Chapter 03 - Depreciation on the company’s equipment for 2013

Chapter 03 Saddleback College Homework

Exercise 3-1 Preparing adjusting entries LO P1

a.Depreciation on the company’s equipment for 2013 is computed to be $18,000.

b.The Prepaid Insurance account had a $6,000 debit balance at December 31, 2013, before adjusting for the costs of any expired coverage. An analysis of the company’s insurance policies showed that $1,100 of unexpired insurance coverage remains.

c.The Office Supplies account had a $700 debit balance on December 31, 2012; and $3,480 of office supplies were purchased during the year. The December 31, 2013, physical count showed $298 of supplies available.

d. Two-thirds of the work related to $15,000 of cash received in advance was performed this period.

e. The Prepaid Insurance account had a $6,800 debit balance at December 31, 2013, before adjusting for the costs of any expired coverage. An analysis of insurance policies showed that $5,800 of coverage had expired.

f. Wage expenses of $3,200 have been incurred but are not paid as of December 31, 2013.

Prepare adjusting journal entries for the year ended (date of) December 31, 2013, for each of these separate situations. Assume that prepaid expenses are initially recorded in asset accounts. Also assume that fees collected in advance of work are initially recorded as liabilities.

 

Exercise 3-3 Adjusting and paying accrued wages LO C1, P1

Pablo Management has five part-time employees, each of whom earns $250 per day. They are normally paid on Fridays for work completed Monday through Friday of the same week. They were paid in full on Friday, December 28, 2013. The next week, the five employees worked only four days because New Year’s Day was an unpaid holiday.

a.Prepare the adjusting entry that would be recorded on Monday, December 31, 2013.

b.Prepare the journal entry that would be made to record payment of the employees' wages on Friday, January 4, 2014.

Exercise 3-4 Adjusting and paying accrued expenses LO A1

 a.On April 1, the company retained an attorney for a flat monthly fee of $3,500. Payment for April legal services was made by the company on May 12.

 b.A $1,080,000 note payable requires 10% annual interest, or $9,000 to be paid at the 20th day of each month. The interest was last paid on April 20 and the next payment is due on May 20. As of April 30, $3,000 of interest expense has accrued.

 c.Total weekly salaries expense for all employees is $10,000. This amount is paid at the end of the day on Friday of each five-day workweek. April 30 falls on Tuesday of this year, 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 the payment of the accrued expenses. (Use 360 days a year. Do not round intermediate calculations and round your final answers to the nearest dollar amount.)

Problem 3-1A Identifying adjusting entries with explanations LO P1

For each of the following entries, enter the letter of the explanation that most closely describes it in the space beside each entry. (You can use letters more than once.)

A. To record receipt of unearned revenue.

B. To record this period's earning of prior unearned revenue.

C.To record payment of an accrued expense.

D.To record receipt of an accrued revenue.

E.To record an accrued expense.

F.To record an accrued revenue.

G. To record this period's use of a prepaid expense.

H. To record payment of a prepaid expense.

I.To record this period's depreciation expense.

Problem 3-3A Preparing adjusting entries, adjusted trial balance, and financial statements LO A1, P1, P2, P3

[The following information applies to the questions displayed below.]

Wells Technical Institute (WTI), a school owned by Tristana Wells, provides training to individuals who pay tuition directly to the school. WTI also offers training to groups in off-site locations. Its unadjusted trial balance as of December 31, 2013, follows. WTI initially records prepaid expenses and unearned revenues in balance sheet accounts. Descriptions of items a through h that require adjusting entries on December 31, 2013, follow.

Additional Information Items

a. An analysis of WTI's insurance policies shows that $2,400 of coverage has expired.

b. An inventory count shows that teaching supplies costing $2,800 are available at year-end 2013.

c. Annual depreciation on the equipment is $13,200.

d. Annual depreciation on the professional library is $7,200.

e.On November 1, WTI agreed to do a special six-month course (starting immediately) for a client. The contract calls for a monthly fee of $2,500, and the client paid the first five months' fees in advance. When the cash was received, the Unearned Training Fees account was credited. The fee for the sixth month will be recorded when it is collected in 2014.

f.On October 15, WTI agreed to teach a four-month class (beginning immediately) for an individual for $3,000 tuition per month payable at the end of the class. The class started on October 15, but no payment has yet been received. (WTI's accruals are applied to the nearest half-month; for example, October recognizes one-half month accrual.)

g.WTI's two employees are paid weekly. As of the end of the year, two days' salaries have accrued at the rate of $100 per day for each employee.

h. The balance in the Prepaid Rent account represents rent for December.

WELLS TECHNICAL INSTITUTE

Unadjusted Trial Balance

December 31, 2013

                  Debit     Credit

  Cash    $              34,000                                    

  Accounts receivable                    0                               

  Teaching supplies                         8,000                                      

  Prepaid insurance                         12,000                                    

  Prepaid rent                    3,000                                      

  Professional library                      35,000                                    

  Accumulated depreciation—Professional library                                            $              10,000 

  Equipment                       80,000                                    

  Accumulated depreciation—Equipment                                                             15,000 

  Accounts payable                                                          26,000 

  Salaries payable                                                             0 

  Unearned training fees                                                              12,500 

  Common stock                                                               10,000 

  Retained earnings                                                        80,000 

  Dividends                         50,000                                    

  Tuition fees earned                                                     123,900 

  Training fees earned                                                   40,000 

  Depreciation expense—Professional library                     0                               

  Depreciation expense—Equipment                     0                               

  Salaries expense                           50,000                                    

  Insurance expense                      0                               

  Rent expense                 33,000                                    

  Teaching supplies expense                       0                               

  Advertising expense                   6,000                                      

  Utilities expense                           6,400                                      

  Totals  $              317,400                 $              317,400 

Problem 3-3A Part 1

1.           

Prepare the necessary adjusting journal entries for items a through h.

Problem 3-3A Part 2

2.1         

Post the balance from the unadjusted trial balance and the adjusting entries to the T-accounts

2.2         

Prepare an adjusted trial balance.

Problem 3-3A Part 3

3.1         

Prepare Wells Technical Institute's income statement for the year 2013.

Problem 3-8A Preparing closing entries, financial statements, and ratios C4 A2 A3 P3 P4

The adjusted trial balance for Tybalt Construction as of December 31, 2013, follows.

TYBALT CONSTRUCTION

Adjusted Trial Balance

December 31, 2013

 No.        Account Title      Debit     Credit

101           Cash                   $              5,000                                                                     

104           Short-term investments                                            23,000                                                                   

126           Supplies                                            8,100                                                                     

128           Prepaid insurance                                         7,000                                                                     

167           Equipment                                       40,000                                                                   

168           Accumulated depreciation—Equipment                                                                                             $              20,000  

173           Building                                             150,000                                                                 

174           Accumulated depreciation—Building                                                                                                   50,000  

183           Land                                   55,000                                                                   

201           Accounts payable                                                                                                         16,500  

203           Interest payable                                                                                                            2,500    

208           Rent payable                                                                                                  3,500    

210           Wages payable                                                                                                              2,500    

213           Property taxes payable                                                                                                              900        

233           Unearned professional fees                                                                                                    7,500    

251           Long-term notes payable                                                                                                          67,000  

307           Common stock                                                                                                               5,000    

318           Retained earnings                                                                                                        121,400

319           Dividends                                         13,000                                                                   

401           Professional fees earned                                                                                                          97,000  

406           Rent earned                                                                                                    14,000  

407           Dividends earned                                                                                                         2,000    

409           Interest earned                                                                                                             2,100    

606           Depreciation expense—Building                                            11,000                                                                   

612           Depreciation expense—Equipment                                     6,000                                                                     

623           Wages expense                                             32,000                                                                   

633           Interest expense                                          5,100                                                                     

637           Insurance expense                                      10,000                                                                   

640           Rent expense                                 13,400                                                                   

652           Supplies expense                                         7,400                                                                     

682           Postage expense                                          4,200                                                                     

683           Property taxes expense                                            5,000                                                                     

684           Repairs expense                                           8,900                                                                     

688           Telephone expense                                    3,200                                                                     

690           Utilities expense                                           4,600                                                                     

                  Totals                 $              411,900                                $              411,900

O. Tybalt invested $5,000 cash in the business in exchange for more common stock during year 2013 (the December 31, 2012, credit balance of retained earnings was $121,400). Tybalt Construction is required to make a $7,000 payment on its long-term notes payable during 2014.

 Required:

1.1         

Prepare the income statement for the calendar year 2013