Ex 3 14 adjusting entries for prepaid insurance

Accounting Homework

Exercises

E3.1 (LO 2 ) (Transaction Analysis—Service Company) Beverly Crusher is a licensed CPA. During the first month of operations of her business (a sole proprietorship), the following events and transactions occurred.

April 2

Invested $32,000 cash and equipment valued at $14,000 in the business.

2

Hired an administrative assistant at a salary of $290 per week payable monthly.

3

Purchased supplies on account $700. (Debit an asset account.)

7

Paid office rent of $600 for the month.

11

Completed a tax assignment and billed client $1,100 for services rendered. (Use Service Revenue account.)

12

Received $3,200 advance on a management consulting engagement.

17

Received cash of $2,300 for services completed for Ferengi Co.

21

Paid insurance expense $110.

30

Paid administrative assistant $1,160 for the month.

30

A count of supplies indicated that $120 of supplies had been used.

30

Purchased a new computer for $6,100 with personal funds. (The computer will be used exclusively for business purposes.)

Instructions

Journalize the transactions in the general journal. (Omit explanations.)

E3.2 (LO 2 ) (Corrected Trial Balance) The following trial balance of Wanda Landowska Company does not balance. Your review of the ledger reveals the following. (a) Each account had a normal balance. (b) The debit footings in Prepaid Insurance, Accounts Payable, and Property Tax Expense were each understated $100. (c) A transposition error was made in Accounts Receivable and Service Revenue; the correct balances for Accounts Receivable and Service Revenue are $2,750 and $6,690, respectively. (d) A debit posting to Advertising Expense of $300 was omitted. (e) A $1,500 cash drawing by the owner was debited to Owner’s Capital and credited to Cash.

Wanda Landowska Company Trial Balance April 30, 2020

Debit

Credit

Cash

$ 4,800

Accounts Receivable

2,570

Prepaid Insurance

700

Equipment

$ 8,000

Accounts Payable

4,500

Property Taxes Payable

560

Owner’s Capital

11,200

Service Revenue

6,960

Salaries and Wages Expense

4,200

Advertising Expense

1,100

Property Tax Expense

    800

$20,890

$24,500

Instructions

Prepare a correct trial balance.

E3.3 (LO 2 ) (Corrected Trial Balance) The following trial balance of Blues Traveler Corporation does not balance.

Blues Traveler Corporation Trial Balance April 30, 2020

Debit

Credit

Cash

$ 5,912

Accounts Receivable

5,240

Supplies

2,967

Equipment

6,100

Accounts Payable

$ 7,044

Common Stock

8,000

Retained Earnings

2,000

Service Revenue

5,200

Office Expense

  4,320

$24,539

$22,244

An examination of the ledger shows these errors.

1. Cash received from a customer on account was recorded (both debit and credit) as $1,380 instead of $1,830.

2. The purchase on account of a computer costing $3,200 was recorded as a debit to Office Expense and a credit to Accounts Payable.

3. Services were performed on account for a client, $2,250, for which Accounts Receivable was debited $2,250 and Service Revenue was credited $225.

4. A payment of $95 for telephone charges was entered as a debit to Office Expense and a debit to Cash.

5. The Service Revenue account was totaled at $5,200 instead of $5,280.

Instructions

From this information prepare a corrected trial balance.

E3.4 (LO 2 ) (Corrected Trial Balance) The following trial balance of Watteau Co. does not balance.

Watteau Co. Trial Balance June 30, 2020

Debit

Credit

Cash

$ 2,870

Accounts Receivable

$ 3,231

Supplies

800

Equipment

$ 3,800

Accounts Payable

$ 2,666

Unearned Service Revenue

1,200

Common Stock

6,000

Retained Earnings

3,000

Service Revenue

2,380

Salaries and Wages Expense

3,400

Office Expense

   940

$13,371

$16,916

Each of the listed accounts should have a normal balance per the general ledger. An examination of the ledger and journal reveals the following errors.

1. Cash received from a customer on account was debited for $570, and Accounts Receivable was credited for the same amount. The actual collection was for $750.

2. The purchase of a computer printer on account for $500 was recorded as a debit to Supplies for $500 and a credit to Accounts Payable for $500.

3. Services were performed on account for a client for $890. Accounts Receivable was debited for $890 and Service Revenue was credited for $89.

4. A payment of $65 for telephone charges was recorded as a debit to Office Expense for $65 and a debit to Cash for $65.

5. When the Unearned Service Revenue account was reviewed, it was found that service revenue amounting to $325 was performed prior to June 30 (related to Unearned Service Revenue).

6. A debit posting to Salaries and Wages Expense of $670 was omitted.

7. A payment on account for $206 was credited to Cash for $206 and credited to Accounts Payable for $260.

8. A dividend of $575 was debited to Salaries and Wages Expense for $575 and credited to Cash for $575.

Instruction

Prepare a correct trial balance. (Note: It may be necessary to add one or more accounts to the trial balance.)

E3.5 (LO 3 ) (Adjusting Entries) The ledger of Duggan Rental Agency on March 31 of the current year includes the following selected accounts before adjusting entries have been prepared.

Debit

Credit

Prepaid Insurance

$ 3,600

Supplies

2,800

Equipment

25,000

Accumulated Depreciation—Equipment

$ 8,400

Notes Payable

20,000

Unearned Rent Revenue

9,300

Rent Revenue

60,000

Interest Expense

–0–

Salaries and Wages Expense

14,000

An analysis of the accounts shows the following.

1. The equipment depreciates $250 per month.

2. One-third of the unearned rent was recognized as revenue during the quarter.

3. Interest of $500 is accrued on the notes payable.

4. Supplies on hand total $850.

5. Insurance expires at the rate of $300 per month.

Instructions

Prepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly. Additional accounts are Depreciation Expense, Insurance Expense, Interest Payable, and Supplies Expense. (Omit explanations.)

E3.8 (LO 3 ) (Adjusting Entries) Andy Roddick is the new owner of Ace Computer Services. At the end of August 2020, his first month of ownership, Roddick is trying to prepare monthly financial statements. Below is some information related to unrecorded expenses that the business incurred during August.

1. At August 31, Roddick owed his employees $1,900 in wages that will be paid on September 1.

2. At the end of the month, he had not yet received the month’s utility bill. Based on past experience, he estimated the bill would be approximately $600.

3. On August 1, Roddick borrowed $30,000 from a local bank on a 15-year mortgage. The annual interest rate is 8%.

4. A telephone bill in the amount of $117 covering August charges is unpaid at August 31.

Instructions

Prepare the adjusting journal entries as of August 31, 2020, suggested by the information above.

E3.9 (LO 2 , 3 ) (Adjusting Entries) Selected accounts of Urdu Company are shown below.

Supplies

Accounts Receivable

Beg. Bal.

800

10/31

470

10/17

2,400

10/31

1,650

Salaries and Wages Expense

Salaries and Wages Payable

10/15

800

10/31

600

10/31

600

Unearned Service Revenue

Supplies Expense

10/31

400

10/20

650

10/31

470

Service Revenue

10/17

2,400

10/31

1,650

10/31

400

Instructions

From an analysis of the T-accounts, reconstruct (a) the October transaction entries, and (b) the adjusting journal entries that were made on October 31, 2020. Prepare explanations for each journal entry.

E3.10 (LO 3 ) (Adjusting Entries) Greco Resort opened for business on June 1 with eight air-conditioned units. Its trial balance on August 31 is as follows.

Greco Resort Trial Balance August 31, 2020

Debit

Credit

Cash

$ 19,600

Prepaid Insurance

4,500

Supplies

2,600

Land

20,000

Buildings

120,000

Equipment

16,000

Accounts Payable

$ 4,500

Unearned Rent Revenue

4,600

Mortgage Payable

60,000

Common Stock

91,000

Retained Earnings

9,000

Dividends

5,000

Rent Revenue

76,200

Salaries and Wages Expense

44,800

Utilities Expenses

9,200

Maintenance and Repairs Expense

  3,600

$245,300

$245,300

Other data:

1. The balance in prepaid insurance is a one-year premium paid on June 1, 2020.

2. An inventory count on August 31 shows $450 of supplies on hand.

3. Annual depreciation rates are buildings (4%) and equipment (10%). Salvage value is estimated to be 10% of cost.

4. Unearned Rent Revenue of $3,800 was earned prior to August 31.

5. Salaries of $375 were unpaid at August 31.

6. Rentals of $800 were due from tenants at August 31.

7. The mortgage interest rate is 8% per year.

Instructions

a. Journalize the adjusting entries on August 31 for the 3-month period June 1–August 31. (Omit explanations.)

b. Prepare an adjusted trial balance on August 31.

P3.1 (LO 2 , 4 ) (Transactions, Financial Statements—Service Company) Listed below are the transactions of Yasunari Kawabata, D.D.S., for the month of September.

Sept. 1

Kawabata begins practice as a dentist, invests $20,000 cash, and issues 2,000 shares of $10 par stock.

2

Purchases dental equipment on account from Green Jacket Co. for $17,280.

4

Pays rent for office space, $680 for the month.

4

Employs a receptionist, Michael Bradley.

5

Purchases dental supplies for cash, $942.

8

Receives cash of $1,690 from patients for services performed.

10

Pays miscellaneous office expenses, $430.

14

Bills patients $5,820 for services performed.

18

Pays Green Jacket Co. on account, $3,600.

19

Pays a dividend of $3,000 cash.

20

Receives $980 from patients on account.

25

Bills patients $2,110 for services performed.

30

Pays the following expenses in cash: salaries and wages $1,800; miscellaneous office expenses $85.

30

Dental supplies used during September, $330.

Instructions

a. Enter the transactions shown above in appropriate general ledger accounts (use T-accounts). Use the following ledger accounts: Cash, Accounts Receivable, Supplies, Equipment, Accumulated Depreciation—Equipment, Accounts Payable, Common Stock, Retained Earnings, Dividends, Service Revenue, Rent Expense, Office Expense, Salaries and Wages Expense, Supplies Expense, Depreciation Expense, and Income Summary. Allow 10 lines for the Cash and Income Summary accounts, and 5 lines for each of the other accounts needed. Record depreciation using a 5-year life on the equipment, the straight-line method, and no salvage value. Do not use a drawing account.

b. Prepare a trial balance.

c. Prepare an income statement, a retained earnings statement, and an unclassified balance sheet.

d. Close the ledger.

e. Prepare a post-closing trial balance.