Accounting 220 Help Week 2

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B-0301

This chapter introduces important concepts in income measurement. Accountants oftentimes discuss these concepts using accounting "jargon" or "terminology. Effective business communication requires that all parties attach the same meaning to the words that are used to express concepts. Match the accounting terms in the list on the left to the accounting concept described in the list on the right.
(1)	Depreciation	(a)	The basic conditions require that an exchange has occurred and the earnings process is complete.
(2)	Calendar Year	(b)	An asset reflecting advance payment for something that will be consumed over the future.
(3)	Revenue Recognition	(c)	An entry usually prepared coincident with the end of an accounting period to update the accounting for prepaids, accruals, and other allocations.
(4)	Cash Basis	(d)	An annual reporting period that runs from January 1 through December 31.
(5)	Prepaids	(e)	Monies collected from customers for services that have not yet been provided.
(6)	Unearned Revenue	(f)	An approach that results in the initial recording of prepaids to an asset account and unearned revenues to a liability account.
(7)	Balance Sheet Approach	(g)	The notion that a continuous business process can be divided into time intervals such as years, quarters, or months for reporting purposes.
(8)	Adjusting Entry	(h)	A systematic and rational allocation scheme to spread a portion of the total cost of a productive asset to each period of use.
(9)	Accruals	(i)	Expenses and revenues that gradually accumulate with the passage of time.
(10)	Periodicity Assumption	(j)	A simplified non-GAAP based method to record revenues as received and expenses as paid.

&R&"Myriad Web Pro,Bold"&20B-03.01

B-03.01

Worksheet


(1)	Depreciation	(h)	A systematic and rational allocation scheme to spread a portion of the total cost of a productive asset to each period of use.
(2)	Calendar Year
(3)	Revenue Recognition
(4)	Cash Basis
(5)	Prepaids
(6)	Unearned Revenue
(7)	Balance Sheet Approach
(8)	Adjusting Entry
(9)	Accruals
(10)	Periodicity Assumption

&L&"Myriad Web Pro,Bold"&12Name: Date: Section: &R&"Myriad Web Pro,Bold"&20B-03.01

B-03.01

B-03.02

Accounting "failures" occur when reported results are not presented in accordance with generally accepted accounting principles. These failures can produce significant financial losses to investors and creditors. Oftentimes, an accounting failure results from an incorrect application of revenue recognition concepts. Revgression Corporation included each of the following described transactions in revenue during 20X5. Three of these transactions were appropriate, and three were not. Determine which are "ok" and which are "not ok."
(1)	Goods were sold and shipped in late 20X5, but the product still requires substantial installation and setup services. The price and terms of sale stipulate that seller must satisfactorily complete all installation and setup at the buyer's location.
(2)	Goods were produced according to a customer purchase order, but had not yet been shipped by the end of 20X5.
(3)	Goods were delivered to customers during early 20X5, but the customers had ordered and paid for the goods during 20X4.
(4)	Customers purchased goods and services during late 20X5, but credit terms permitted them to delay payment until early 20X6. Full payment is expected eventually.
(5)	Advance payment from a customer in a foreign country was received in 20X5, for services to be provided in 20X6.
(6)	Goods were purchased and paid for by customers during 20X5, but customers may return defective goods for warranty work or a refund. The expected warranty/refund claims are subject to reasonable estimation and not anticipated to be significant.

B-03.02

Worksheet 0302

"NOT OK" Revenue should not be recorded during 20X5 for the following three items:

"OK" Revenue should be recorded during 20X5 for the following three items:

B-03.02

B-03.03

The recognition of an expense usually occurs based on one of the following three intrinsic principles:

(a)	Associating cause and effect
(b)	Systematic and rational allocation
(c)	Immediate recognition

Evaluate the following items and determine the intrinsic principle that establishes the basis by which it is to be recorded as an expense.

(1)	The cost of a building used in the business.
(2)	The cost of merchandise sold to customers.
(3)	Rental costs under a three-year lease agreement.
(4)	The cost of a rebate offered on goods sold to customers.
(5)	An uninsured storm loss.
(6)	Commissions paid to a sales person.
(7)	Cost of land seized as the result of a change in government in a foreign venue.
(8)	The cost of paper used by a publishing company.
(9)	The cost of an unfavorable verdict in a civil lawsuit.

B-03.03

Worksheet 0303

Associating cause and effect
(2)	The cost of merchandise sold to customers.



Systematic and rational allocation




Immediate recognition

B-03.03

B-03.04


Following are three separate transactions that pertain to prepaid items. Evaluate each item and prepare the journal entries that would be needed for the initial recording and subsequent end-of-20X3 adjusting entry. Assume the company uses the balance sheet approach, and the initial recording is to an asset account. The company has a calendar year-end and does not make any adjusting entries prior to December 31.
(1)	The company purchased an 18-month insurance policy for $18,000 on June 1, 20X3.
(2)	The company started 20X3 with $20,000 in supplies (this was previously recorded, and you do not need to make an entry for the beginning balance), purchased $30,000 in supplies during the year, and found only $13,000 in supplies on hand at the end of 20X3.
(3)	The company paid $2,500 to rent a truck. The rental period began on December 16, 20X3, and ends on February 14, 20X4.

B-03.04

Worksheet 0304

GENERAL JOURNAL
Date	Accounts	Debit	Credit
1-Jun



31-Dec




GENERAL JOURNAL
Date	Accounts	Debit	Credit
various



31-Dec




GENERAL JOURNAL
Date	Accounts	Debit	Credit
16-Dec



31-Dec

B-03.05

Mohamed Bakar Alidini recently formed a business in the Republic of Yemen to process liquefied natural gas for export to other countries. Natural gas can be converted to a liquid by cooling it to -163 degrees Celsius. It then assumes a highly compressed state and can be transported by specially designed cryogenic vessels. Mohamed's business invested 80,000,000 (Yemeni Rials/YER) in a cooling/containment chamber with a 4-year life. The chamber will have no remaining value at the end of the 4-year period.
(a)	Prepare journal entries to record annual depreciation for each of the four years, assuming Alidini uses the straight-line method.
(b)	Show how the annual depreciation will appear in each year's income statement.
(c)	Show how the asset, and related accumulated depreciation will appear in each year's balance sheet.

B-03.05

Worksheet 0305

GENERAL JOURNAL
Date	Accounts	Debit	Credit	ALIDINI CORPORATION
20X1				Income Statement
				For the Year Ending December 31, 20X1

					. . .
20X2					Expenses
					. . .
					Depreciation
					. . .
20X3



20X4				ALIDINI CORPORATION
				Balance Sheet
				December 31, 20X1

					Assets
					. . .
					Cooling chamber
					Less: Accumulated depreciation
					. . .




				ALIDINI CORPORATION
				Income Statement
				For the Year Ending December 31, 20X2

					. . .
					Expenses
					. . .
					Depreciation
					. . .




				ALIDINI CORPORATION
				Balance Sheet
				December 31, 20X2

					Assets
					. . .
					Cooling chamber
					Less: Accumulated depreciation
					. . .




				ALIDINI CORPORATION
				Income Statement
				For the Year Ending December 31, 20X3

					. . .
					Expenses
					. . .
					Depreciation
					. . .




				ALIDINI CORPORATION
				Balance Sheet
				December 31, 20X3

					Assets
					. . .
					Cooling chamber
					Less: Accumulated depreciation
					. . .




				ALIDINI CORPORATION
				Income Statement
				For the Year Ending December 31, 20X4

					. . .
					Expenses
					. . .
					Depreciation
					. . .




				ALIDINI CORPORATION
				Balance Sheet
				December 31, 20X4

					Assets
					. . .
					Cooling chamber
					Less: Accumulated depreciation
					. . .

B-03.05 (b)&(c)

B-03.06

Stargate Publishing issues the Weekly Window. The company's primary sources of revenue are sales of subscriptions to customers and sales of advertising in the Weekly Window. Stargate owns its building and has excess office space that it leases to others. The following transactions involved the receipt of advance payments. Prepare the indicated journal entries for each set of transactions.
(1)	On September 1, 20X5, the company received a $24,000 payment from an advertising client for a 6-month advertising campaign. The campaign was to run from November, 20X5, through the end of April, 20X6. Prepare the journal entry on September 1, and the December 31 end-of-year adjusting entry.
(2)	The company began 20X5 with $120,000 in unearned revenue relating to sales of subscriptions for future issues. During 20X5, additional subscriptions were sold for $1,230,000. Magazines delivered during 20X5 under outstanding subscriptions totaled $1,020,000. Prepare a summary journal entry to reflect the sales of subscriptions, and the end-of-year adjusting entry to reflect magazines delivered.
(3)	The company received a $3,000 rental payment on December 16, 20X5, for the period running from mid-December to Mid-January. Prepare the December 16 journal entry, as well as the December 31 end-of-year adjusting entry.

B-03.06

Worksheet 0306

GENERAL JOURNAL
Date	Accounts	Debit	Credit
1-Sep



31-Dec





GENERAL JOURNAL
Date	Accounts	Debit	Credit
various



31-Dec





GENERAL JOURNAL
Date	Accounts	Debit	Credit
16-Dec



31-Dec

B-03.07

Creative Hearing Technologies of London recently introduced a Bluetooth-enabled hearing aid that allows hearing-disabled users to not only hear better, but also interface with their cell phones and digital music players. The company reports the following four transactions and events related to December of 20X7, and is seeking your help to prepare the end-of-year adjusting entries needed at December 31.
(1)	On December 1, the company borrowed £10,000,000 at an 8% per annum interest rate. The loan, and all accrued interest, is due in 3 months.
(2)	Early in December, the company licensed its new technology to Apple Bites Computer, Inc., for use in Apple's existing product lines. The agreement provides for a royalty payment from Apple to Creative based on Apple's sales of products using the licensed technology. As of December 31, £45,000 is due under the agreement for actual sales made by Apple to date.
(3)	Creative pays many employees on an hourly basis. As of December 31, there are 5,320 unpaid labor hours already worked, at an average hourly rate of £17.
(4)	The company estimates that utilities used during December, for which bills will be received in January, amount to £20,000.

B-03.07

Worksheet 0307

GENERAL JOURNAL
Date	Accounts	Debit	Credit
31-Dec



31-Dec



31-Dec



31-Dec

B-03.08

Anthony Asher's administrative assistant maintains a very simple computerized general ledger system. This system includes intuitive routines for recording receipts, payments, and sales on account. However, the system is not sufficiently robust to automate end-of-period adjustments. Below is the trial balance for the month ending January 31, 20X8. This trial balance has not been adjusted for the various items that are described below. Review the trial balance and narratives, and prepare the necessary adjusting entries.

	Asher Corporation
	Trial Balance
	January 31, 20X8

			Debits	Credits
		Cash	$ 37,500	$ -
		Accounts receivable	12,410	-
		Prepaid insurance	2,400	-
		Supplies	7,113	-
		Equipment	35,000	-
		Accumulated depreciation	-	10,000
		Accounts payable	-	7,569
		Unearned revenue	-	8,500
		Loan payable	-	15,000
		Capital stock	-	24,000
		Retained earnings, Jan. 1	-	15,457
		Revenues	-	43,995
		Salary expense	12,098	-
		Rent expense	13,000	-
		Office expense	2,500	-
		Dividends	2,500	-
			$ 124,521	$ 124,521


Asher Corporation's equipment had an original life of 140 months, and the straight-line depreciation method is used. As of January 1, the equipment was 40 months old. The equipment will be worthless at the end of its useful life. As of the end of the month, Asher Corporation has provided services to customers for which the earnings process is complete. Formal billings are normally sent out on the first day of each month for the prior month's work. January's unbilled work is $25,000. Utilities used during January, for which bills will soon be forthcoming from providers, are estimated at $1,500. A review of supplies on hand at the end of the month revealed items costing $3,500. The $2,400 balance in prepaid insurance was for a 6-month policy running from January 1 to June 30. The unearned revenue was collected in December of 20X7. 60% of that amount was actually earned in January, with the remainder to be earned in February. The loan accrues interest at 1% per month. No interest was paid in January.

B-03.08

Worksheet 0308

GENERAL JOURNAL
Date	Accounts	Debit	Credit
31-Jan



31-Jan



31-Jan



31-Jan



31-Jan



31-Jan



31-Jan

B-03.09

Professor Wayne Campbell recently lectured on adjusting entries. As he did so, he prepared T-accounts on a marker board to illustrate the key points he was making. As he was erasing his illustrations from the board, Candice Greenhaw arrived late to class. She was only able to copy the following portions of the T-account illustrations from the board. You are to help Candice recreate the lecture by completing the missing portions of each T-account. Then, prepare the adjusting entries for December 31, 20X1.
Example 1:
	Unearned Revenues				Revenues
	12/31/X1	18,000	25,000	12/1/X1		178,976	Various
			23,900	12/15/X1			12/31/X1
		18,000

			30,900


Example 2:
	Prepaid Insurance				Insurance Expense
	Beg. Bal.	15,000			12/31/X1
	12/10/X1	5,000

		20,000

		13,000


Example 3:
	Salaries Expense				Salaries Payable
	Various	21,500					12/31/X1
	12/15/X1	2,500
	12/31/X1
		27,000




Example 4:
	Depreciation Expense				Accumulated Depreciation
	Various	23,900				89,000	Beg. Bal.
	12/31/X1						12/31/X1
		25,200




Example 5:
	Supplies				Supplies Expense
	Beg. Bal.	0		12/31/X1
	12/9/X1	3,400
		3,400

		1,600

B-03.09

Worksheet 0309

Example 1:








12/31/X1	Unearned Revenues	18,000
	Revenues		18,000
	To record previously collected revenues now earned


Example 2:














Example 3:












Example 4:











Example 5:

B-03.09

B-03.10

Evaluate the following items, and determine the correct amount to report on the income statement for each, using the accrual basis of accounting for the referenced period of time.
Revenues		A Company had beginning accounts receivable of $8,000. The company reported cash basis revenues of $100,000. The ending accounts receivable amounted to $18,000.
Supplies		B Company purchased $25,000 of supplies. Supplies on hand decreased by $5,000 during the period.
Rent		C Company started the year with no prepaid rent, and ended the year with $1,000 in prepaid rent. Rent expense on a cash basis was $13,000.
Equipment		At the beginning of the year, D Company purchased and expensed an item of equipment for $20,000. The equipment has a 4-year life, and will be worthless after four years.
Wages		There were no wages payable at the beginning of the year. E Company paid $145,000 in wages during the year, and owed an additional $12,000 at year's end.

B-03.10

Worksheet 03.10

Revenues

Supplies

Rent

Equipment

Wages

I-3.04

Plicta Motors is an automobile service center offering a full range of repair services for high performance cars. The following information is pertinent to adjusting entries that are needed for Plicta, as of March 31, 20X5. Plicta has a fiscal year ending on March 31, and only records adjusting entries at year end.
	Plicta has a large investment in repair equipment, and maintains detailed asset records. These records show that depreciation for fiscal "X5" is $123,400.
	As of March 31, 20X5, accrued interest on loans owed by Plicta is $21,678.
	Auto dealerships outsource work to Plicta. This work is done on account, and billed monthly. As of March 31, 20X5, $54,800 of unbilled services have been provided.
	Plicta maintains a general business liability insurance policy. The prepaid annual premium is $6,000. The policy was purchased on October 1, 20X4. Another policy is a 6-month property and casualty policy, and it was obtained on December 1, 20X4, at a cost of $3,000. Both policies were initially recorded as prepaid insurance.
	The company prepared a detailed count of shop supplies at March 31, 20X4. $37,904 was on hand at that date. Management believed this level was greater than necessary and undertook a strategy to reduce these levels over the next year. During the fiscal year 20X5, Plicta purchased an additional $125,000 of supplies, and debited the Supplies account. By March 31, 20X5, the effort to reduce inventory was successful, as the count revealed an ending balance of only $13,600.
	During the fiscal year, Plicta began offering a service contract to retail customers entitling them regular tire rotations, car washing, and other routine maintenance items. Customers prepay for this service agreement, and Plicta records the proceeds in the Unearned Revenue account. The service plan is a flat fee of $219, and Plicta sold the plan to 456 customers. At March 31, 20X5, it is estimated that 25% of the necessary work has been provided under these agreements.
	Plicta's primary advertising is on billboards. Lamzar Outdoor Advertising sold Plicta a plan for multiple sign locations around the city. Because Plicta agreed to prepay the full price of $26,000, Lamzar agreed to leave the signs up for 13 months. Plicta paid on June 1, 20X4, and recorded the full amount as a prepaid. However, the advertising campaign was not begun until July 1, 20X4. It will conclude on July 31, 20X5.
	Plicta leases shop space. Monthly rent is due and payable on the first day of each month. Plicta paid March's rent on March 1, and expects to pay April's rent on April 1.

Prepare adjusting entries (hint: when necessary) for Plicta, as of March 31, 20X5.

I-03.04

Worksheet I-3.04

GENERAL JOURNAL			Page
Date	Accounts	Debit	Credit
Mar. 31



Mar. 31



Mar. 31



Mar. 31



Mar. 31



Mar. 31



Mar. 31

I-3.06

Examine each of the following fact scenarios, then prepare initial and end-of-year adjusting entries (when needed) assuming (a) use of a "balance sheet" approach versus (b) use of an "income statement" approach. You may assume a calendar year end for each scenario. Use T-accounts to show how the same financial statement results occur under either approach. The preprinted worksheet includes an illustrative solution for the first scenario.

Scenario 1	A $1,500, one-year insurance policy was purchased on June 1, 20X1.

Scenario 2	$20,000 of unearned revenue was collected on August 1, 20X1. 40% of this amount was earned by the end of the year.

Scenario 3	On December 1, 20X1, $3,000 was prepaid for space in a trade-show booth. The trade show is in February of 20X2.

Scenario 4	A $1,000 customer deposit for future services was received on April 1, 20X1. On June 20, 20X1, the customer canceled the agreement and received a full refund.























		I-3.06

I-03.06

Worksheet I-3.06

Scenario 1: Balance Sheet Approach

06/01/X1		Prepaid Insurance					1,500
		Cash						1,500
		To record payment for 1-year policy


12/31/X1		Insurance Expense					875
		Prepaid Insurance						875
		To record insurance "used" ($1,500 X 7/12)


	Prepaid Insurance				Insurance Expense
	06/01/X1	1,500	875	12/31/X1	12/31/X1	875

		625



Scenario 1: Income Statement Approach

06/01/X1		Insurance Expense					1,500
		Cash						1,500
		To record payment for 1-year policy


12/31/X1		Prepaid Insurance					625
		Insurance Expense						625
		To record insurance "unused" ($1,500 X 5/12)


	Prepaid Insurance				Insurance Expense
	12/31/X1	625			06/01/X1	1,500	625	12/31/X1

						875


Scenario 2: Balance Sheet Approach

08/01/X1




12/31/X1




	Unearned Revenue				Revenue






Scenario 2: Income Statement Approach

08/01/X1




12/31/X1




	Unearned Revenue				Revenue





Scenario 3: Balance Sheet Approach

12/01/X1




12/31/X1




	Prepaid Rent				Rent Expense






Scenario 3: Income Statement Approach

12/01/X1




12/31/X1




	Prepaid Rent				Rent Expense





Scenario 4: Balance Sheet Approach

04/01/X1




06/20/X1




	Unearned Revenue				Revenue






Scenario 4: Income Statement Approach

04/01/X1




06/20/X1




	Unearned Revenue				Revenue

I-03.06

B-4.01

Amber Nestor has an eye for quality. She recently formed an art gallery where she allows artists to display their artwork for sale. Customers buy the artwork through the gallery, but payments are actually made payable directly to the originating artist. Artists, in turn, pay Amber a 20% commission that is appropriately reflected as revenue of the gallery. Following is Amber's trial balance after the first year of operation. This trial balance does not reflect the adjustments that are necessary, as described by the additional infomation.

	AMBER NESTOR ART GALLERY
	Trial Balance
	As of December 31, 20X4

			Debits	Credits
		Cash	$ 18,400	$ -
		Supplies	6,790	-
		Display equipment	15,000	-
		Loan payable	-	7,500
		Capital stock	-	25,000
		Revenues	-	48,590
		Rent expense	11,000	-
		Salaries expense	24,000	-
		Interest expense	500	-
		Utilities expense	5,400	-
			$ 81,090	$ 81,090



The Display equipment was purchased near the beginning of the year. It has a 3-year life and no salvage value. Its cost should be depreciated equally over its life.
Amber is entitled to receive $17,900 of commissions for art sold. This revenue has not yet been recorded, but it is fully expected that the artists will soon be making payment.
Supplies on hand at year end were counted, and amount to $3,400.
December's rent of $1,000 has not yet been paid.

(a) Prepare the necessary adjusting enties as of December 31, 20X4.
(b) Use T-accounts to determine the adjusted balances of the accounts.
(c) Prepare the adjusted trial balance for Amber Nestor.

B-04.01

Worksheet B-4.01

GENERAL JOURNAL

Page

Date

Accounts

Debit

Credit

CASH

REVENUES

AMBER NESTOR ART GALLERY

Dec. 31

Adjusted Trial Balance

As of December 31, 20X4

ACCOUNTS RECEIVABLE

Debits

Credits

Dec. 31

Cash

$ -

RENT EXPENSE

Accounts receivable

Supplies

SUPPLIES

Display equipment

Dec. 31

Accumulated depreciation

Rent payable

SALARIES EXPENSE

Loan payable

Capital stock

Dec. 31

DISPLAY EQUIPMENT

Revenues

Rent expense

INTEREST EXPENSE

Salaries expense

Interest expense

ACCUMULATED DEPRECIATION

Utilities expense

UTILITIES EXPENSE

$ -

RENT PAYABLE

LOAN PAYABLE

CAPITAL STOCK

B-04.01 (b)

B-4.02

Reagan Sakai is in charge of financial management for Land Monitrix. Land Monitrix utilizes satellite technology and sophisticated mapping software to alert its customers to trespassing, illegal dumping, and other encroachments on property these customers own around the globe. Customers typically purchase one-year contracts for this service, and the pricing depends on the number and size of sites monitored.
Mr. Sakai desires to review financial reports -- an income statement, statement of retained earnings, and balance sheet. Prepare these reports from the following adjusted trial balance. Mr. Sakai needs this information for internal review purposes, and does not require a classified balance sheet. The operating data relate to the full year, and the blank worksheet already includes partial data.

	LAND MONITRIX CORPORATION
	Adjusted Trial Balance
	As of December 31, 20X5

			Debits	Credits
		Cash	$ 834,221	$ -
		Accounts receivable	345,909	-
		Prepaid expenses	45,787	-
		Supplies	66,665	-
		Satellite equipment	3,009,000	-
		Accumulated depreciation	-	1,222,199
		Accounts payable	-	544,190
		Unearned revenues	-	455,000
		Loan payable	-	1,000,000
		Capital stock	-	560,000
		Retained earnings, Jan. 1	-	228,892
		Dividends	50,000	-
		Revenues	-	2,373,402
		Selling expenses	476,445	-
		Interest expense	80,000	-
		Salaries expense	677,667	-
		Maintenance and supplies expense	222,989	-
		Depreciation expense	575,000	-
			$ 6,383,683	$ 6,383,683

B-04.02

Worksheet B-4.02


	Income Statement

		Revenues
		Services to customers		$ -
		Expenses
			$ -
			-
			-
			-
			-	-
		Net income		$ -


Note -- The "Excel" tip uses macros, and your security settings may limit access.

	LAND MONITRIX CORPORATION
	Statement of Retained Earnings

		Beginning retained earnings		$ -
		Plus: Net income		-
				$ -
				-
				$ -

B-04.02

B-4.03

Utilize the following worksheet to prepare the income statement, statement of retained earnings, and balance sheet for Himarios Corporation. For this problem, you do not need to prepare a classified balance sheet.
	HIMARIOS COMPANY
	Worksheet to Prepare Financial Statements
	DECEMBER 31, 20X9

		Trial Balance		Adjustments		Adjusted Trial Balance		Income Statement		Statement of Retained Earnings		Balance Sheet
		Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit
	Cash	$ 59,300				$ 59,300						$ 59,300
	Accounts receivable	12,371				12,371						12,371
	Equipment	60,000				60,000						60,000
	Accumulated depreciation		$ 12,000		$ 4,000		$ 16,000						$ 16,000
	Accounts payable		7,566				7,566						7,566
	Unearned revenue		4,000	$ 1,500			2,500						2,500
	Notes payable		25,000				25,000						25,000
	Capital stock		50,000				50,000						50,000
	Retained earnings, Jan. 1		6,343				6,343				$ 6,343
	Service revenue		139,987		1,500		141,487		$ 141,487
	Salaries expense	108,425		4,300		112,725		$ 112,725
	Interest expense	2,100				2,100		2,100
	Dividends	2,700				2,700				$ 2,700
	Depreciation expense			4,000		4,000		4,000
	Salaries payable				4,300		4,300						4,300
	Rent expense			2,500		2,500		2,500
	Rent payable	-	-	-	2,500	-	2,500	-	-				2,500
		$ 244,896	$ 244,896	$ 12,300	$ 12,300	$ 255,696	$ 255,696	$ 121,325	$ 141,487
	Net income							20,162	-	-	20,162
								$ 141,487	$ 141,487	$ 2,700	$ 26,505
	Retained earnings, Dec. 31									23,805	-	-	23,805
										$ 26,505	$ 26,505	$ 131,671	$ 131,671

B-04.03

Worksheet B-4.03

HIMARIOS COMPANY
Income Statement
For the Year Ending December 31, 20X9
	Revenues
	Services to customers		$ -
	Expenses
		$ -
		-
		-
		-	-
	Net income		$ -




HIMARIOS COMPANY
Statement of Retained Earnings
For the Year Ending December 31, 20X9
	Beginning retained earnings		$ -
	Plus: Net income		-
			$ -
	Less: Dividends		-
	Ending retained earnings		$ -

B-04.03

B-4.04

Some of the following accounts are real (permanent) accounts, and some are nominal (temporary) accounts. Which are which?
	Capital Stock
	Revenues
	Accumulated Depreciation
	Salaries Expense
	Accounts Payable
	Dividends
	Supplies
	Rent Expense
	Unearned Revenues
	Income Summary
	Equipment
	Prepaid Rent
	Interest Payable
	Retained Earnings
	Loan Payable

B-04.04

Worksheet B-4.04

Capital Stock	Real
Revenues	Temporary
Accumulated Depreciation
Salaries Expense
Accounts Payable
Dividends
Supplies
Rent Expense
Unearned Revenues
Income Summary
Equipment
Prepaid Rent
Interest Payable
Retained Earnings
Loan Payable

B-4.05

Timber Creek prepared the following adjusted trial balance on December 31, 20X3. The company has completed preparation of financial statements and is now ready to prepare closing entries.

	TIMBER CREEK
	Adjusted Trial Balance
	As of December 31, 20X3

			Debits	Credits
		Cash	$ 35,600	$ -
		Accounts receivable	23,700	-
		Supplies	7,500	-
		Equipment	325,700	-
		Accumulated depreciation	-	40,400
		Accounts payable	-	34,800
		Loan payable	-	100,000
		Capital stock	-	80,000
		Retained earnings	-	70,000
		Dividends	20,000	-
		Revenues	-	478,400
		Rent expense	120,000	-
		Salaries expense	235,600	-
		Supplies expense	18,000	-
		Interest expense	7,400	-
		Depreciation expense	10,100	-
			$ 803,600	$ 803,600

B-04.05

Worksheet B-4.05

GENERAL JOURNAL

Page

Date

Accounts

Debit

Credit

CASH

DIVIDENDS

Dec. 31

closing

TIMBER CREEK

Post-Closing Trial Balance

To close revenues to Income Summary

As of December 31, 20X3

ACCOUNTS RECEIVABLE

REVENUES

Dec. 31

closing

Debits

Credits

$ -

SUPPLIES

RENT EXPENSE

closing

To close expenses to Income Summary

EQUIPMENT

SALARIES EXPENSE

Dec. 31

closing

To close Income Summary to retained earnings

$ -

ACCUMULATED DEPRECIATION

SUPPLIES EXPENSE

Dec. 31

closing

To close dividends

ACCOUNTS PAYABLE

INTEREST EXPENSE

closing

LOAN PAYABLE

DEPRECIATION EXPENSE

closing

CAPITAL STOCK

INCOME SUMMARY

closing

RETAINED EARNINGS

closing

B-04.05(b)

B-04.05(c)

B-4.06

Flowcharts are often used to document business activity. Rectangles represent "processes" and "documents" are represented by the boxes with a rolling bottom. Rearrange the following flowchart shapes into the correct order, and connect with arrows as appropriate.

B-04.06

Transactions are recorded in the journal

Financial statements are produced

Journal entries are posted to appropriate ledger accounts

An adjusted trial balance is prepared

A trial balance is constructed

Adjusting entries are prepared and posted

Closing entries are recorded in the journal and posted to the ledger

A post-closing trial balance is prepared

Worksheet B-4.06

You can either complete this problem by manually redrawing (or cutting and pasting) the shapes, or you can use the Excel file and simply drag and drop the flowchart symbols into the correct sequence.

B-04.06

Excel includes a drawing feature that allows you to insert various shapes into your spreadsheet (Insert/Illustrations/Shapes). The insert tab includes a number of predefined shapes, including standard flowchart symbols. In older versions of Excel, symbols can be found under View/Toolbars/Drawing.

Transactions are recorded in the journal

Financial statements are produced

Journal entries are posted to appropriate ledger accounts

An adjusted trial balance is prepared

A trial balance is constructed

Adjusting entries are prepared and posted

Closing entries are recorded in the journal and posted to the ledger

A post-closing trial balance is prepared

B-4.07

Traditions is an upscale university housing complex providing all the amenities of private townhouse living, and a full service 24-hour cafeteria for busy students. Prior to recording any adjusting entries for 20X4, Traditions has incurred and recorded total salary expense of $875,000 and total rental revenue of $4,800,000. As of December 31, 20X4, the company owes $15,000 of additional salaries to employees, and accrued rent due from residents amounts to $100,000. On January 10, 20X5, Traditions paid salaries of $40,000 covering the amount due as of December 31, as well as additional amounts relating to 20X5. On January 15, 20X5, Traditions received rental payments for $250,0000 covering the rents due as due of December 31, 20X4, and additional amounts relating to the first half of January, 20X5.

(a)	Prepare the necessary year-end adjusting entries for salaries and rent.
(b)	Determine the total salaries expense and total rent revenue for 20X4.
(c)	Assuming the company uses reversing entries, prepare necessary reversals for early 20X5.
(d)	Assuming the company used reversing entries, prepare entries for January 10 and 15, 20X5.
(e)	Assuming the company does not use reversing entries, prepare entries for January 10 and 15, 20X5.
(f)	Show how 20X5 salaries expense and rent revenue will be the same, whether reversing entries are used or not.

B-04.07

Worksheet B-4.07

	GENERAL JOURNAL			Page
	Date	Accounts	Debit	Credit
(a)	Dec. 31



	Dec. 31



(b)

(c)	Jan. 1



	Jan. 1



(d)	Jan. 10



	Jan. 15




(e)	Jan. 10




	Jan. 15





(f)

B-4.08

Liz Ross Corporation prepares a classified balance sheet that includes the following traditional sections:
	Current Assets
	Long-term Investments
	Property, Plant & Equipment
	Intangibles
	Other Assets
	Current Liabilities
	Long-term Liabilities
	Stockholders' Equity

In which section of the classified balance sheet would the following accounts appear? Some of the accounts may not appear in the balance sheet.
	Note Payable (due in 3 months)
	Accumulated Depreciation
	Investment in Government Bonds
	Accounts Receivable
	Accounts Payable
	Long-term Receivable From Employee
	Dividends
	Capital Stock
	Patent
	Supplies
	Retained Earnings (ending)
	Rent Expense
	Unearned Revenues
	Income Summary
	Equipment
	Revenues
	Prepaid Rent
	Interest Payable
	Retained Earnings (beginning)
	Loan Payable (due in 5 years)

B-04.08

Worksheet B-4.08

Note: The Excel spreadsheet includes a pick list in column "c," making it easy to select your choice (just click in the applicable cell). The first one is done as an example, and you can select the "blank" item appearing last in the pick list for those accounts that do not appear in the balance sheet.
Note Payable (due in 3 months)	Current Liabilities
Accumulated Depreciation
Investment in Government Bonds
Accounts Receivable
Accounts Payable
Long-term Receivable From Employee
Dividends
Capital Stock
Patent
Supplies
Retained Earnings (ending)
Rent Expense
Unearned Revenues
Income Summary
Equipment
Revenues
Prepaid Rent
Interest Payable
Retained Earnings (beginning)
Loan Payable (due in 5 years)

B-04.08

B-4.09

Nkululeko J. Ntshanga owns a manganese ore mining business in South Africa. He is interested in attracting additional investors to obtain financing for planned expansion. Some potential investors have expressed a concern that money is really being sought to address liquidity problems being faced by Nkululeko's company. To alleviate this concern Nkululeko provided the following complete list of assets and liabilities of the company. The currency unit is the South African Rand. Use this information to determine the company's current assets, current liabilities, working capital, current ratio, and quick ratio. Based on your calculations, does it appear that the company is experiencing liquidity problems?

Accumulated Depreciation	R 4,569,000
Prepaid Rent	45,800
Note Payable (due in 3 months)	100,000
Accounts Receivable	468,000
Accounts Payable	255,000
Patent	3,000,000
Cash	790,000
Supplies	134,800
Unearned Revenues	133,000
Equipment	8,777,600
Interest Payable	45,000
Loan Payable (due in 3 years)	1,500,000

B-04.09

Worksheet B-4.09


		Current Assets	Quick Assets	Current Liabilities

Accumulated Depreciation	R 4,569,000
Prepaid Rent	45,800
Note Payable (due in 3 months)	100,000
Accounts Receivable	468,000
Accounts Payable	255,000
Patent	3,000,000
Cash	790,000
Supplies	134,800
Unearned Revenues	133,000
Equipment	8,777,600
Interest Payable	45,000
Loan Payable (due in 3 years)	1,500,000


Working Capital :





Current Ratio:


Quick Ratio:

B-04.09

I-4.01

Berry Corporation prepared the following preliminary trial balance. The trial balance and other information was evaluated by Delton Wiser, CPA. Delton has returned a list of proposed adjustments that are necessary to facilitate preparation of correct financial statements for the year ending December 31, 20X3.

	BERRY CORPORATION
	Trial Balance
	December 31, 20X3

			Debits	Credits
		Cash	$ 30,540	$ -
		Accounts receivable	45,000	-
		Supplies	7,000	-
		Equipment	244,500	-
		Accumulated depreciation	-	46,500
		Accounts payable	-	12,700
		Unearned revenue	-	31,250
		Notes payable	-	80,000
		Capital stock	-	100,000
		Retained earnings, Jan. 1	-	63,200
		Dividends	12,000	-
		Revenues	-	289,800
		Wages expense	214,600	-
		Utilities expense	8,700	-
		Selling expense	41,610	-
		Depreciation expense	12,000	-
		Interest expense	7,500	-
			$ 623,450	$ 623,450



Delton discovered that 40% of the unearned revenue appearing in the trial balance had actually been earned as of the end of the year.
A physical count of supplies on hand revealed a year-end balance of only $3,000.
Unpaid and unrecorded invoices for utilities for December amounted to $1,500.
The last payday was December 26. Employees are owed an additional $3,900 that has not been recorded.
Additional depreciation of $3,100 needs to be recorded.

(a)	Prepare journal entries relating to the adjustments.
(b)	Prepare an adjusted trial balance (you might utilize a partial worksheet for this task, as shown in the downloadable form).
(c)	Prepare an income statement and statement of retained earnings for 20X3, and a classified balance sheet as of the end of the year.
(d)	Berry's bookkeeper argued with Delton that there was no need to record the adjustments since they have no "net" effect on income. Evaluate whether this observation is true of false, and comment on the appropriateness of this logic.

I-04.01

Worksheet I-4.01

GENERAL JOURNAL			Page
Date	Accounts	Debit	Credit
				BERRY CORPORATION								BERRY CORPORATION
				Worksheet for Adjusted Trial Balance								Income Statement
				December 31, 20X3								For the Year Ending December 31, 20X3

						Trial Balance		Adjustments		Adjusted Trial Balance			Revenues
						Debits	Credits	Debits	Credits	Debits	Credits		Services to customers		$ -
					Cash	$ 30,540	-	-	-	-	-		Expenses
					Accounts receivable	45,000	-	-	-	-	-		Wages	$ -
					Supplies	7,000	-	-	-	-	-		Utilities	-
					Equipment	244,500	-	-	-	-	-		Selling	-
					Accumulated depreciation	-	$ 46,500	-	-	-	-		Depreciation	-
					Accounts payable	-	12,700	-	-	-	-		Supplies	-
					Utilities payable	-	-	-	-	-	-		Interest	-	-
					Wages payable	-	-	-	-	-	-		Net income		$ -
					Unearned revenue	-	31,250	-	-	-	-
					Notes payable	-	80,000	-	-	-	-
					Capital stock	-	100,000	-	-	-	-
					Retained earnings, Jan. 1	-	63,200	-	-	-	-
					Dividends	12,000	-	-	-	-	-	BERRY CORPORATION
					Revenues	-	289,800	-	-	-	-	Statement of Retained Earnings
					Wages expense	214,600	-	-	-	-	-	For the Year Ending December 31, 20X3
					Utilities expense	8,700	-	-	-	-	-
					Selling expense	41,610	-	-	-	-	-		Beginning retained earnings		$ -
					Depreciation expense	12,000	-	-	-	-	-		Plus: Net income		-
					Supplies expense	-	-	-	-	-	-				$ -
					Interest expense	7,500	-	-	-	-	-		Less: Dividends		-
						$ 623,450	$ 623,450	$ -	$ -	$ -	$ -		Ending retained earnings		$ -





												BERRY CORPORATION
												Balance Sheet
												December 31, 20X3

													Assets
													Current assets
													Cash	$ -
													Accounts receivable	-
													Supplies	-	$ -
													Property, plant & equipment
													Equipment	$ -
													Less: Accumulated depreciation	-	-
													Total assets		$ -

													Liabilities
													Current liabilities
													Accounts payable	$ -
													Utilities payable	-
													Wages payable	-
													Unearned revenue	-	$ -
													Long-term liabilities
													Notes payable		-
													Total liabilities		$ -

													Stockholders' equity
													Capital stock	$ -
													Retained earnings	-
													Total stockholders' equity		-
													Total liabilities and equity		$ -

I-04.01(b)

I-04.01(c)(d)

I-4.02

Examine the following trial balances, before and after adjustment:

	CHESTERFIELD CORPORATION
	Trial Balance and Adjusted Trial Balance
	December 31, 20X9

			Trial Balance		Adjusted Trial Balance
			Debits	Credits	Debits	Credits
		Cash	$ 166,890	$ -	$ 166,890	$ -
		Accounts receivable	87,654	-	107,654	-
		Supplies	8,992	-	4,500	-
		Prepaid rent	6,000		2,000	-
		Equipment	145,700	-	145,700	-
		Accumulated depreciation	-	37,660	-	44,660
		Accounts payable	-	13,590	-	13,590
		Wages payable	-	-	-	4,500
		Interest payable			-	1,500
		Unearned revenue	-	18,000	-	12,000
		Notes payable	-	50,000	-	50,000
		Capital stock	-	225,000	-	225,000
		Retained earnings, Jan. 1	-	89,119	-	89,119
		Dividends	40,000	-	40,000	-
		Revenues	-	334,490	-	360,490
		Wages expense	276,123	-	280,623	-
		Rent expense	33,000	-	37,000	-
		Depreciation expense	-	-	7,000	-
		Supplies expense	-	-	4,492	-
		Interest expense	3,500	-	5,000	-
			$ 767,859	$ 767,859	$ 800,859	$ 800,859



(a) Determine and record the apparent adjusting entries in journal entry format.
(b) Prepare an income statement for the year ending December 31, 20X9.
(c) Prepare a statement of retained earnings for the year ending December 31, 20X9.
(d) Prepare a classified balance sheet as of December 31, 20X9.

I-04.02

Worksheet I-4.02

GENERAL JOURNAL			Page
Date	Accounts	Debit	Credit
				CHESTERFIELD CORPORATION
				Income Statement
				For the Year Ending December 31, 20X9

					Revenues
					Services to customers		$ -
					Expenses
					Wages	$ -
					Rent	-
					Depreciation	-
					Supplies	-
					Interest	-	-
					Net income		$ -




				CHESTERFIELD CORPORATION
				Statement of Retained Earnings
				For the Year Ending December 31, 20X9

					Beginning retained earnings		$ -
GENERAL JOURNAL			Page		Plus: Net income		-
Date	Accounts	Debit	Credit				$ -
					Less: Dividends		-
					Ending retained earnings		$ -





				CHESTERFIELD CORPORATION
				Balance Sheet
				December 31, 20X9

					Assets
					Current assets
					Cash	$ -
					Accounts receivable	-
					Supplies	-
					Prepaid rent	-	$ -
					Property, plant & equipment
					Equipment	$ -
					Less: Accumulated depreciation	-	-
					Total assets		$ -

					Liabilities
					Current liabilities
					Accounts payable	$ -
					Wages payable	-
					Interest payable	-
					Unearned revenue	-	$ -
					Long-term liabilities
					Notes payable		-
					Total liabilities		$ -

					Stockholders' equity
					Capital stock	$ -
					Retained earnings	-
					Total stockholders' equity		-
					Total liabilities and equity		$ -

I-04.02(b,c,d)