BRIEF EXERCISES
BE. 3-122—Definitions.
Provide clear, concise answers for the
following.
1. What is the accrual-basis of accounting?
2. What is an accrued expense?
3. What is accrued revenue?
4. What is a prepaid expense?
5. What is unearned revenue?
*6. State
the rule that indicates which adjusting entries for prepaid and unearned items
should be reversed.
BE. 3-123—Terminology.
In the space provided at the right, write
the word or phrase that is defined or indicated.
1. Revenue
and expense accounts. 1.
2. An
optional step in the accounting 2.
cycle.
3. A
revenue collected, but not recognized. 3.
4. A
revenue recognized, but not collected. 4.
5. Asset,
liability, and equity accounts. 5.
6. An
expense paid, but not incurred. 6.
7. An
expense incurred, but not paid. 7.
BE. 3-124—Accrued and deferred items.
Generally accepted accounting principles
require the use of accruals and deferrals in the determination of income. How
is income determined under the accrual-basis of accounting? Include in your
answer what constitutes an accrued item and a deferred (prepaid) item, and give
appropriate examples of each.
EXERCISES
Ex. 3-125—Adjusting entries.
Present, in journal form, the adjustments
that would be made on July 31, 2018, the end of the fiscal year, for each of
the following.
1. The supplies inventory on August 1, 2017 was
$9,350. Supplies costing $24,150 were acquired during the year and charged to
the supplies inventory. A count on July 31, 2018 indicated supplies on hand of
$8,810.
2. On April 30, a ten-month, 6% note for $30,000
was received from a customer.
*3. On
May 1, $20,000 was collected as rent for one year and a nominal account was
credited.
Ex. 3-126—Adjusting entries.
Reed Co. wishes to enter receipts and
payments in such a manner that adjustments at the end of the period will not
require reversing entries at the beginning of the next period. Record the
following transactions in the indicated manner and give the adjusting entry on
December 31, 2017. (Two entries for each part.)
1. An
insurance policy for two years was acquired on April 1, 2017 for $24,000.
2. Rent
of $15,000 for six months for a portion of the building was received on
November 1, 2017.
Ex. 3-127—Accrual adjusting entries.
The following information relates to the
Wallstrom Company at the end of 2017. The accounting period is the calendar
year.
1. Employees are paid every Friday for the
five-day week ending on that day. Salaries amount to $4,000 per week. The
accounting period ends on a Tuesday.
2. A note for $5,000 was received from a
customer in a sales transaction on April 1, 2017. The note matures in one year
and bears 8% interest.
3. On September 1, 2017, Wallstrom borrowed
$10,000 cash by signing a note payable due in one year at 6% interest.
Instructions
Using the information given above, prepare
the necessary adjusting entries at December 31, 2017.
Ex. 3-128—Deferral adjusting entries.
The following information relates to the
Morganstern Magazine Company at the end of 2017. The accounting period is the
calendar year.
1. An insurance premium of $6,000 was paid on
March 1, 2017, and was charged to Prepaid Insurance. The premium covers a
24-month period beginning March 1, 2017.
2. On June 1, 2017, cash of $54,000 was
received from subscribers (customers) for a 36-month subscription period
beginning on that date. The receipt was recorded by a debit to Cash and a
credit to Unearned Subscription Revenue.
3. The Supplies account showed a balance of
$5,000 at the beginning of 2017. Supplies costing $16,000 were purchased during
2014 and debited to the asset account. Supplies of $3,000 were on hand at
December 31, 2017.
Instructions
Using the information given above, prepare
the necessary adjusting entries at December 31, 2017.
Ex. 3-129—Adjusting entries.
The following data relate to the accounts
of Edmiston Company.
a. Unpaid salaries and wages at year end
amount to $750.
b. Edmiston Company owns bonds of another
corporation that pay annual interest of $800. These bonds were purchased on
April 1, 2017, and the next interest payment will be received on April 1, 2018.
c. A two-year insurance policy was purchased
on June 1, 2017. The $1,200 insurance premium was paid on that date and was
debited to Prepaid Insurance.
d. Service Revenue was credited for $900 on
June 1, 2017. The amount represents a one-year advance payment for services to
be performed by Edminston Company through May 31, 2018.
e. The Supplies account shows a balance of
$2,500 on December 31, 2017. A physical count of the supplies on hand at this
date reveals a total of $1,000 available.
Instructions
Prepare the necessary adjusting journal
entries indicated by each item for the year ended December 31, 2017.
Ex. 3-130—Analyze adjusted trial balance.
A partial adjusted trial balance of West
Company at January 31, 2018, shows the following.
WEST COMPANY
Adjusted Trial Balance
January 31, 2018
Debit Credit
Supplies $ 2,800
Prepaid Insurance 9,600
Salaries and Wages Payable $3,200
Unearned Revenue 3,000
Supplies Expense 3,800
Insurance Expense 1,600
Salaries and Wages Expense 7,200
Service Revenue 8,000
Instructions
Answer the following questions, assuming
the year begins January 1.
(a) If
the amount in Supplies Expense is the January 31 adjusting entry, and $3,400 of
supplies was purchased in January, what was the balance in Supplies on January
1?
(b) If
the amount in Insurance Expense is the January 31 adjusting entry, and the
original insurance premium was for one year, what was the total premium and
when was the policy purchased?
(c) If
$10,000 of salaries was paid in January, what was the balance in Salaries and
Wages. Payable at December 31, 2017?
(d) If
$6,400 was received in January for services performed in January, what was the
balance in Unearned Revenue at December 31, 2017?
Ex. 3-131—Adjusting and reversing entries.
When the accounts of Strasberg Inc. are
examined, the adjusting data listed below are available on December 31, the end
of the annual period.
1. Interest has accrued on a $20,000, 6% note
payable, issued on May 1.
2. On September 1, Rent Revenue was credited
for $3,000, representing revenue from a subrental for a 6-month period
beginning on that date.
3. Purchase of supplies for $1,500 during the
year was recorded in the Supplies Expense account. On December 31, supplies of
$500 are on hand.
Instructions
Prepare the following in general journal form.
(a) The
adjusting entry for each item.
(b) The
reversing entry for each item where appropriate.
Ex. 3-132—Financial statements.
The adjusted trial balance of Ryan
Financial Planners appears below. Using the information from the adjusted trial
balance, you are to prepare for the month ending December 31:
1. an income statement.
2. a retained earnings statement.
3. a balance sheet.
RYAN FINANCIAL PLANNERS
Adjusted Trial Balance
December 31, 2017
Debit Credit
Cash $ 3,900
Accounts Receivable 2,200
Supplies 1,800
Equipment 16,000
Accumulated Depreciation—Equipment $ 4,000
Accounts Payable 3,800
Unearned Service Revenue 5,000
Common Stock 10,000
Retained Earnings 4,400
Dividends 2,000
Service Revenue 4,700
Supplies Expense 600
Depreciation Expense 2,500
Rent Expense 2,900 ______
$31,900 $31,900
*Ex. 3-133—Cash basis vs. accrual basis
accounting.
Contrast the cash basis of accounting with
the accrual basis of accounting.
*Ex. 3-134—Accrual basis.
Sales salaries paid during 2017 were
$90,000. Advances to salesmen were $1,100 on January 1, 2017, and $800 on
December 31, 2017. Sales salaries accrued were $1,360 on January 1, 2017, and
$1,880 on December 31, 2017. Show the computation of sales salaries on an
accrual basis for 2017.
*Ex. 3-135—Accrual basis.
The records for Todd Inc. showed the
following for 2017:
Jan. 1 Dec.
31
Accrued
expenses $1,300 $2,150
Prepaid
expenses 720 870
Cash
paid during the year for expenses, $51,000
Show the computation of the amount of
expense that should be reported on the income statement.
*Ex. 3-136—Accrual basis.
The records for Kiley Company showed the
following for 2017:
Jan. 1 Dec.
31
Unearned
revenue $1,100 $2,160
Accrued
revenue 1,260 920
Cash
collected during the year for revenue, $75,000
Show the computation of the amount of
revenue that should be reported on the income statement.
*Ex. 3-137—Cash basis.
Revenue on the income statement was
$140,800. Accounts receivable were $3,500 on January 1 and $3,540 on December
31. Unearned revenue was $1,050 on January 1 and $1,670 on December 31.
Show the computation of revenue for the
year on a cash basis.
PROBLEMS
Pr. 3-138—Adjusting entries and account
classification.
Selected amounts from Trent Company's trial
balance of 12/31/17 appear below:
1. Accounts Payable $ 160,000
2. Accounts Receivable 150,000
3. Accumulated Depreciation—Equipment 200,000
4. Allowance for Doubtful Accounts 20,000
5. Bonds Payable 500,000
6. Cash 150,000
7. Common Stock 60,000
8. Equipment 870,000
9. Prepaid Insurance 30,000
10. Interest Expense 10,000
11. Inventory 300,000
12. Notes Payable (due 6/1/18) 200,000
13. Prepaid Rent 240,000
14. Retained Earnings 818,000
15. Salaries and Wages Expense 328,000
(All
of the above accounts have their standard or normal debit or credit balance.)
Part A. Prepare
adjusting journal entries at year end, December 31, 2017, based on the following
supplemental information.
a. The
equipment has a useful life of 15 years with no salvage value. (Straight-line
method being used.)
b. Interest
accrued on the bonds payable is $15,000 as of 12/31/17.
c. Prepaid
insurance at 12/31/17 is $22,000.
d. The
rent payment of $240,000 covered the six months from November 30, 2017 through
May 31, 2018.
e. Salaries
and wages earned but unpaid at 12/31/17, $22,000.
Part B. Indicate
the proper balance sheet classification of each of the 15 numbered accounts in
the 12/31/17 trial balance before adjustments by placing appropriate numbers
after each of the following classifications. If the account title would appear
on the income statement, do not put the number in any of the classifications.
a. Current
assets
b. Property,
plant, and equipment
c. Current
liabilities
d. Long-term
liabilities
e. Stockholders'
equity
Pr. 3-139—Adjusting entries.
Data relating to the balances of various
accounts affected by adjusting or closing entries appear below. (The entries
which caused the changes in the balances are not given.) You are asked to
supply the missing journal entries which would logically account for the
changes in the account balances.
1. Interest
receivable at 1/1/17 was $1,000. During 2017 cash received from debtors for
interest on outstanding notes receivable amounted to $5,000. The 2017 income
statement showed interest revenue in the amount of $8,400. You are to provide
the missing adjusting entry that must have been made, assuming reversing
entries are not made.
2. Unearned
rent at 1/1/17 was $5,300 and at 12/31/17 was $8,000. The records indicate cash
receipts from rental sources during 2017 amounted to $55,000, all of which was
credited to the Unearned Rent Revenue account. You are to prepare the missing
adjusting entry.
3. Accumulated
depreciation—equipment at 1/1/17 was $230,000. At 12/31/17 the balance of the
account was $280,000. During 2017, one piece of equipment was sold. The
equipment had an original cost of $60,000 and was 3/4 depreciated when sold.
You are to prepare the missing adjusting entry.
4. Allowance
for doubtful accounts on 1/1/17 was $50,000. The balance in the allowance
account on 12/31/17 after making the annual adjusting entry was $65,000 and
during 2017 bad debts written off amounted to $30,000. You are to provide the missing
adjusting entry.
5. Prepaid
rent at 1/1/17 was $29,000. During 2017 rent payments of $130,000 were made and
charged to "rent expense." The 2017 income statement shows as a
general expense the item "rent expense" in the amount of $145,000.
You are to prepare the missing adjusting entry that must have been made,
assuming reversing entries are not made.
6. Retained
earnings at 1/1/17 was $130,000 and at 12/31/17 it was $190,000. During 2017,
cash dividends of $50,000 were paid and a stock dividend of $40,000 was issued.
Both dividends were properly charged to retained earnings. You are to provide
the missing closing entry.
Pr. 3-140—Adjusting and closing entries.
The following trial balance was taken from
the books of Fisk Corporation on December 31, 2017.
Account
Debit Credit
Cash $ 9,000
Accounts Receivable 40,000
Notes Receivable 10,000
Allowance for Doubtful Accounts $
1,800
Inventory 34,000
Prepaid Insurance 4,800
Equipment 100,000
Accumulated Depreciation--Equip. 15,000
Accounts Payable 10,800
Common Stock 44,000
Retained Earnings 55,000
Sales Revenue 260,000
Cost of Goods Sold 126,000
Salaries and Wages Expense 50,000
Rent Expense 12,800
Totals $386,600 $386,600
At year end, the following items have not
yet been recorded.
a. Insurance expired during the year, $2,000.
b. Estimated bad debts, 1% of gross sales.
c. Depreciation on equipment, 10% per year on
original cost.
d. Interest at 6% is receivable on the note for
one full year.
*e. Rent
paid in advance at December 31, $5,400 (originally charged to expense).
f. Accrued salaries and wages at December 31,
$5,800.
Instructions
(a) Prepare
the necessary adjusting entries.
(b) Prepare
the necessary closing entries.
*Pr. 3-141—Cash to accrual accounting.
The following information is available for
Renn Corporation's first year of operations:
Payment
for merchandise purchases $315,000
Ending
merchandise inventory 135,000
Accounts
payable (balance at end of year) 60,000
Collections
from customers 280,000
The balance in accounts payable relates
only to merchandise purchases. All
merchandise items were marked to sell at 30% above cost. What should be the
ending balance in accounts receivable, assuming all accounts are deemed
collectible?
*Pr. 3-142—Accrual accounting.
Yates Company's records provide the
following information concerning certain account balances and changes in these
account balances during the current year. Transaction information is missing
from each item below.
Instructions
Prepare the entry to record the missing
information for each account. (Consider each inde-pendently.)
1. Accounts
Receivable: Jan. 1, balance $41,000, Dec. 31, balance $55,000, uncollectible
accounts written off during the year, $6,000; accounts receivable collected
during the year, $159,000. Prepare the entry to record sales revenue.
2. Allowance
for Doubtful Accounts: Jan. 1, balance $4,000, Dec. 31, balance $7,500,
uncollectible accounts written off during the year, $20,000. Prepare the entry
to record bad debt expense.
3. Accounts
Payable: Jan. 1, balance $25,000, Dec. 31, balance $54,000, purchases on
account for the year, $150,000. Prepare the entry to record payments on
account.
4. Interest
Receivable: Jan. 1 accrued, $3,000, Dec. 31 accrued, $2,100, recognized for the
year, $45,000. Prepare the entry to record cash interest received.
*Pr. 3-143—Accrual basis.
Grier & Associates maintains its
records on the cash basis. You have been engaged to convert its cash basis
income statement to the accrual basis. The cash basis income statement, along
with additional information, follows:
Grier & Associates
Income Statement (Cash Basis)
For the Year Ended December 31, 2017
Cash receipts from customers $425,000
Cash payments:
Salaries
and wages $170,000
Income
taxes 65,000
Insurance 40,000
Interest
25,000 300,000
Net income $125,000
Additional information:
Balances at 12/31
2017
2016
Accounts
receivable $50,000 $30,000
Salaries
and wages payable 10,000 20,000
Income
taxes payable 24,000 19,000
Prepaid
insurance 8,000 4,000
Accumulated
depreciation 95,000 80,000
Interest
payable 3,000 9,000
No plant assets were sold during 2017.
*Pr. 3-144—Eight-column work sheet.
The trial balance of Winsor Corporation is
reproduced on the following page. The information below is relevant to the
preparation of adjusting entries needed to both properly match revenues and expenses
for the period and reflect the proper balances in the real and nominal
accounts.
Instructions
As the accountant for Winsor Corporation,
you are to prepare adjusting entries based on the following data, entering the
adjustments on the work sheet and completing the additional columns with
respect to the income statement and balance sheet. Carefully key your
adjustments and label all items. (Due to time constraints, an adjusted trial
balance is not required.) Round all computations to the nearest dollar.
(a) Winsor
determined that one percent of sales will become uncollectible.
(b) Depreciation
is computed using the straight-line method, with a ten-year life and $5,000
salvage value.
(c) Salesmen
are paid commissions of 15% of sales. Commissions on sales for December have
not been paid.
(d) The
note was issued on October 1, bearing interest at 8%, due Feb. 1, 2018.
(e) A
physical inventory of supplies indicated $440 of supplies currently in stock.
(f) Provisions
of a lease contract specify payments must be made one month in advance, with
monthly payments at $800/mo. This provision has been complied with as of Dec.
31, 2017.
Winsor Corporation
Work Sheet
For the Year Ended December 31, 2017
Trial Balance Adjustments Income Statement Balance Sheet
Accounts Dr. Cr. Dr.
Cr. Dr. Cr. Dr. Cr.
Cash 12,400
Equity Invest. 14,050
Accounts Rec. 30,000
Allow. for D. A. 420
Inventory 16,800
Supplies 1,040
Equipment 65,000
Accum. Depr.-Equip. 9,500
Accounts Payable 4,400
Notes Payable 10,000
Common Stock 40,000
Ret. Earnings 29,690
Sales Revenue 360,000
Cost of Goods Sold 245,520
Salaries and
Wages Exp. 20,800
Sales Comm. Exp. 39,000
Rent Expense 7,200
Misc. Expense 2,200
Totals 454,010 454,010
IFRS QUESTIONS
True / False
1. As
rules for accounting for specific events sometimes differ across countries, the
double-entry accounting system is difficult to implement as the basis of
worldwide accounting system.
2. IASB
is working to establish high-quality auditing and assurance quality standards
throughout the world.
Multiple Choice:
3. Icon
International, a software company, incorporated on January 1, 2016 is planning
to convert to IFRS. The company decided to present its first IFRS statements
for the year ended December 31, 2018. What is the transition date of Icon
International?
a. January
1, 2016
b. January
1, 2018
c. December
31, 2018
d. December
31, 2016
4. Icon
International, a software company, incorporated on January 1, 2016 is planning
to convert to IFRS. The company decided to present its first IFRS statements
for the year ended December 31, 2018. What is the reporting date of Icon
International?
a. January
1, 2016
b. January
1, 2018
c. December
31, 2018
d. December
31, 2016
5. Which
of the following is a reason for recasting prior financial statements based on
IFRS?
a. To
increase the market value of a company’s shares
b. To
report a high income for attracting investors
c. To
report a low taxable income reducing the tax liability
d. To
provide financial statement users with comparable information
6. IFRS
1 requires information in a company’s first IFRS statement to:
a. be
same as in GAAP statement.
b. be
transparent.
c. be
as lengthy as possible.
d. provide
a suitable ending point.
7. Which
of the following is the first step to be taken by a company deciding to convert
to IFRS?
a. Preparing
an opening balance sheet at the date of transition
b. Identifying
the timing of first IFRS statement
c. Selecting
accounting principles that comply with IFRS
d. Implementing
accounting principles retrospectively
