....................... 4,500 c) 1,400 5,900 Prepaid insurance........................... 700 b) 250 450 Equipment ....................................... 12,000 12,000 Accumulated amortization,

    equipment ....................................... 6,000 a) 2,400 8,400 Accounts payable ........................... 1,200 1,200 Jane Adams, capital ....................... 9,000 9,000 Jane Adams, withdrawals .............. 3,000 3,000 Revenues ......................................... 45,000 c) 1,400 46,400 Amortization expense, equipment 0 a) 2,400 2,400 Salaries expense............................. 29,000 29,000 Insurance expense ......................... 7,000 b) 250 7,250

    Totals ............................................... 61,200 61,200 4,050 4,050 65,000 65,000

Copyright ? 2007 by McGraw-Hill Ryerson Limited. All rights reserved.

    210 Fundamental Accounting Principles, Twelfth Canadian Edition

Exercise 4-12 (25 minutes)

    Ayotte Music

    Income Statement

    For Year Ended February 28, 2011

    Revenue ........................................................................................ $46,400

    Operating expenses:

     Salaries expense..................................................................... $29,000

     Insurance expense ................................................................. 7,250

     Amortization expense, equipment ........................................ 2,400

     Total operating expenses .................................................. 38,650 Net income ................................................................................... $ 7,750

    Ayotte Music

    Statement of Owner’s Equity

    For Year Ended February 28, 2011

    Jane Adams, capital, March 1..................................................... $ 9,000 Add: Net income .......................................................................... 7,750

     Total ......................................................................................... $16,750 Less: Withdrawal by owner ....................................................... 3,000 Jane Adams, capital, February 28 .............................................. $13,750

    Ayotte Music

    Balance Sheet

    February 28, 2011

    Assets Cash .............................................................................................. $ 5,000 Accounts receivable .................................................................... 5,900 Prepaid insurance........................................................................ 450 Office equipment ......................................................................... $12,000

     Less: Accumulated amortization, office equipment ........... 8,400 3,600 Total assets .................................................................................. $14,950

    Liabilities Accounts payable ........................................................................ $ 1,200

    Owner’s Equity Jane Adams, capital .................................................................... 13,750 Total liabilities and owner’s equity ............................................ $14,950

Copyright ? 2007 by McGraw-Hill Ryerson Limited. All rights reserved.

    Solutions Manual for Chapter 4 211

Exercise 4-12 (concluded)

    Analysis component:

    The GAAP which requires the preparation of financial statements is the time period

    principle. The time period principle assumes that an organization’s activities can be

    divided into specific time periods. Since information must reach decision makers

    frequently and promptly, the accounting system needs to prepare reports regularly. The

    standard reporting period is one year although many companies report quarterly.

*Exercise 4-13

    a) Cash ............................................................................ 1,800

     Accounts Payable............................................... 1,800

     To correct the original entry.

     OR

     Cash 1,800

     Office Supplies ................................................... 1,800

     To reverse the incorrect entry.

     Office Supplies .......................................................... 1,800

     Accounts Payable............................................... 1,800

     To journalize the correct entry.

    b) Revenue ...................................................................... 4,500

     Accounts Receivable ......................................... 4,500

     To correct the original entry.

     OR

     Revenue 4,500

     Cash ..................................................................... 4,500

     To reverse the incorrect entry.

     Cash ............................................................................ 4,500

     Accounts Receivable ......................................... 4,500

     To journalize the correct entry.

    c) Withdrawals ................................................................ 1,500

     Salaries Expense ................................................ 1,500

     To correct the original entry.

     OR

     Cash ............................................................................ 1,500

     Salaries Expense .............................................. 1,500

     To reverse the incorrect entry.

     Withdrawals ................................................................ 1,500

     Cash .................................................................... 1,500

     To journalize the correct entry. Copyright ? 2007 by McGraw-Hill Ryerson Limited. All rights reserved.

    212 Fundamental Accounting Principles, Twelfth Canadian Edition

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