ACCT 210 Homework Chapter 4, Fall 2011

30 Minutes, Medium PROB MARVELO a. General Journal (Adjusting Entries) 2011 (1) Dec. 31 3,200 (2) 31 800 earned revenue. (3) 31 400 (4) 31 Rent Expense 1,500 (5) 31 250 ($450 - $200). Accounts Receivable Lesson Revenue Earned To record accrued but uncollected revenue. Unearned Lesson Revenue Lesson Revenue Earned To convert previously unearned revenue to Insurance Expense Unexpire d Insuranc e To record Dec. insur. expense ($4,800 ÷ 12 mo.). Prepaid Rent To record Dec. rent expense ($9,000 ÷ 6 mo.). Sheet Music Supplies Expense Sheet Music Supplies To record offices supplies used in December (6) 31 3,000 (7) 31 Interest Expense 25 (8) 31 Salaries Expense 3,500 (9) 31 8,155 Depreciation Expense: Music Equipment Accum. Depreciat ion: Music Equipme nt To record December depreciation expense ($180,000 ÷ 60 mo.). Interest Payable To record interest accrued in December ($5,000 x 6% x 1/12). Salaries Payable To record accrued salaries expense in December. Income Taxes Expense Income Taxes Payable To record income taxes accrued in December. PROBLEM 4.5B MARVELOUS MUSIC General Journal (Adjusting Entries) 3,200 800 400 1,500 250 3,000 25 3,500 8,155 PROBL MARVELOUS MUSIC (con b. 1. Add: Adjusting entry #1 Adjusting entry #2 Fees Earned in 2011 2. 3. Add: Adjusting entry #3 4. Rent expense (unadjusted) Add: Adjusting entry #4 5. Add: Adjusting entry #5 6. 7. Add: Adjusting entry #6 8. Add: Adjusting entry #7 9. Add: Adjusting entry #8 10. Lesson revenue earned (unadjusted) Advertising expense (no adjustment required) Insurance expense (unadjusted) Insurance expense incurred in 2011 Rent expense incurred in 2011 Sheet music supplies expense (unadjusted) Sheet music expense incurred in 2011 Utilities expense (no adjustment required) Depreciation expense: music equipment Equipment depreciation expense in 2011 Interest expense (unadjusted) Interest expense incurred in 2011 Salaries expense (unadjusted) Salaries expense incurred in 2011 Income taxes expense (unadjusted) Add: Adjusting entry #9 c. Income taxes expense incurred in 2011 The unadjusted trial balance reports dividends payable of $1,000. Thus, none of the $ dividend has been paid. PROBLEM 4.5B MARVELOUS MUSIC (concluded) $ 154,375 3,200 800 $ 158,375 $ 7,400 $ 4,400 400 $ 4,800 $ 16,500 1,500 $ 18,000 $ 780 250 $ 1,030 $ 5,000 $ 33,000 3,000 $ 36,000 $ 25 25 $ 50 $ 27,500 3,500 $ 31,000 $ 13,845 8,155 $22,000 l balance reports dividends payable of $1,000. Thus, none of the $1,000 paid. B. Ex. 4.1 a. Nov. 30 Insurance Ex 500 Unexpired Insur 500 b. Nov. 30 Unearned Insura 500 Premium 500 To record expired portion of insurance premium To convert previously unearned premiums to B. Ex. 4.2 a. Feb. 28 Rent Expense ………………………………………………… To record February rent of $175. b. Feb. 28 Unearned Rent Revenue…………………………………………….. To convert previously unearned rent revenue to earned revenue. Rent Expense ………………………………………………… 175 Prepaid Rent ……………………………………………… 175 To record February rent of $175. Unearned Rent Revenue…………………………………………….. 175 Rent Revenue Earned ………………………………………… 175 To convert previously unearned rent revenue to earned revenue. B. Ex. 4.3 Mar. 31 Office Suppli 1,100 Office 1,100 To record March office supplies expense ($900 + B. Ex. 4.4 a. Dec. 31 Depreciation Expense: Equipment……………………………. To record December depreciation expense $72,000 ÷ 8 years x 1/1 b. The equipment's accumulated depreciation reported in the balance sheet on Dec 2011, is $54,000 ($72,000 ÷ 8-year life x 6 years of depreciation = $54,000). Depreciation Expense: Equipment……………………………. 750 Accumulated Depreciation: Equipment ………………………… 750 To record December depreciation expense $72,000 ÷ 8 years x 1/12 = $750). ccumulated depreciation reported in the balance sheet on December 31, 2,000 ÷ 8-year life x 6 years of depreciation = $54,000). B. Ex. 4.5 Accounts Receivable 3,340 Client Service Account Hours Rate A #4067 10 $85 $ 850 #3940 14 $75 1,050 #1852 To record earned but unbilled and unrecorded client service revenue: Billable 16 $90 1,440 $ 3,340 3,340 a. b. c. Two ways in which the concept of materiality may save time and effort for accountant 1. 2. B. Ex. 4.10 Materiality refers to the relative importance of an item. An item is material if knowledg reasonably influence the decisions of users of financial statements. If an item is immat definition it is not relevant to decision makers. Accountants must account for material items in the manner required by generally acc accounting principles. However, immaterial items may be accounted for in the most co economical manner. Whether a specific dollar amount is “material” depends upon the (1) size of the amoun of the item. In evaluating the size of a dollar amount, accountants consider the amoun the size of the organization. Based solely upon a dollar amount, $2,500 is not material in relation to the financial st large, publicly owned corporation. For a small business however, this amount could b In addition to considering the size of a dollar amount, accountants must also consider item. The nature of an item may make the item “material” to users of the financial sta regardless of its dollar amount. Examples might include bribes paid to government off company assets, or other illegal acts committed by management. In summary, one cannot say whether $2,500 is a material amount. The answer depend related circumstances. Adjusting entries may be based upon estimated amounts if there is little or that the use of an estimate will result in material error. For example, an adj reflect the amount of supplies used may be based on an estimate of the cost remaining on hand. Adjusting entries need not be made to accrue immaterial amounts of unreco or unrecorded revenue. For example, no adjusting entries normally are mad utility expense payable at year-end. ity may save time and effort for accountants are: e of an item. An item is material if knowledge of it might of financial statements. If an item is immaterial, by ers. ms in the manner required by generally accepted al items may be accounted for in the most convenient and rial” depends upon the (1) size of the amount and (2) nature ar amount, accountants consider the amount in relation to is not material in relation to the financial statements of a mall business however, this amount could be material. ar amount, accountants must also consider the nature of the item “material” to users of the financial statements might include bribes paid to government officials, theft of itted by management. 0 is a material amount. The answer depends upon the upon estimated amounts if there is little or no possibility esult in material error. For example, an adjusting entry to ed may be based on an estimate of the cost of supplies ade to accrue immaterial amounts of unrecorded expenses mple, no adjusting entries normally are made to record nd. Ex. 4.9 a. May 1 Cash ……………… 300,000 Notes Payable 300,000 May 31 Interest Expe 3,000 Interes 3,000 b. May 1 Prepaid Ren 180,000 Cash 180,000 Paid rent for six months at $30,000 per month. May 31 Rent Expense 30,000 Prepai 30,000 To record rent expense for the c. May 2 Cash …………… 910,000 Unearned 910,000 May 31 Unearned Admis 260,000 Admissi 260,000 d. May 4 No entry required. Obtained a three- month loan from National Bank at To record interest expense for May on note payable to National Sold season tickets to the 70-day racing season. To record admissions revenue from the 20 racing days in May