Chapter 9, Problem 9.4P

Recording and Reporting Accrued Liabilities and Deferred Revenue with Discussion of Accrual versus Cash Accounting

During its first year of operations. Walnut Company completed the following two transactions. The annual accounting period ends December 31.

1. a. Paid and recorded wages of $130,000 during Year 1; however, at the end of Year 1, three days’ wages are unpaid and have not yet been recorded because the weekly payroll will not be paid to employees until January 6 of Year 2. Wages for the three days are $4,000.
2. b. Collected rent revenue on December 10 of Year 1 of $2,400 for office space that Walnut rented to another company. The rent collected was for 30 days from December 10 of Year 1 to January 10 of Year 2.

Required:

1. 1. With respect to wages, provide the adjusting entry required at the end of Year 1 and the journal entry required on January 6 of Year 2.
2. 2. With respect to rent revenue, provide the journal entry for the collection of rent on December 10 and the adjusting entry required on December 31.
3. 3. What is the total amount of liabilities arising from these transactions that will be reported on the balance sheet on December 31 of Year 1?
4. 4. Explain why the accrual method of accounting provides more useful information to financial analysts than the cash method of accounting.