Work sheet solution

Accruals and Adjustments

Part 1. Cash and Accrual Income

In 2012, Mixman Industries earned $85,000 from services provided and incurred $45,000 of expenses. At the end of the year, Mixman had received cash for $65,000 of the revenues and had paid $38,000 of the expenses. In addition, Mixman also received $10,000 in 2012 for services to be performance in 2013 and paid $6,000 in rent for the first 3 months of 2013.

a. Determine the 2012 net income under the cash basis of accounting. HINT: Cash actually received and expenses actually paidduring the year.

Revenue	=
-Expenses	=
Net Income	=

b. Determine the 2012 net income under the accrual basis of accounting. HINT: Revenue actually earned and expenses actually incurred during the year.

Revenue	=
-Expenses	=
Net Income	=

Part 2. Adjusting Journal Entry – Expense

Zipper Company records salaries expense each Friday when employees are paid. The company is preparing its financial statements on September 30, which is on a Thursday. Salaries are $10,000 per week, which breaks down to $2,000 per day for a 5 day work week.

a. Prepare any adjusting journal entry necessary on September 30. Enter your answers in the shaded areas of the journal below.

General Journal
Date	Account Names	Debit	Credit
Sept. 30

b. Is this situation a deferred or an accrued expense? Why?

c. Post the adjusting journal entry to the T-accounts below; include account names. Enter your answers in the shaded areas.

Part 3. Adjusting Journal Entry – Expense

On January 1, Davison Inc. bought equipment for $64,000 cash. Davison calculates a total of $4,000 of depreciation on the equipment for the year. Depreciation is recorded on an annual basis on December 31.

a. Prepare all journal entries relating to the purchase and depreciation of the equipment. Enter your answers in the shaded boxes of the journal below.

General Journal
Date	Account Names	Debit	Credit
Jan 1
Dec 31

b. Post the December 31 journal entry to the relevant T-accounts below; include account names. Enter your answers in the shaded areas.

Part 4. Prepare Closing Entries

Barn Door Enterprises generates and records $74,000 of revenues and $28,000 of expenses during April. It also pays and records $3,200 in dividends for the month.

Prepare Barn Door’s closing entries for the month of April. Enter your answers into the shaded areas of the journal below.

Hint: Dividends are not an expense, but distributions to a company’s owners. The closing process transfers all revenue, expense, and dividend account balances to Retained Earnings. One entry is made for revenues, one for expenses, and one for dividends. The closing process only closes revenue, expense, and dividend accounts.

General Journal
Date	Account Names	Debit	Credit
April 30
April 30
April 30

Part 5. Prepare Financial Statements and Closing Entries

The following is a partial adjusted trial balance for Tin Star Industries:

Tin Star Industries Partial Adjusted Trial Balance September 30
	Debit	Credit
Retained Earnings		$20,150
Service Revenue		53,500
Advertising Expense	$ 4,200
Depreciation Expense	13,750
Interest Expense	3,560
Salaries Expense	8,000
Supplies Expense	5,500
Utilities Expense	5,080
Dividends	4,000

a. Prepare Tin Star’s income statement for the month of September. Enter your answers in the shaded areas of the income statement below.

Tin Star Industries Income Statement For the Month Ending September 30
Service Revenue
Expenses:
	Advertising expense
	Depreciation expense
	Interest Expense
	Salaries Expense
	Supplies Expense
	Utilities Expense
Total Expenses
Net Income

b. Prepare Tin Star’s Statement of Retained Earnings for the month of September. Enter your answers in the shaded areas of the statement below.

Tin Star Industries Statement of Retained Earnings For the Month Ending September 30
Beginning retained earnings, September 1
+Net income
-Dividends
Ending retained earnings, September 30

c. Prepare the appropriate closing entries at September 30. Remember the hint for closing entries. Enter your answers in the shaded areas of the journal below. Also, be sure to list each expense individually; the first expense has been listed for you.

General Journal
Date	Account Names and Explanation	Debit	Credit
Sept. 30
	To close revenue.
Sept. 30
	Advertising Expense		4,200
	To close expenses.
Sept. 30
	To close dividends.