Practice Answers - MGMT-026

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VISUAL #3-3
ADJUSTMENTS
GENERALIZED*
ENTRY
1A. Prepaid (deferred)
Dr. Prepaid Expense
expenses—initially recorded as
Cr. the Asset* acct.
assets
TYPE
1B. Prepaid (deferred)
expenses—that are depreciable
(plant assets)
Dr. Depreciation Expense
Cr. Accumulated
Depreciation
1C. Prepaid (deferred)
Dr. the Asset** acct.
expenses—initially recorded as
Cr. Prepaid Expense
expenses (alternate treatment—
appendix)
AMOUNT
Amount used, or
consumed, or expired
Portion of cost
allocated to this period
as depreciation
Amount left, or
not consumed, or
unexpired
2A. Unearned revenues—
(revenue received in advance)
initially record as liability
(unearned account)
Dr. Unearned Revenue
Cr. the Revenue** acct. Amount earned to date
2B. Unearned revenues—
(revenue received in advance)
initially recorded as a revenue
(alternate treatment—
appendix)
Dr. the Revenue** acct.
Cr. Unearned Revenue
Amount still not
earned
3. Accrued expenses—
(expenses incurred but not yet
recorded)
Dr. Accrued Expense
Cr. Accounts Payable
Amount accrued
4. Accrued revenues
(revenues earned but not
yet recorded)
Dr. Accounts Receivable Amount accrued
Cr. the Revenue** acct.
*Note: (1) Each adjustment affects a Balance Sheet Account and an Income
Statement Account and (2) CASH NEVER appears in an adjustment.
**Title or account name varies.
In Class Practice Problem
Chapter Three
On July 1, 2011, Howard M. Tenant, Inc., rents office space from John Q.
Landlord for two years, starting immediately, at a rate of $100 per month, or
$2,400 in total. The full $2,400 was paid on this date. Record the original
transaction and the appropriate adjusting entries in 2011, 2012, and 2013
from the point of view of Tenant and Landlord.
Solution: Alternate Demonstration Problem
Chapter 3
Tenant
7/1/11
Prepaid rent
Cash
12/31/11
Rent Expense
Prepaid Rent
12/31/12
Rent Expense
Prepaid Rent
12/31/13
Rent Expense
Prepaid Rent
Landlord
Dr.
2,400
Dr.
600
Dr.
1,200
Dr.
600
Cr. 7/1/11
Cash
2,400
Unearned Rent Revenue
Cr. 12/31/11
Unearned Rent Revenue
600
Rent Revenue
Cr. 12/31/11
Unearned Rent Revenue
1,200
Rent Revenue
Cr. 12/31/11
Unearned Rent Revenue
600
Rent Revenue
Dr.
2,400
Dr.
600
Dr.
1,200
Dr.
600
Cr.
2,400
Cr.
600
Cr.
1,200
Cr.
600
An Alternative Solution (Based on the Appendix)
Tenant
7/1/11
Rent Expense
Cash
12/31/11
Prepaid Rent
Rent Expense
12/31/12
Rent Expense
Prepaid Rent
12/31/13
Rent Expense
Prepaid Rent
Landlord
Dr.
2,400
Dr.
1,800
Dr.
1,200
Dr.
600
Cr. 7/1/11
Cash
2,400
Rent Revenue
Cr. 12/31/11
Rent Revenue
1,800
Unearned Rent Revenue
Cr. 12/31/11
Unearned Rent Revenue
1,200
Rent Revenue
Cr. 12/31/11
Unearned Rent Revenue
600
Rent Revenue
Dr.
2,400
Dr.
1,800
Dr.
1,200
Dr.
600
Cr.
2,400
Cr.
1,800
Cr.
1,200
Cr.
600
*Notice the adjustment is the same in 2012 and 2013 under both approaches. This is because the
adjustment in the appendix alternative solution places all remaining unexpired/unearned
amounts in the asset/liability accounts to be considered for future adjustment.
Problem 2
Chapter Three
The trial balance of Large Company, Inc., at the end of its annual
accounting period is as follows:
LARGE COMPANY, INC.
Trial Balance
December 31, 2011
Cash ..........................................................................
Prepaid Insurance ...................................................
Supplies ..................................................................
Equipment ...............................................................
Accumulated Depreciation—Equipment ...............
C. Large, Capital .....................................................
C. Large, Withdrawals .............................................
Revenue ...................................................................
Salaries Expense .....................................................
Rent Expense ..........................................................
Totals ........................................................................
Additional information:
1.
Expired insurance, $600.
2.
Unused supplies, per inventory, $800.
3.
Estimated depreciation, $1,000.
4.
Earned but unpaid salaries, $700.
Required:
1. Prepare adjusting entries.
2. Prepare closing entries.
3. Prepare a post-closing trial balance.
$ 4,000
1,600
2,100
20,000
$ 2,000
19,000
2,000
33,000
18,300
6,000
$54,000
______
$54,000
Prepare adjusting entries.
Solution: Problem 2
Chapter 3
Dr.
600
Insurance Expense
Prepaid Insurance
Supplies Expense
Supplies
Depreciation Expense, Equipment
Accumulated Depreciation, Equipment
Salaries Expense
Salaries Payable
Revenue
Income Summary
Income Summary
Salaries Expense
Rent Expense
Insurance Expense
Supplies Expense
Depreciation Expense, Equipment
Income Summary
C. Large, Capital
C. Large, Capital
C. Large, Withdrawals
Cash
Prepaid Insurance
Supplies
Equipment
Accumulated Depreciation,
Equipment
Salaries Payable
C. Large, Capital
Totals
1,300
1,000
700
33,000
27,900
5,100
2,000
LARGE COMPANY, INC.
Post-Closing Trial Balance
December 31, 2011
Dr.
$ 4,000
1,000
800
20,000
$ 25,800
Cr.
600
1,300
1,000
700
33,000
19,000
6,000
600
1,300
1,000
5,100
2,000
Cr.
$ 3,000
700
22,100
$ 25,800
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