ACC 205 Week 1-5 Assignments and final paper.

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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.

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

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

Note Payable	Accumulated Depreciation: Building (a)
Alex Kenzy, Drawing	Accounts Payable (a)
Product Revenue (b)(c)	Cash (A)(c)
Accounts Receivable (a)(c)	Supplies Expense (b)
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:

· 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, adjustment of a prepaid expense

· Sally Corporation provided $1,500 of services to Artech Corporation; no billing had been made by December 31. B, adjustment of an unearned revenue

· Salaries owed to employees at year-end amounted to $1,000. C, adjustment to record an accrued expense

· 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, adjustment of a prepaid expense

· 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, adjustment of a prepaid expense

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:

· 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.

Determining supplies
Beginning Balance	$ 1350
Plus: Purchases	$ 5520
Supplies Available	$ 6870
Less: Ending of Supplies on hand	$ 1620
Supplies used	$ 5250

· Unrecorded interest owed to the center totaled $275 as of December 31.

12-31-20X3

Unearned Revenue

$ 275.00

Revenue

$275.00

Year-end adjusting entry to reflect earned portion interest

· 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. Paid $50,000

8-31-20X3

Cash

$ 65,000.00

Unearned Tuition Revenue

$ 65,000.00

To record advance collection from clients

12-31-20X3

Unearned Tuition Revenue

$ 15,000.00

Tuition Revenue

$ 15,000.00

Year-end adjusting entry to reflect earned portion of advance payment

· Depreciation on the school’s van was $3,000 for the year.

12-31-20X3

Depreciation Expense

$ 3,000.00

Accumulated Depreciation

$ 3,000.000

To record annual depreciation expense

· 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.

8-1-20X3	Prepaid Rent	$ 24,000.00
	Check		$ 24,000.00
	Prepaid 6 month lease

End of month Rent

Rent Expense

$ 4,000.00

Prepaid Rent

$ 4,000.00

To adjust prepaid rent to reflect portion consumed

· Two salaried employees earn $400 each for a 5-day week. The employees are paid every Friday, and December 31 falls on a Thursday.

· Mary’s Day Care paid insurance premiums as follows, each time debiting Prepaid 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

2-1-X2	Prepaid Insurance	540
	Cash		540

1-1-X3	Prepaid Insurance	912
	Cash		912

8-1-X3	Prepaid Insurance	840
	Cash		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.

1-4-x8	Uncollectable account Expense	500.00
	Accounts Receivable		500.00
	To record the write-off of an uncollectible account

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.

Accounts Receivable 20X1	$1,056,000
Accounts Receivable 20X2	$12,444,000
Less: Allowances for Uncollected Accounts	(23,000)
	13,477,000

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
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.

The answer is none Assuming that no accounts were written off during 20X2 .

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

Zero to one percent.

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

$13,477,000

Accounts Receivable 20X1	$1,056,000
Accounts Receivable 20X2	$12,444,000
Less: Allowances for Uncollected Accounts	(23,000)
	13,477,000

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. 8% increase in accounts receivable and no accounts went uncollected in 20X2 following the decision to close the department. I would call that a good decision in the short run. Not having the credit evaluation department may prove costly over time as accounts again go uncollected.