REVIEW SESSION chapter 4 - TEXT
UNIVERSITA’ BOCCONI
Department of Accounting
Accounting and Financial Statement Analysis
Module 1
30426
CHAPTER 4
note payable (L-)
note payable (L-)
Exercise 1
On July 1, 2014, Bass Company paid a two-year insurance premium. On that date the following
journal entry was made:
Prepaid insurance 4,800
Cash 4,800
The annual accounting period ends on December 31, 2014.
1200 = 6/24 x 4800
A. How much of the premium should be reported as expense on the 2014 income statement?
B. What is the amount of prepaid insurance which should be reported on the balance sheet at
December 31, 2014? 3600 = 4800 - 1200
C. Prepare the adjusting entry that should be made on December 31, 2014, assuming no adjusting
1200
entries have been made during the year. insurance exp (exp+, SE-).
prepaid insurance (A-)
1200
Exercise 2
Below are four transactions that were completed during 2014 by Timber Lodge. The annual
accounting period ends on December 31. Each transaction will require an adjusting entry at
December 31, 2014.
You are to provide the 2014 adjusting entries required for Timber Lodge.
A. On July 1, 2014, Timber Lodge paid a two-year insurance premium for a policy on its facilities.
This transaction was recorded as follows:
Prepaid insurance 8,000
Cash 8,000
insurance exp (exp+, SE-)
2000
prepaid insurance (A-)
2000
B. On December 31, 2014 a tenant renting some storage space from Timber Lodge had not paid the
rent receivable (A+)
750
rent of $750 for December 2014.
This is because the service
rent revenue(R+,SE+)
750
has already been provided
C. On September 1, 2014, Timber Lodge borrowed $25,000 cash and gave a one-year, 10 percent, note
payable. The interest is payable on the due date, August 31, 2015. The September 1, 2014 transaction
was recorded as follows:
Need to add interest expense for these four months to IS = 2500 x 12/4
Cash 25,000
Note payable 25,000
interest expense(exp+,SE-)
833
interest payable(L+)
833
note payable (L-)
25000
interest payable (L-)
833
interest expense (exp+,SE-)
1667
cash (A-)
24500
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D. On October 1, 2014, Timber Lodge collected $3,600 from a tenant for two years rent beginning
October 1, 2014. The $3,600 collection was recorded as follows:
Cash 3,600
Unearned rent revenues 3,600
unearned rent revenue (L-)
450
rent revenue (R+,SE+)
450
450 = 3600 x 3/24 months
Exercise 3
Johnson Corporation is completing the accounting information processing cycle at the end of the
fiscal year, June 30, 2010. Johnson has provided the following trial balances as of June 30, 2010:
x = change between balances ergo adjustments
Account Title
x
x
x
x
x
x
x
x
Cash
Accounts Receivable
Prepaid Insurance
Equipment
Accumulated Depreciation
Wages Payable
Capital Stock
Retained Earnings
Service Revenue
Wage Expense
Depreciation Expense
Insurance Expense
Total
June 30th, 2010
Unadjusted Trial Balance
Debit
Credit
$ 13,000
1,500
600
60,000
16,500
Adjusted Trial Balance
Debit
Credit
$ 13,000
1,800
200
60,000
22,000
100
25,000
11,600
38,300
16,100
5,500
400
$ 97,000
$ 97,000
25,000
11,600
38,000
16,000
$ 91,100
$ 91,100
Requirements:
A. Reconstruct the adjusting entries and give a brief explanation of each.
B. What is the amount of net income?
accounts receivable (A+)
300
service revenue (R+,SE+)
insurance expense (exp+,SE-)
prepaid insurance (A-)
300
300
depreciation (exp+,SE-)
300
accumulated depr. (XA+,A-)
wage expense (exp+,SE-)
300
300
100
wages payable (L+)
100
Net income: 16300 = 38300 (revenues) - (16100 + 5500 + 400) (expenses)
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