Ch. 3 Accounting HW

3. What would be the effect on the balance sheet if the adjustments for equipment depreciation and unearned fees were omitted at the end of the year? Enter all amounts as positive numbers.

Accumulated Depreciation (understated) by $810 Total Assets (overstated) Unearned Fees (overstated) by $4,340 Total Liabilities (overstated) Owner's Equity (understated) Total Liabilities and Owner's Equity (overstated)

2. What would be the effect on the income statement if the adjustments for equipment depreciation and unearned fees were omitted at the end of the year? Enter all amounts as positive numbers.

Fees Earned (understated) by $4,340 Depreciation Expense (understated) by $810 Net Income (understated)

Indicate with a Yes or No whether or not each of the following accounts normally requires an adjusting entry:

a. Building- no b. Cash- no c. Wages Expense- yes d. Miscellaneous Expense- no e. Nancy Palmer, Capital- no f.Prepaid Insurance- yes

The adjusting entry for accrued fees was omitted at the end of the current year. Indicate which items will be an error, because of the omission, on (a) the income statement for the current year and (b) the balance sheet at the end of the year. Also indicate whether the items in error will be overstated or understated.

a. Income Statement Revenues (understated) Expenses (no effect) Net Income (understated) b. Balance Sheet Assets (understated) Liabilities (no effect) Owner's Equity (understated)

At the end of the current year, $8,900 of fees have been earned but have not been billed to clients.

a. Journalize the adjusting entry to record the accrued fees. Accounts Receivable 8,900 Fees Earned 8,900 b. If the cash basis rather than the accrual basis had been used, would an adjusting entry have been necessary? No.

(A.) The following income statement data for AT&T Inc. and Verizon Communications Inc. were taken from their recent annual reports (in millions): AT&T- Revenues $132,447 -Cost of Services (expense) 60,611 -Selling and Marketing Expense 39,697 -Depreciation and Other Expenses 20,393 -Operating Income $11,746

a. prepare a vertical analysis of the income statement for AT&T. Round to one decimal place. Revenues $132,447 (100%) Cost of Services (expense) 60,611 (45.8%) Selling and Marketing Expense 39,697 (30%) Depreciation and Other Expenses 20,393 (15.4%) Operating Income $11,746 (8.8%)

Journalize the five entries that adjusted the accounts at October 31, 2019. None of the accounts were affected by more than one adjusting entry.

1. Accounts Receivable(73) Fees Earned(73) 2. Supplies Expense(52) Supplies(52) 3. Insurance Expense(143) Prepaid Insurance(143) 4.Depreciation Expense(87) Accumulated Depreciation- Equipment(87) 5.Wages Expense(20) Wages Payable(20)

Selected account balances before adjustment for Intuit Realty at November 30, the end of the current year, follow: Accounts Receivable $54,300 (debit). Equipment 84,000 (debit). Accumulated Depreciation- Equipment $8,360 (credit). Prepaid Rent 6,800 (debit) Supplies 1,630 (debit) Wages Payable - (credit) Unearned Fees 7,490 (credit) Fees Earned 317,110 (credit) Wages Expense 106,970 (debit) Rent Expense - (debit) Depreciation Expense - (debit) Supplies Expense - (debit) Data needed for year-end adjustments are as follows: Supplies on hand at November 30, $490. Depreciation of equipment during year, $810. Rent expired during year, $5,000 Wages accrued but not paid at November 30, $1,570. Unearned fees at November 30, $3,150 Unbilled fees at November 30, $3750.

1. Journalize the six adjusting entries required at November 30, based on the data presented. Nov. 30- Supplies Expense (1,140) Supplies (1,140) 30- Depreciation Expense (810) Accumulated Depreciation- Equipment (810) 30- Rent Expense (5,000) Prepaid Rent (5,000) 30- Wages Expense (1,570) Wages Payable (1,570) 30- Unearned Fees (4,340) Fees Earned (4,340) 30- Accounts Receivable (3,750) Fees Earned (3,750)

Classify the following items as (a) accrued revenue, (b) accrued expense, (c) unearned revenue, or (d) prepaid expense:

1. bill for ads that appeared in prior month's local newspaper (ACCRUED EXPENSE). 2. fees received but not yet earned (UNEARNED REVENUE). 3. fees earned but not yet received (ACCRUED REVENUE). 4. premium paid on a one-year insurance policy (PREPAID EXPENSE). 5. rent received in advance for rental of office space (UNEARNED REVENUE). 6. supplies on hand (PREPAID EXPENSE). 7. rent paid in advance (PREPAID EXPENSE). 8. wages owed but payable in the following period (ACCRUED EXPENSE).

(C.) The following income statement data for AT&T Inc. and Verizon Communications Inc. were taken from their recent annual reports (in millions): c. Based on Requirements (a) and (b), how does AT&T compare to Verizon?

AT&T's operating income is 8.8% of revenues, while Verizon's operating income to revenues is 15.4%. Verizon appears to be MORE efficient in generating operating income from revenues... ...In summary, it appears that VERIZON is able to generate more operating income per sales dollar, mostly because of a lower cost of services per sales dollar in comparison to AT&T.

What is the difference between adjusting entries and correcting entries?

B. Adjusting entries are a planned part of the accounting process, correcting entries are not planned but arise when necessary to correct errors.

On May 31, the following data were accumulated to assist the accountant in preparing the adjusting entries for Oceanside Realty. a. Fees accrued but unbilled at May 31 are $13,330. b. The supplies account balance on May 31 is $4,390. The supplies on hand at May 31 are $1,250. c.Wages accrued but not paid at May 31 are $1,680. d. The unearned rent account balance at May 31 is $13,050, representing the receipt of an advance payment on May 1 of three months' rent from tenants. e. Depreciation of office equipment is $2,230.

Journalize the adjusting entries required at May 31. May 31- Accounts Receivable (13,330) Fees Earned (13,330) 31- Supplies Expense (3,140) Supplies (3,140) 31- Wages Expense (1,680) Wages Payable (1,680) 31- Unearned Rent (4,350) Rent Revenue (4,350) 31- Depreciation Expense (2,230) Accumulated Depreciation- Equipment (2,230)

4. What would be the effect on the "Net increase or decrease in cash" on the statement of cash flows if the adjustments for equipment depreciation and unearned fees were omitted at the end of the year?

No Effect

(B.) The following income statement data for AT&T Inc. and Verizon Communications Inc. were taken from their recent annual reports (in millions): VERIZON-Revenues $127,079 -Cost of Services (expense) 49,931 -Selling and Marketing Expense 41,016 -Depreciation and Other Expenses 16,533 -Operating Income $19,599

b. prepare a vertical analysis of the income statement for Verizon. Round to one decimal place. Revenues $127,079 (100%) Cost of Services (expense) 49,931 (39.3%) Selling and Marketing Expense 41,016 (32.3%) Depreciation and Other Expenses 16,533 (13%) Operating Income $19,599 (15.4%)