GEN COMBO FINANCIAL & MANAGERIAL ACCOUNTING; CONNECT ACCESS CARD
GEN COMBO FINANCIAL & MANAGERIAL ACCOUNTING; CONNECT ACCESS CARD
18th Edition
ISBN: 9781260088830
Author: Jan Williams
Publisher: McGraw-Hill Education
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Chapter 4, Problem 6BP

a.

To determine

Prepare the adjusting entry as at December 31, Year 1.

a.

Expert Solution
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Explanation of Solution

Adjusting entries: Adjusting entries are those entries which are recorded at the end of the year, to update the income statement accounts (revenue and expenses) and balance sheet accounts (assets, liabilities, and stockholders’ equity) to maintain the records according to accrual basis principle.

Prepare the adjusting entries:

DateAccount titles and ExplanationDebit ($)Credit ($)
December 31Unearned Member dues25,200 
Client fees earned 25,200
(To record  the unearned to earned revenue)  
   
December 31Insurance expense (1)3,840 
Unexpired insurance 3,840
(To record  the insurance expense)  
   
December 31Rent expense ($26,2803 months)8,760 
Prepaid rent 8,760
(To record the rent expense)  
   
December 31Office supplies expense (2)2,064 
Office supplies 2,064
(To record the office supplies expense)  
   
December 31Depreciation expense: Computer Equipment (3)3,600 
 Accumulated depreciation: Computer Equipment 3,600
 (To record the depreciation expense)  
   
December 31Interest expense (4)900 
Interest payable 900
(To record the interest expense)  
    
December 31Salaries expense12,600 
 Salaries payable 12,600
 (To record the salaries expense)  
    
December 31Income taxes expense2,400 
 Income taxes payable 2,400
 (To record the income tax expense)  

Table (1)

1. To record the previously unearned revenue to earned revenue:

  • Unearned revenue is a liability account and it is decreased. Therefore, debit unearned revenue with $25,200.
  • Client revenue earned is a revenue account and it increases the stockholders’ equity account. Therefore, credit fees earned with $25,200.

3. To record the insurance expense:

  • Insurance expense is an expense account and it decreases the stockholders’ equity account. Therefore, debit insurance expense with $3,840.
  • Unexpired insurance is an asset account and it is decreased. Therefore, credit unexpired insurance with $3.840.

Working note:

Calculate the amount of insurance expense:

Insurance expense=Policy amountNumber of months =$23,0406Months=$3,840 (1)

4. To record the rent expense:

  • Rent expense is an expense account and it decreases the stockholders’ equity. Therefore, debit rent expense with $8,760.
  • Prepaid rent is an asset account and it is decreased. Therefore, credit prepaid adverting with $8,760.

5. To record the office supplies expense:

  • Office supplies expense is an expense account and it decreases the stockholders’ equity account. Therefore, debit office supplies expense with $2,064.
  • Office supplies are an asset account and it is decreased. Therefore, credit office supplies with $2,064.

Working note:

Calculate the climbing supplies expense:

Office supplies expenses=(Office supplies in unadjusted trial balanceOffice supplies in hand)=$2,592$528=$2,064 (3)

6. To record the depreciation expense, Climbing Equipment:

  • Depreciation expense is an expense account and it decreases the stockholders’ equity account. Therefore, debit depreciation expense with $3,600.
  • Accumulated depreciation is a contra-account and it decreases the value of asset. Therefore, credit accumulated depreciation with $3,600.

Working note:

Calculate the amount of depreciation expense:

Depreciation expense=Cost of the computer equipmentNumber of months depreciated=$129,60036Months=$3,600 (3)

7. To record the interest expense:

  • Interest expense is an expense account and it decreases the stockholders’ equity. Therefore, debit interest expenses with $900.
  • Interest payable is a liability account and it is increased. Therefore, credit interest payable with $900.

Working note:

Calculate the amount of interest expense:

Interest expense=Note payable amount×Interest rate×Number of monthsMonths in a year=$108,000×10%×1(December)12=$900 (4)

7. To record the salaries expense:

  • Salaries expense is an expense account and it decreases the stockholders’ equity. Therefore, debit salaries expenses with $12,600.
  • Salaries payable is a liability account and it is increased. Therefore, credit salaries payable with $12,600.

8. To record the income tax expense:

  • Income tax expense is an expense account and it decreases the stockholders’ equity. Therefore, debit income tax expenses with $2,400.
  • Income tax payable is a liability account and it is increased. Therefore, credit salaries payable with $2,400.

b.

To determine

Determine the amount for the given accounts that will be reported in the balance sheet for the Year 1.

b.

Expert Solution
Check Mark

Explanation of Solution

Determine the amount for the given accounts that will be reported in the balance sheet:

S.NoParticularsAmount ($)
1Cash (No adjustments)$203,400
2 Unexpired insurance (unadjusted)$15,360
  Less: Adjusting entry (2)$3,840
  Unexpired insurance at December, Year 1$11,520
   
3 Prepaid rent (unadjusted)$17,520
  Less: Adjusting entry (3)$8,760
  Prepaid rent at December, Year 1$8,760
   
4Office supplies (unadjusted)$2,592
  Less: Adjusting entry (4)$2,064
  Office supplies at December, Year 1$528
   
5 Computer equipment (No adjustments) $129,600
   
6 Accumulated depreciation: Computer equipment (unadjusted)$64,800
  Add: Adjusting entry (5)$3,600
  Accumulated depreciation at December, Year 1$68,400
   
7Accounts payable (No adjustments)$5,160
   
8Notes payable (No adjustments)$108,000
   
9 Salaries payable (unadjusted)0
  Add: Adjusting entry (7)$12,600
  Salaries payable at December 31, Year 1$12,600
   
10 Interest payable (unadjusted)$8,100
  Add: Adjusting entry (6)$900
 Interest payable at December 31, Year 1$9,000
   
11 Income taxes payable (unadjusted)$9,000
  Add: Adjusting entry (8)$2,400
  Income taxes payable at December 31, Year 1$11,400
  
12 Unearned client revenue (unadjusted) $43,200
  Less: Adjusting entry (1)$25,200
  Unearned client revenue at December 31, Year 1$18,000

Table (2)

1. Amount of cash that is to be reported in the balance sheet is $203,400.

2. Amount of unexpired insurance that is to be reported in the balance sheet is $11,520.

3. Amount of prepaid rent that is to be reported in the balance sheet is $8,760.

4. Amount of office supplies that is to be reported in the balance sheet is $528.

5. Amount of computer equipment that is to be reported in the balance sheet is $129,600.

6. Amount of accumulated depreciation, computer equipment that is to be reported in the balance sheet is $68,400.

7. Amount of Accounts payable that is to be reported in the balance sheet is $5,160.

8. Amount of notes payable that is to be reported in the balance sheet is $108,000.

9. Amount of salaries payable that is to be reported in the balance sheet is $12,600.

10. Amount of interest payable that is to be reported in the balance sheet is $9,000.

11. Amount of income tax payable that is to be reported in the balance sheet is $11,400.

12. Amount of unearned member due that is to be reported in the balance sheet is $18,000.

c.

To determine

Explain the reason for not recording the advance payments from customers as revenue immediately.

c.

Expert Solution
Check Mark

Explanation of Solution

Following are the reason for not recording the advance payments from customers as revenue immediately:

According to the revenue recognition principle, the revenue is not recognized until it is earned. Company ME is following the revenue recognition principle. Various clients will be paying advance for the services that are to be provided in the future. When the services are provided, then the company converts the liability account (unearned member dues) to the revenue account (client fees earned).

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Chapter 4 Solutions

GEN COMBO FINANCIAL & MANAGERIAL ACCOUNTING; CONNECT ACCESS CARD

Ch. 4 - Prob. 6DQCh. 4 - Prob. 7DQCh. 4 - Prob. 8DQCh. 4 - Prob. 9DQCh. 4 - Prob. 10DQCh. 4 - Prob. 11DQCh. 4 - 12. How is deferred revenue reported in the...Ch. 4 - 13. How do accrued but unpaid expenses affect the...Ch. 4 - 14. How does accrued but uncollected revenue...Ch. 4 - Prob. 15DQCh. 4 - Prob. 1BECh. 4 - BRIEF EXERCISE 4.2 Prepaid Expenses and Unearned...Ch. 4 - Prob. 3BECh. 4 - BRIEF EXERCISE 4.4 Accounting for Depreciation On...Ch. 4 - Prob. 5BECh. 4 - BRIEF EXERCISE 4.6 Unearned Revenue Jasper’s...Ch. 4 - Prob. 7BECh. 4 - Prob. 8BECh. 4 - BRIEF EXERCISE 4.9 Accruing Unpaid Income...Ch. 4 - Prob. 10BECh. 4 - EXERCISE 4.1 Accounting Terminology Listed as...Ch. 4 - Prob. 2ECh. 4 - EXERCISE 4.3 Preparing Adjusting Entries to...Ch. 4 - EXERCISE 4.4 Preparing Adjusting Entries to...Ch. 4 - EXERCISE 4.5 Preparing Adjusting Entries to Accrue...Ch. 4 - EXERCISE 4.6 Deferred Revenue When Delta Airlines...Ch. 4 - EXERCISE 4.7 Preparing Various Adjusting...Ch. 4 - Prob. 8ECh. 4 - Prob. 9ECh. 4 - EXERCISE 4.10 Adjusting Entries and the Balance...Ch. 4 - Prob. 11ECh. 4 - Prob. 12ECh. 4 - Prob. 13ECh. 4 - EXERCISE 4.14 Accounting Principles For each of...Ch. 4 - EXERCISE 4.15 Using the Financial Statements of...Ch. 4 - PROBLEM 4.1A Preparing Adjusting Entries Florida...Ch. 4 - PROBLEM 4.2A Preparing and Analyzing the Effects...Ch. 4 - Prob. 3APCh. 4 - PROBLEM 4.4A Preparing Adjusting Entries from a...Ch. 4 - Prob. 5APCh. 4 - Prob. 6APCh. 4 - Prob. 7APCh. 4 - Prob. 8APCh. 4 - Prob. 1BPCh. 4 - Prob. 2BPCh. 4 - Prob. 3BPCh. 4 - Prob. 4BPCh. 4 - Prob. 5BPCh. 4 - Prob. 6BPCh. 4 - Prob. 7BPCh. 4 - Prob. 8BPCh. 4 - CASE 4.1 Should This Be Adjusted? Property...Ch. 4 - Prob. 2CTCCh. 4 - Prob. 3CTCCh. 4 - Prob. 4CTC
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