Chapter 4 Set B Exercises Libby 7e

E4-1B. (similar to E 4-3) [LO 2] Recording Adj sting Entries Hsu Company completed its first year

of operations on December 31, 2011. All of the 2011 entries have been recorded except for the follo in!" a. At year#end, employees earned a!es of $%,&00, hich ill be paid on the next payroll date, 'anuary (, 2012. b. At year#end, the company had earned interest revenue of $2,300. )he cash ill be collected *arch 1, 2012. Required: 1. +hat is the annual reportin! period for this company, 2. -dentify hether each transaction results in ad.ustin! a deferred or an accrued account. /sin! the process illustrated in the chapter, !ive the re0uired ad.ustin! entry for transactions 1a2 and 1b2. -nclude appropriate dates and rite a brief explanation of each entry. 3. +hy are these ad.ustments made,

E 4-2B [LO 2,3] (similar t E 4-4! "ec r#i$% &#'(sti$% E$tries a$# "ep rti$% Bala$ces i$ )i$a$cial Stateme$ts Aurora Company is ma3in! ad.ustin! entries for the year ended December 31, 2011. -n developin! information for the ad.ustin! entries, the accountant learned the follo in!" a. A three#year insurance premium of $3,(00 as paid on 4ctober 1, 2011, for covera!e be!innin! on that date. b. At December 31, 2011, the follo in! data relatin! to 5hippin! 5upplies ere obtained from the records and supportin! documents. 5hippin! supplies on hand, 'anuary 1, 2011 6urchases of shippin! supplies durin! 2011 5hippin! supplies on hand, counted on December 31, 2011 $12,000 (3,000 2&,000

Required: 1. /sin! the process illustrated in the chapter, record the ad.ustin! entry for insurance at December 31, 2011, assumin! that the premium as paid on 4ctober 1, 2011, and the boo33eeper debited the full amount to 6repaid -nsurance. 2. /sin! the process illustrated in the chapter, record the ad.ustin! entry for supplies at December 31, 2011, assumin! that the purchases of shippin! supplies ere debited in full to 5hippin! 5upplies. 3. +hat amount should be reported on the 2011 income statement for -nsurance 7xpense, 8or 5hippin! 5upplies 7xpense,

&. +hat amount should be reported on the December 31, 2011, balance sheet for 6repaid -nsurance, 8or 5hippin! 5upplies,

E4-3B* (similar t E4-+! [LO 2] "ec r#i$% Se,e$ -ypical &#'(sti$% E$tries *ar3ham -ndustries is completin! the accountin! process for the year .ust ended, December 31, 2011. )he transactions durin! 2011 have been .ournali9ed and posted. )he follo in! data ith respect to ad.ustin! entries are available" a. 4ne#third of the basement space is rented to Ho ard 5pecialty 5hop for $(&0 per month, payable monthly. 4n December 31, 2011, the rent for :ovember and December 2011 had not been collected or recorded. Collection is expected 'anuary 10, 2012. b. )he store used delivery e0uipment that cost $;0,<00= $1&,100 as the estimated depreciation for 2011. c. 4n 'uly 1, 2011, a t o#year insurance premium amountin! to $1,3%0 as paid in cash and debited in full to 6repaid -nsurance. Covera!e be!an on 'uly 1, 2011. d. )he remainin! basement of the store is rented for $1,<00 per month to another merchant, *. Crier, -nc. Crier sells compatible, but not competitive, merchandise. 4n :ovember 1, 2011, the store collected six months> rent in the amount of $;,000 in advance from Carlos= it as credited in full to /nearned ?ent ?evenue hen collected. e. *ar3ham operates a repair shop to meet its o n needs. )he shop also does repairs for *. Crier. At the end of December 31, 2011, Crier had not paid $@<0 for completed repairs. )his amount has not yet been recorded as ?epair 5hop ?evenue. Collection is expected durin! 'anuary 2012. f. +a!es earned by employees durin! December 2011, unpaid and unrecorded at December 31, 2011, amounted to $2,@<0. )he last payroll as December 2%= the next payroll ill be 'anuary (, 2012. g. 4ffice supplies on hand at 'anuary 1, 2011, totaled $&2<. 4ffice supplies purchased and debited to 4ffice 5upplies durin! the year amounted to $<<0. )he year#end count sho ed $2<0 of supplies on hand.

Required: 1. -dentify each of these transactions as a deferred revenue, deferred expense, accrued revenue, or accrued expense. 2. 6repare the ad.ustin! entries that should be recorded for *ar3ham -ndustries at December 31, 2011.

E4-4B* (Similar t E 4-7! [LO 2] "ec r#i$% Se,e$ -ypical &#'(sti$% E$tries Aamar>s *arina repairs, stores, and cleans boats for customers. -t is completin! the accountin! process for the year .ust ended, :ovember 30, 2012. )he transactions durin! 2012 have been .ournali9ed and posted. )he follo in! data ith respect to ad.ustin! entries are available" a. Aamar>s borro ed $32<,000 at a 12 percent annual interest rate on April 1, 2012, to expand its boat stora!e facility. )he loan re0uires Aamar>s to pay the interest 0uarterly until the note is repaid in three years. Aamar>s paid 0uarterly interest on 'uly 1 and 4ctober 1. b. )he Boun! family paid Aamar>s $3,2&0 on :ovember 1, 2012, to store its sailboat for the inter until *ay 1, 2013. Aamar>s credited the full amount to /nearned 5tora!e ?evenue on :ovember 1. c. Aamar>s used boat#liftin! e0uipment that cost $2<0,000= $2<,000 as the estimated depreciation for 2012. d. Coat repair supplies on hand at December 1, 2011, totaled $1@,<00. ?epair supplies purchased and debited to 5upplies durin! the year amounted to $&&,000. )he year#end count sho ed $10,&00 of the supplies on hand. e. +a!es earned by employees durin! :ovember 2012, unpaid and unrecorded at :ovember 30, 2012, amounted to $3,;<0. )he next payroll date ill be December <, 2012. f. Aamar>s interi9ed 1cleaned and covered2 three boats for customers at the end of :ovember, but did not record the service for $2,(<0. g. 4n 4ctober 1, 2012, Aamar>s paid $1,%00 to the local ne spaper for an advertisement to run every )hursday for 12 ee3s. All ads have been run except for three )hursdays in December to complete the 12# ee3 contract. Required: .* -dentify each of these transactions as a deferred revenue, deferred expense, accrued revenue, or accrued expense. 2* 6repare the ad.ustin! entries that should be recorded for Aamar>s at :ovember 30, 2012.

E4-/B* (Similar t E 4-0! [LO 2] 1etermi$i$% )i$a$cial Stateme$t E22ects 2 Se,e$ -ypical &#'(sti$% E$tries ?efer to 7&#3C. Required: 8or each of the transactions in 7&#3C, indicate the amount and direction of effects of the ad.ustin! entry on the elements of the balance sheet and income statement. /sin! the follo in! format, indicate D for increase, E for decrease, and :7 for no effect. Calance 5heet 5toc3holders> Aiabilities 70uity -ncome 5tatement ?evenues 7xpenses :et -ncome

)ransaction (a) (b) (c) (d) (e) (f) (g)

Assets

E4-+B* (Similar t E 4-3! [LO 2] 1etermi$i$% )i$a$cial Stateme$t E22ects 2 Se,e$ -ypical &#'(sti$% E$tries ?efer to 7&#&C. Required: 8or each of the transactions in 7&#&C , indicate the amount and direction of effects of the ad.ustin! entry on the elements of the balance sheet and income statement. /sin! the follo in! format, indicate D for increase, E for decrease, and :7 for no effect. Calance 5heet 5toc3holders> Aiabilities 70uity -ncome 5tatement ?evenues 7xpenses :et -ncome

)ransaction (a) (b) (c) (d) (e) (f) (g)

Assets

E4-7B* (Similar t E4-..! [LO 2,3] 1etermi$i$% )i$a$cial Stateme$t E22ects 2 -hree &#'(sti$% E$tries 8allo s Company started operations on 'anuary 1, 2012. -t is no December 31, 2012, the end of the annual accountin! period. )he part#time boo33eeper needs your help to analy9e the follo in! three transactions" a. Durin! 2012, the company purchased office supplies that cost $1,%00. At the end of 2012, office supplies of $&<0 remained on hand. b. 4n 'anuary 1, 2012, the company purchased a special machine for cash at a cost of $1(,000. )he machine>s cost is estimated to depreciate at $1,<00 per year. c. 4n 'uly 1, 2012, the company paid cash of $%&0 for a t o#year premium on an insurance policy on the machine= covera!e be!ins on 'uly 1, 2012. Required: Complete the follo in! schedule ith the amounts that should be reported for 2012" Selecte# Bala$ce Sheet &cc ($ts at 1ecember 3., 24.2 &ssets 70uipment Accumulated depreciation :et boo3 value of e0uipment 4ffice supplies 6repaid insurance Selecte# 5$c me Stateme$t &cc ($ts 2 r the 6ear E$#e# 1ecember 3., 24.2 Expe$ses Depreciation expense 4ffice supplies expense -nsurance expense $ $ &m ($t t Be "ep rte#

E4-0B (Similar t E4-.2! [LO 2] 1etermi$i$% )i$a$cial Stateme$t E22ects 2 &#'(stme$ts 2 r 5$terest $ -7 8 tes 8 te .9 4n April 1, 2011, *cFuire Corporation received a $3&,000, 10 percent note from a customer in settlement of a $3&,000 open account receivable. Accordin! to the terms, the principal of the note and interest are payable at the end of 12 months. )he annual accountin! period for *cFuire ends on December 31, 2011. 8 te 29 4n Au!ust 1, 2011, to meet a cash shorta!e, *cFuire Corporation obtained a $3(,000, 12 percent loan from a local ban3. )he principal of the note and interest expense are payable at the end of six months. Required: 8or the relevant transaction dates of each note, indicate the amounts and direction of effects on the elements of the balance sheet and income statement. /sin! the follo in! format, indicate D for increase, E for decrease, and :7 for no effect. 1"emi$#er 9 Assets G Aiabilities D 5toc3holders> 70uity= ?evenues E 7xpenses G :et -ncome= and :et -ncome accounts are closed to ?etained 7arnin!s, a part of 5toc3holders> 70uity.2 Bala$ce Sheet 5$c me Stateme$t 5toc3holders> :et Aiabilities 70uity ?evenues 7xpenses -ncome

Date 8 te .9 April 1, 2011 December 31, 2011 *arch 31, 2012 8 te 29 Au!ust 1, 2011 December 31, 2011 'anuary 31, 2012

Assets

E4-3B (Similar t E4-.4! [LO 2] &$aly:i$% the E22ects 2 Err rs $ )i$a$cial Stateme$t 5tems *ason and Aloyd, -nc., publishers of movie and son! trivia boo3s, made the follo in! errors in ad.ustin! the accounts at year#end 1December 312" a. Did not accrue $1,(00 o ed to the company by another company rentin! part of the buildin! as a stora!e facility. b. Did not record $1@,000 depreciation on the e0uipment costin! $11<,000. c. 8ailed to ad.ust the /nearned 8ee ?evenue account to reflect that $1,;00 as earned by the end of the year. d. ?ecorded a full year of accrued interest expense on a $21,000, ; percent note payable that has been outstandin! only since :ovember 1. e. 8ailed to ad.ust 6repaid -nsurance to reflect that $@<0 of insurance covera!e has been used. Required: 1. 8or each error, prepare the ad.ustin! .ournal entry 1a2 that as made, if any, and 1b2 that should have been made at year#end. 2. /sin! the follo in! headin!s, indicate the effect of each error and the amount of the effect 1that is, the difference bet een the entry that as or as not made and the entry that should have been made2. /se 4 if the effect overstates the item, / if the effect understates the item, and :7 if there is no effect. 1"emi$#er9 Assets G Aiabilities D 5toc3holders> 70uity= ?evenues E 7xpenses G :et -ncome= and :et -ncome accounts are closed to ?etained 7arnin!s, a part of 5toc3holders> 70uity.2 Calance 5heet 5toc3holders> Aiabilities 70uity -ncome 5tatement ?evenues 7xpenses :et -ncome

)ransaction (a) (b) (c) (d) (e)

Assets

E4-.4B* (Similar t E4-..! [LO 2,3] 1etermi$i$% )i$a$cial Stateme$t E22ects 2 -hree &#'(sti$% E$tries 8allo s Company started operations on 'anuary 1, 2012. -t is no December 31, 2012, the end of the annual accountin! period. )he part#time boo33eeper needs your help to analy9e the follo in! three transactions" a. Durin! 2012, the company purchased office supplies that cost $1,@<0. At the end of 2012, office supplies of $&00 remained on hand. b. 4n 'anuary 1, 2012, the company purchased a special machine for cash at a cost of $1;,000. )he machine>s cost is estimated to depreciate at $1,%00 per year. c. 4n 'uly 1, 2012, the company paid cash of $;(0 for a t o#year premium on an insurance policy on the machine= covera!e be!ins on 'uly 1, 2012. Required: Complete the follo in! schedule ith the amounts that should be reported for 2012" Selecte# Bala$ce Sheet &cc ($ts at 1ecember 3., 24.2 &ssets 70uipment Accumulated depreciation :et boo3 value of e0uipment 4ffice supplies 6repaid insurance Selecte# 5$c me Stateme$t &cc ($ts 2 r the 6ear E$#e# 1ecember 3., 24.2 Expe$ses Depreciation expense 4ffice supplies expense -nsurance expense $ $ &m ($t t Be "ep rte#