King’s College Fall 2017 ACCT 115: Additional Accruals and Deferrals Practice The records of Hetrick Companyand Frear Corporation show the following information. Prepare journal entries, if required, to

  

King’s College  

Fall 2017

ACCT 115: Additional Accruals and Deferrals Practice

The records of Hetrick Companyand Frear Corporation show the following information.

Prepare journal entries, if required, to adjust the books of Hetrick Company or Frear Corporation, as noted. The fiscal year for both companies end December 31. 

  

(A)

On December 1, 2017, Hetrick Company received a rent   payment for office space leased to Frear Corporation. Because Frear has a very poor credit   rating, Hetrickrequired an advance payment of rent
  for eighteen months. The payment of $225,000   cash was for the following eighteen months and was credited to deferred rent   revenue when it was received. Record   the original entry Hetrick made when payment was receivedon December 1, 2017.

Date

Account Names

Debits

Credits

01-Dec-17

          

Computations:

  

  

(B)

Refer to (A) above. Record the entry Hetrick should make, if any, to adjust the books   before the
  close of the year ended December 31, 2017, to record the rent revenue earned   in December.

Date

Account Names

Debits

Credits

31-Dec-17

          

Computations:

  

  

(C)

Refer to (A)   above. If, on December 1, 2017, when   Hetrick Company received the rent payment
  of $225,000 for office space leased to Frear Corporation, the accountant for   Hetrick credited
  rent revenue instead of deferred rent revenue, what entry should Hetrick   make, if any,
  before the close of the year ended December 31, 2017 to record rent revenue   earned in December?

Note: You may want to consider preparing multiple entries   to complete this adjustment.

Date

Account Names

Debits

Credits

31-Dec-17

          

Computations:

  

 

  

(D)

Refer to (A)   above. On December 1, 2017, when Frear   Corporation made the payment to Hetrick
  Company in advance for eighteen months of rent, totaling $225,000, Frear’s   accountant debited
  Prepaid Rent Expense for the entire amount. Record the original entry made by Frear.

Date

Account Names

Debits

Credits

01-Dec-17

          

Computations:

  

  

(E)

Refer to (D) above. Record the entry Frear should make, if any, to adjust the books before   the
  close of the year ended December 31, 2017, to record rent expense incurred in   December.

Date

Account Names

Debits

Credits

31-Dec-17

          

Computations:

  

  

(F)

Refer to (D)   above. If, on December 1, 2017, when   Frear Corporation made the advance rent payment
  of $225,000, the accountant for Frear debited rent expense instead of prepaid   rent expense, what entry should Frear make, if any, before the close of the   year ended December 31, 2017 to record expense
  incurred in December? Note: You may want to prepare multiple entries for this   adjustment. 

Date

Account Names

Debits

Credits

31-Dec-17

          

Computations:

  

 

(G) Short essay question: What observations do you have about the preceding problems (A) through (F),
comparing and contrasting the accounting for the rent payment by the two companies?

  

 

 

 

  

(H)

On September 1, 2017, Frear Corporation borrowed   $1,200,000 from Hetrick Company, signing an unsecured promissory note. The loan is for 3 years, at 7 percent   annual interest. The principal and interest are payable at the maturity   date. The following entry was made by   Frear’s accountant when Frear received the loan amount and signed the   promissory note. 

dr. Cash $1,200,000

cr.   Note Payable $1,200,000

  

Frearmakes monthly entries for the accrual of interest     incurred for the loan. What is the     monthly entry Frear should make for the month of November 2017, if any, for     interest expense incurred for the loan?

 

Date

Account Names

Debits

Credits

 

30-Nov-17

 

 

Computations:

  

 

(I)

Refer to (H) above. The following entry was made by Hetrick’s   accountant when Hetrick made the loan to Frear:

dr. Note   Receivable $1,200,000

cr.   Cash $1,200,000

  

Hetrickmakes monthly entries for the accrual of     interest earned for the loan. What     is the monthly entry Hetrick should make for the month of December 2017, if     any, for interest expense earned for the loan?

 

Date

Account Names

Debits

Credits

 

31-Dec-17

 

 

Computations:

  

(J) Short essay question: What observations do you have about the preceding problems (H) and (I),
 comparing and contrasting the accounting for the loan and related interest by the two companies?

  

 

 

 

 

 

 

  

(K)

On September 1, 2015, Hetrick Company purchased and   installed robotic equipment for their manufacturing process. Hetrick paid $2,000,000 for the equipment,   making a down payment of $500,000 and financing the remainder of the purchase   price with a loan from Citizens Bank. Record the entry Hetrick should have made for the acquisition of the   equipment.

  

 

Date

Account Names

Debits

Credits

 

01-Sep-15

 

 

 

Computations:

  

 

(L)

Refer   to (K) above. Hetrick estimated that   the useful life of the robotic equipment is 5 years, or 60 months, and it   will have a salvage value of $200,000 after the end of its useful life. 

  

Hetrickmakes monthly entries for depreciation expense     for the robotic equipment. What is     the monthly entry Hetrick should make for the month of December 2017, if     any, for depreciation expense?

 

Date

Account Names

Debits

Credits

 

31-Dec-17

 

 

Computations:

  

 

  

(M)

On June 1, 2017, Frear Company secured an insurance policy,   for eighteen months of coverage,
  beginning August 1, 2017. The total   premium of $54,000 was paid on that date. Prepaid
  Insurance Expense was debited at the time of the payment.
Frear records the insurance expense   incurred for this policy on a monthly basis. What entry
  should Frear have made for the month of October 2017?

  

Date

Account Names

Debits

Credits

 

31-Oct-17

 

 

 

 

Computations:

  

 

(N)

Refer to (K) above. The loan that Hetrick required to purchase the robotic equipment is   for fifteen months, and the principal and interest is due on the maturity   date. 

What is the maturity date of the loan? Enter your answer here: 

  

The interest rate for the loan is 8%, per annum. 

If Hetrick accrues interest expense monthly for the   interest associated with the loan, what entry should Hetrick make in   December, 2017 for accrued interest, if any?

  

 

Date

Account Names

Debits

Credits

 

31-Dec-17

 

 

 

Computations:

  

(O)Refer to (N) above.How much interest expense will Hetrick pay for the loan?
 Enter your answer here: 

  

Computations: