Week 2 accounting assignment
WEAONEAnswer/work assignment
Week Two Exercise Assignment
Revenue and Expenses
1. Recognition 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
2. Understanding 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?
3. Adjusting entries and financial statements. The following information pertains to Sally Corporation:
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)
4. Adjusting 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:
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.
5. Bank 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.
6. Direct 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.
7. Allowance 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% |
31-60 days | 4,890,000 | 90 |
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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