BUS-1A
Knowledge Check 01 Aurora Corporation operated without insurance coverage for the first month of operations. Then, on February 1, the company paid the $4,800 premium on a two-year insurance policy with benefits beginning on that date. The company uses the accrual basis. How much insurance expense will be reported on the company's income statement for their first year ended December 31?
2200
Knowledge Check 01 Aurora Corporation operated without insurance coverage for the first month of operations. Then, on February 1, the company paid the $4,800 premium on a two-year insurance policy with benefits beginning on that date. The company uses the cash basis. How much insurance expense will be reported on the company's income statement for their first year ended December 31?
4800
Prepare adjusting entries for deferral of expenses.
Adjusting entries affect:One or more balance sheet accounts and one or more income statement accounts. Prepaid expenses reflect transactions when cash is paid:Before the related expense is recognized.
On March 1, Year 1, a company paid an $18,000 premium on a 36-month insurance policy for coverage beginning on that date. Refer to that policy and fill in the blanks in the following table.
BALANCE SHEET PREPAID INSURANCE ACRUAL BASIS 13,000 7000 1000 0 CASH 0 Income Statement Insurance Expense Accrual Basis 5000 6000 6000 1000 Cash Basis 18000 0 0 0
For journal entries 1 through 10, identify the explanation that mostly closely describes it. ATo record this period's depreciation expense. BTo record accrued salaries expense. CTo record this period's use of a prepaid expense. DTo record accrued interest revenue. ETo record accrued interest expense. FTo record the earning of previously unearned income. GTo record cash receipt of unearned revenue. HTo record cash payment of an accrued expense. ITo record cash receipt of an accrued revenue. JTo record cash payment of a prepaid expense.
D-Interest Receivable3,300Interest Revenue3,300 E-Interest Expense2,208Interest Payable2,208 F-Unearned Revenue19,250Services Revenue19,250 G-Cash4,200Unearned Revenue4,200 H-Accounts Payable1,700Cash1,700 I - Cash12,300Accounts Receivable (from services)12,300 J-prepaid Rent500Cash500 A-Depreciation Expense38,217 Accumulated Depreciation38,217 B-Salaries Expense13,280Salaries Payable13,280 C-Insurance Expense3,180Prepaid Insurance
Prepare the closing entries for the year ended December 31. The Retained Earnings account balance was $140,000 at December 31 of the prior year.
DM
The Retained Earnings account balance was $140,000 at December 31 of the prior year. (1) Prepare the income statement for the year ended December 31.(2) Prepare the statement of retained earnings for the year ended December 31.
DM
Depreciation on the company's equipment for 2017 is computed to be $14,000. The Prepaid Insurance account had a $8,000 debit balance at December 31, 2017, before adjusting for the costs of any expired coverage. An analysis of the company's insurance policies showed that $980 of unexpired insurance coverage remains. The Office Supplies account had a $260 debit balance on December 31, 2016; and $2,680 of office supplies were purchased during the year. The December 31, 2017, physical count showed $307 of supplies available. One-third of the work related to $15,000 of cash received in advance was performed this period. The Prepaid Insurance account had a $4,900 debit balance at December 31, 2017, before adjusting for the costs of any expired coverage. An analysis of insurance policies showed that $3,920 of coverage had expired. Wage expenses of $7,000 have been incurred but are not paid as of December 31, 2017. Prepare adjusting journal entries for the year ended (date of) December 31, 2017, for each of these separate situations.
DM Explanation Prepaid insurance* = ($8,000 - $980) = $7,020 Office supplies** = ($260 + $2,680 - $307) = $2,633 Revenue = ($15,000 × 1/3) = $5,000 Notes: Prepaid Insurance*DR Beg. Bal.8,000 ?Used DR End. Bal.980 Supplies**DR Beg. Bal.260 DR Purch.2,680 ?Used End. Bal.307
Prepare Wilson Trucking Company's classified balance sheet as of December 31. The Retained Earnings account balance was $140,000 at December 31 of the prior year.
On January 1, the company purchased equipment that cost $10,000. The equipment is expected to be worth about (or has a salvage value of) $1,000 at the end of its useful life in five years. The company uses straight-line depreciation. It has not recorded any adjustments relating to this equipment during the current year.Complete the necessary December 31 journal entry by selecting the account names from the pull-down menus and entering dollar amounts in the debit and credit columns. .
DR Depreciation expense 1,800 CR Accumulated depreciation Explanation Knowledge Check 01This adjustment relates to a prepaid (deferred) expense. It requires a debit to an expense account, Depreciation Expense, as the equipment's net cost is allocated to depreciation during its useful life. The Accumulated Depreciation account, a contra asset account, needs to be credited so that the ending balance equals the allocation through this date. The amount of this adjustment, which covers the entire year, equals $1,800 (or the net cost of the equipment of $9,000 [(or the cost of $10,000 − the salvage value of $1,000) ÷ useful life of 5 years]. Since no adjustments have been made, there is no need to determine a monthly amount
or each of the following separate situations, determine how much revenue is recognized in December (using accrual basis accounting). On December 7, Oklahoma City Thunder sold a $118 ticket to a basketball game to be played in March. Tesla sold and delivered a $86,000 car on December 25. The customer will not pay until February. Deloitte signs a contract on December 1 to provide 40 days of advisory services with receipt of $38,000 due at the end of the contract. On December 31, 75% of the services have been completed
SituationsRevenue recognized in Decembera. Sale of a ticket to a basketball game $0 b. Sale of a car on credit$86,000 c. Contract to provide advisory services$28,500 Explanation a.Revenue is recognized when goods or services are delivered. In this case, the game is not played until March, which is when revenue is recognized.b.The car is sold and delivered in December, therefore revenue is recognized in December. It makes no difference that payment is to be made in February.c.$38,000 × 0.75 = $28,500. While Deloitte has yet to receive payment for its services, 75% of the contract has been completed. Therefore, 75% of the contract amount is recognized in December.
Knowledge Check 01 The primary difference between the accrual basis and the cash basis of accounting is: (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)
The accrual basis records revenues when services or products are delivered and records expenses when incurred.Correct .Correct The cash basis records revenues when cash is received and records expenses when cash is paid.
Place the steps in the three-step adjusting process in the correct order
The correct order is: Step 1: Determine what the current account balance equals.Step 2: Determine what the current account balance should equal.Step 3: Record an adjusting entry to get from step 1 to step 2.
The value of information is often linked to its timeliness. To provide timely information, accounting systems prepare periodic reports at regular intervals. The time period assumption presumes that an organization's activities can be divided into specific time periods for periodic reporting. Accrual accounting recognizes revenue when earned and expenses when incurred—not necessarily when cash inflows and outflows occur. The revenue recognition principle requires that revenue be recorded:
When the goods or services are provided to customers.
On April 1, the company hired an attorney for April for a flat fee of $2,500. Payment for April legal services was made by the company on May 12. As of April 30, $2,187 of interest expense has accrued on a note payable. The full interest payment of $6,560 on the note is due on May 20. Total weekly salaries expense for all employees is $11,000. This amount is paid at the end of the day on Friday of each five-day workweek. April 30 falls on a Tuesday, which means that the employees had worked two days since the last payday. The next payday is May 3. The above three separate situations require adjusting journal entries to prepare financial statements as of April 30. For each situation, present both the April 30 adjusting entry and the subsequent entry during May to record payment of the accrued expenses. (Do not round intermediate calculations.)
dm [email protected] Explanation b.April 30 Interest expense = ($6,560 monthly interest × 10/30) = $2,187May 20 Interest expense = ($6,560 interest × 20/30) = $4,373c.April 30 Salaries expense = ($11,000 × 2/5 week) = $4,400May 3 Salaries expense = ($11,000 weekly salaries × 3/5 week) = $6,600