Week 2 accounting assignment

Answer/work assignment

Week Two Exercise Assignment

Revenue and Expenses

 

1Recognition of concepts. Jim Armstrong operates a small company that books entertainers for theaters, parties, conventions, and so forth. The company’s fiscal year ends on June 30. Consider the following items and classify each as either (1) prepaid expense, (2) unearned revenue, (3) accrued expense, (4) accrued revenue, or (5) none of the foregoing. 

aInterest owed on the company’s bank loan, to be paid in early July

bProfessional fees earned but not billed as of June 30

cOffice supplies on hand at year-end

dAn advance payment from a client for a performance next month at a convention

eThe payment in part (d) from the client’s point of view

fAmounts paid on June 30 for a 1-year insurance policy

gThe bank loan payable in part (a)

hRepairs to the firm’s copy machine, incurred and paid in June

 

2Understanding the closing process. Examine the following list of accounts: 

Note Payable 

Accumulated Depreciation: Building

Alex Kenzy, Drawing 

Accounts Payable 

Product Revenue 

Cash 

Accounts Receivable 

Supplies Expense 

Utility Expense 

 

Which of the preceding accounts 

a. appear on a post-closing trial balance? 

b. are commonly known as temporary, or nominal, accounts? 

c. generate a debit to Income Summary in the closing process? 

d. are closed to the capital account in the closing process?

 

3Adjusting entries and financial statements. The following information pertains to Sally Corporation

• 
The company previously collected $1,500 as an advance payment for services to be rendered in the future. B
y the end of December, one half
 of this amount had been earned. 
• 
Sally Corporation provided $1
,500 of services to Artech Corporation; no billing had been made by December 31. 
• 
Salaries owed to employe
es at year-end amounted to $1,00
0. 
• 
The Supplies account revealed a balance of $8,800, yet only $3,300 of supplies were actually on hand at the end of the period. 
• 
The company paid $18,000 on October 1 of the current year to Vantage Property Management. The payment was 
for 6 months’ rent of Sally Corporation’s
headquarters, beginning on November 1. 

Sally Corporation’s accounting year ends on December 31. 

Instructions 

Analyze the five preceding cases individually and determine the following: 

a. The type of adjusting entry needed at year-end (Use the following codes: A, adjustment of a prepaid expense; B, adjustment of an unearned revenue; C, adjustment to record an accrued expense; or D, adjustment to record an accrued revenue.) 

b. The year-end journal entry to adjust the accounts 

c. The income statement impact of each adjustment (e.g., increases total revenues by $500)

 

4Adjusting entries. You have been retained to examine the records of Mary’s Day Care Center as of December 31, 20X3, the close of the current reporting period. In the course of your examination, you discover the following: 

• 
On January 1, 20X3, the Supplies account had a ba
lance of $1
,350. During the year, $5,520 worth of supplies was purchased, and a balance of $1,620 remained unused on December 31. 
• 
Unrecorded interest owed to the center totaled $275 as of December 31. 
• 
All clients pay tuition in advance, and their payments are credited to the Unearned Tuition Revenue account.
 The account was credited for $6
5,500 on August 31. With the exception of $15,500
 
all amounts were for the current semester ending on December 31. 
• 
Depreciation on the school’s van was $3,000 for the year. 
• 
On August 1, the center began to pay rent in 6-mon
th installments of $24
,000. Mary
 wrote a check to the owner of the building and recorded the check in Pre
paid Rent, a new account. 
• 
Two salaried employees earn $400 each for a 5-day week. The employees are paid every Friday, and December 31 falls on a Thursday. 
• 
Mar
y’s Day Care paid insurance premiums as follows, each time debiting Pre
paid Insurance: 

 

Date Paid 

Policy No. 

Length of Policy 

Amount 

Feb. 1, 20X2 

1033MCM19 

1 year 

$540 

Jan. 1, 20X3 

7952789HP 

1 year 

912 

Aug. 1, 20X3 

XQ943675ST 

2 years 

840 

Instructions 

 

The center’s accounts were last adjusted on December 31, 20X2. Prepare the adjusting entries necessary under the accrual basis of accounting.

 

5Bank reconciliation and entries. The following information was taken from the accounting records of Palmetto Company for the month of January: 

Balance per bank 

$6,150 

Balance per company records 

3,580 

Bank service charge for January 

20 

Deposits in transit 

940 

Interest on note collected by bank 

100 

Note collected by bank 

1,000 

NSF check returned by the bank with the bank statement 

650 

Outstanding checks 

3,080 

 

Instructions:

a. Prepare Palmetto’s January bank reconciliation. 

b. Prepare any necessary journal entries for Palmetto.

 

6Direct write-off method. Harrisburg Company, which began business in early 20X7, reported $40,000 of accounts receivable on the December 31, 20X7, balance sheet. Included in this amount was  $550 for a sale made to Tom Mattingly in July. On January 4, 20X8, the company learned that Mattingly had filed for personal bankruptcy. Harrisburg uses the direct write-off method to account for uncollectibles.

 

a. Prepare the journal entry needed to write off Mattingly’s account. 

b. Comment on the ability of the direct write-off method to value receivables on the year-end balance sheet. 

 

7Allowance method: analysis of receivables. At a January 20X2 meeting, the president of Sonic Sound directed the sales staff “to move some product this year.” The president noted that the credit evaluation department was being disbanded because it had restricted the company’s growth. Credit decisions would now be made by the sales staff. 

By the end of the year, Sonic had generated significant gains in sales, and the president was very pleased. The following data were provided by the accounting department: 

20X2 

20X1 

Sales 

$23,987,000 

$8,423,000 

Accounts Receivable, 12/31 

12,444,000 

1,056,000 

Allowance for Uncollectible Accounts, 12/31 

23,000 cr. 

 

The $12,444,000 receivables balance was aged as follows: 

Age of Receivable 

Amount 

Percentage of Accounts Expected to Be Collected 

Under 31 days 

$4,321,000 

99% 

3160 days 

4,890,000 

90 

61-90 days 

1,067,000 

80 

Over 90 days 

2,166,000 

60 

 

Assume that no accounts were written off during 20X2. 

Instructions 

 

a. Estimate the amount of Uncollectible Accounts as of December 31, 20X2. 

b. What is the company’s Uncollectible Accounts expense for 20X2? 

c. Compute the net realizable value of Accounts Receivable at the end of 20X1 and 20X2. 

d. Compute the net realizable value at the end of 20X1 and 20X2 as a percentage of respective year-end receivables balances. Analyze your findings and comment on the president’s decision to close the credit evaluation department.





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