Revenue and Expenses

week_2_template.xlsx

Name

NAME

Date

NAME
Problem 1	Recognition of Concepts
	Transaction	Classification
a	Interest owed on the company's bank loan, to be paid in early July
b	Professional fees earned but not billed as of June 30
c	Office supplies on hand at year-end
d	An advance payment from a client for a performance next month at a convention
e	The payment in part (d) from the client's point of view
f	Amounts paid on June 30 for a 1-year insurance policy
g	The bank loan payable in part (a)
h	Repairs to the firm's copy machine, incurred and paid in June

Problem 2	Understanding the closing process.
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?

Problem 3	Adjusting entries and financial statements.
The company previously collected $1,500 as an advance payment for services to be rendered in the future. By the end of December, one half of this amount had been earned.
a.	B
		DR	CR
b.	Unearned Revenue
	Revenue
c.
Sally Corporation provided $1,500 of services to Artech Corporation; no billing had been made by December 31.
a.
		DR	CR
b.	Accounts Receivable
	Revenue
c.
Salaries owed to employees at year-end amounted to $1,000.
a.
		DR	CR
b.	Salary Expense
	Salaries Payable
c.
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.
a.
		DR	CR
b.	Supplies Expense
	Supplies Inventory
c.
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.
a.
		DR	CR
b.	Rent Expense
	Prepaid Rent
c.

Problem 4	Adjusting entries
		DR	CR
On January 1, 20X3, the Supplies account had a balance of $1,350. During the year, $5,520 worth of supplies was purchased, and a balance of $1,620 remained unused on December 31.
1	Supply expense
	Supplies
	Explanation:
Unrecorded interest owed to the center totaled $275 as of December 31.
2	Interest Receivable
	Interest Revenue
	Explanation:
All clients pay tuition in advance, and their payments are credited to the Unearned Tuition Revenue account. The account was credited for $65,500 on August 31. With the exception of $15,500 all amounts were for the current semester ending on December 31.
3	Unearned Tuition Revenue account
	Revenue
	Explanation:
Depreciation on the school’s van was $3,000 for the year.
4	Depreciation expense - van
	Accumulated depreciation - van
	Explanation:
On August 1, the center began to pay rent in 6-month installments of $24,000. Mary wrote a check to the owner of the building and recorded the check in Prepaid Rent, a new account.
5	Rent expense
	Prepaid rent
	Explanation:
Two salaried employees earn $400 each for a 5-day week. The employees are paid every Friday, and December 31 falls on a Thursday.
6	Salary expense
	Salaries payable
	Explanation:
Mary’s Day Care paid insurance premiums as follows, each time debiting Prepaid Insurance:
7	Insurance Expense
	Prepaid Insurance
	Explanation:

Problem 5	Bank reconciliation and entries.
a. Receonciliation
Balance per Bank
Add: Deposits in transit
Deduct: Outstanding checks
Reconciled balance
Balance per books
Add: Interest collected for note
Note collected by bank
Deduct: Bank service charge
NSF check
Reconciled balance
Adjusting Journal Entries
1	DR	CR
Bank service charges
Cash
2
Cash
Interest revenue
3
Cash
Notes Receivable
4
Accounts receivable
Cash

Problem 6
a. Prepare the journal entry needed to write off Mattingly’s account.
		DR	CR
	Bad Debts expense
	Accounts receivable
b. Comment on the ability of the direct write-off method to value receivables on the year-end balance sheet.

Problem 7	Allowance method: analysis of receivables.
a. Estimate the amount of Uncollectible Accounts as of December 31, 20X2.
Age of Receivable	Amount	Percentage of Accounts Expected to Be Collected	Uncollectible percent	Amount
				Uncollectible
Under 31 days
31-60 days
61-90 days
Over 90 days
b. What is the company’s Uncollectible Accounts expense for 20X2?
The uncollectible accounts expense would require the following entry based upon the above calculation
		DR	CR
Bad Debt Allowance
Allowance for Doutbtful Accounts
c. Compute the net realizable value of Accounts Receivable at the end of 20X1 and 20X2.
		20X2	20X1
Accounts receivable
Allowance
Net Realizable value
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.
		20X2	20X1
Accounts receivable
Net Realizable value
Net Realizable value as
a % of receivables
Explanantion: