Exercise 1:
Solution:
•
Dr. Supplies Expense 1,600
Cr. Supplies
1,600
($2,300-700)
• Dr. Insurance Expense 1,500
Cr. Prepaid Insurance
($4,000-2,500)
• Dr. Depreciation Expense
1,500
900
Cr. Accumulated Depreciation 900
•
($4,500-3,600)
Dr. Unearned Rent
Cr.Rent Revenue
1,100
1,100
($1,500-400)
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Exercise 2:
Solution:
Interest Expense = $9,000 × 10% × 1/12 = $75
2
Exercise 3:
3
1. Journalize the closing entries at December 31, 2020.
Solution:
2.Determine the ending owner’s capital account balance after closing.
Compute the following:
a) Total current assets.
Cash+ Accounts Receivable+ Prepaid Insurance+ Supplies
=$10,500+$9,000+$3,000+$7,000
=$29,500
b) Total current liabilities if $4,000 of the notes payable become due in 2021.
Part of the short-term N/P+A/P+ Unearned Service Revenue
=$4,000+$8,000+$5,000
=$17,000
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c) Total non-current liabilities
= $5,000
d) Book value of the equipment.
Cost of the Equipment- its Accumulated depreciation
=$24,000-$,6000
=$18,000
Exercise 4:
On January 1, 2020 Wilson Company purchased a machine. The following information is related
to that machine: Cost of the machine $35,000
Estimated salvage value
5,000
Estimated useful life in years
5
Estimated useful life in hours 40,000
Instructions:
1. Assuming that the company uses the straight-line method, compute the amount of
depreciation expense that will be recorded in the fourth year of the machine’s useful life.
2. Assuming that the company uses the units-of-activity method, compute the amount of
depreciation expense that will be recorded in the first year of the machine’s useful life if actual
hours used during the first year were 9,000 hours.
Solution:
1. Depreciation Expense Any Year = $35,000 - $5,000 = $6,000/year
5 Years
Depreciation Expense in the fourth year= $6,000
2. Depreciation Expense Per Hour = ($35,000 - $5,000) = $0.75/hr.
40,000 hours
Depreciation Expense First Year = 9,000 hours × $0.75 = $6,750
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