1.
Ethical Case Study
Case Summary:
The manufacturing company C rented out their excess warehouse space to a local company in lease. The entire lease amount was received on the day, the lease signed. So the company reports a huge amount of unearned rent in its balance sheet. While preparing the adjusted
To explain: If Mr. C is behaving ethically or not?
2.
The parties affected by C’s decision
Trending nowThis is a popular solution!
Chapter 3 Solutions
Corporate Financial Accounting
- E. Gevera Realty Co. who owns a building in the downtown area in Davao City was partly rented by Metro Drug Company sometime last year. Based on their lease contract agreement, the rental will be paid every second day after the end of every month and it was being done on a consistent basis. The fiscal year will end on June 30 and payment of the rental will be made beyond this date. How will both accountants of E. Gevera Realty Company and Metro Drug Company take this up in the record as an adjustment in their respective books of accounts?arrow_forwardParty Warehouse Inc. rents a wide variety of products (e.g., tables, chairs, tents) for special events. Upon rental, Party Warehouse requires a deposit which is forfeited if the equipment is not returned at the end of the rental period. Deposits charged are twice the cost of the equipment, and Party Warehouse keeps the equipment in its accounting records until deposits are forfeited. On April 5, a customer rented various products for an event to be held on April 8, and Party Warehouse collected a $10,000 deposit. The products were returned on April 10. Required: 1. Prepare the entries to record the receipt of the deposit and refund of the deposit at the end of the rental period. 2. Assume that the customer only returns 90% of the containers on April 10. Prepare the entries to record the forfeiture of the deposit.arrow_forwardApex Properties, Inc. owns two warehouse buildings that it rents to other businesses. The two buildings are very desirable properties and this enables Apex to require that renters pay rent in advance. The following is data for each building: Building #1 – Located at 111 Warehouse Way Rental rate .............................................................. $3,000 per month Number of months of rent collected in advance ...... 3 months Dates when rent is collected in advance ................. January 1, April 1, July 1, October 1 Building #2 – Located at 444 Storage Street Rental rate .............................................................. $4,000 per month Number of months of rent collected in advance ...... 3 months Dates when rent is collected in advance ................. January 1, April 1, July 1, October 1 Apex has the accounting policy that rent collected in advance be initially recorded in a liability account. The balance in the Unearned Rent Revenue account as of December…arrow_forward
- 7-8 On September 1, 2021, Baker Construction, Inc. signed a contract to rent a warehouse. Baker’s rent on the warehouse started that same day. On September 1, the landlord did not require Baker to pay the first month’s rent. The landlord indicated that she would stop-by on October 5 to collect the $2,000 of rent for the month of September. The following is a partial list of the accounts in Baker’s General Ledger. These are the only accounts you need for this problem. Cash Rent Payable (liability account) Rent Expense . Requirement 1 Prepare the General Journal entry Baker should make on September 1, 2021. If no entry is required, put “No Entry Required” on the General Journal form. Requirement 2 Prepare the September 30, 2021 Rent Payable adjusting entry. If no entry is required, put “No Entry Required” on the General Journal form. Requirement 3 Prepare the General Journal entry Baker should make on October 5, 2021 to record the $2,000 payment of September’s rent. If no entry is…arrow_forwardProblem on Accrual E. Gevera Realty Co. who owns a building in the downtown area in Davao City was partly rented by Metro Drug Company sometime last year. Based on their lease contract agreement, the rental will be paid every second day after the end of every month and it was being done on a consistent basis. The fiscal year will end on June 30 and payment of the rental will be made beyond this date. How will both accountants of E. Gevera Realty Company and Metro Drug Company take this up in the record as an adjustment in their respective books of accounts?arrow_forwardBig Blue Rental Corp. provides rental agent services to apartment building owners. Big Blue Rental Corp.’s preliminary income statement for August 2019 and its August 31, 2019, preliminary balance sheet did not reflect the following: Rental commissions of $670 had been earned in August but had not yet been received from or billed to building owners. When supplies are purchased, their cost is recorded as an asset. As supplies are used, a record of those used is kept. The record sheet shows that $530 of supplies were used in August. Interest on the note payable is to be paid on May 31 and November 30. Interest for August has not been accrued—that is, it has not yet been recorded. (The Interest Payable of $90 on the balance sheet is the amount of the accrued liability at July 31.) The interest rate on this note is 10%. Wages of $430 for the last week of August have not been recorded. The Rent Expense of $1,530 represents rent for August, September, and October, which was paid early in…arrow_forward
- Juma Wakili operates professional firm offering legal services. Some of his clients are required to pay in advance for the services, while others are billed after the services have been rendered. Advance payments are credited to an account entitled Unearned Legal Fees, which represents unearned revenue. The business adjusts its accounts and closes its accounts at the end of each quarter. At March 31, 2021, the end of the first quarter of the year, the unadjusted trial balance appeared as follows: Sh’000’ Sh’000’ Cash 17,150 Fees receivable 37,800 Unexpired insurance 1,600 Prepaid rent 5,400 Office supplies 1,620 Office equipment 17,100 Accumulated depreciation: office equipment 5,700 Accounts payable 3,900 Unearned fees 24,000 Juma Wakili Capital 45,300 Juma Wakili drawings 3,200 Legal fees earned 33,320 Depreciation expense 0 Rent expense 3,000 Office supplies expense 450 Insurance expense 800 Repairs expense 1,200 Travel expense 3,400 Salaries expense 19,500 112,220 112,220…arrow_forwardDiscuss when each of the following types of businesses is likely to recognize revenues and expenses. a. A bank lends money for home mortgages. b. A travel agency books hotels, transportation, and similar services for customers and earns a commission from the providers of these services. c. A major league baseball team sells season tickets before the season begins and signs its players to multiyear contracts. These contracts typically defer the payment of a significant portion of the compensation provided by the contract until the player retires. d. A producer of fine whiskey ages the whiskey 12 years before sale. e. A timber-growing firm contracts to sell all timber in a particular tract when it reaches 20 years of age. Each year it harvests another tract. The price per board foot of timber equals the market price when the customer signs the purchase contract plus 10% for each year until harvest. f. An airline provides transportation services to customers. Each flight grants frequent-flier miles to customers. Customers earn a free flight when they accumulate sufficient frequent-flier miles.arrow_forwardWhat Would You Do? You are responsible for preparing all of the journal entries for Regional Financial Services. You have correctly prepared the following entry for financial services provided on December 15: Your boss has asked you to change the date from December 15 to January 15 so that the business’s profit, and thus taxes, would be lower. Are you allowed to do this? What is your response to your boss? How should you handle this situation?arrow_forward
- Delia Alvarez, owner of Delias Lawn Service, wants to borrow money to buy new lawn equipment. A local bank has asked for financial statements. Alvarez has asked you to prepare financial statements for the year ended December 31, 20--. You have been given the unadjusted trial balance on page 175 and suspect that Alvarez expects you to base your statements on this information. You are concerned, however, that some of the account balances may need to be adjusted. Write a memo to Alvarez explaining what additional information you need before you can prepare the financial statements. Alvarez is not familiar with accounting issues. Therefore, explain in your memo why you need this information, the potential impact of this information on the financial statements, and the importance of making these adjustments before approaching the bank for a loan.arrow_forward7-4 On June 20, 2021, Amy Smith, owner of Amy’s Floral Shop, Inc., signed a contract to rent a retail store. As part of the contract, Amy paid four months of rent in advance. The rental rate is $3,000 per month, thus she paid $12,000 cash in advance when she signed the contract on June 20. Amy will move into the retail store on July 1, 2021, which is the start of her rental period. The company has the accounting policy that all prepaid assets are initially recorded in asset accounts. The following is a partial list of the accounts in Amy’s General Ledger. These are the only accounts you need for this problem. Cash Prepaid Rent (asset account) Rent Expense Requirement 1 Prepare the General Journal entry to record the $12,000 payment made when the rental contract was signed on June 20, 2021. Requirement 2 Fill-in the amounts on the Prepaid Rent timeline. The boxes above the timeline show the amount of Prepaid Rent still remaining at various dates during the four month period. The…arrow_forwardDetermine which of the following transactions represent contingent liabilities for Hermani Rental and indicate the proper accountingtreatment at the company’s fiscal year-end. Contingent liability? Accounting Treatment 1. Hermani Rental cosigned a loan for $75,000 due in one year for Wyler Company. Answer Answer Wyler is a very profitable company and is very liquid, making it a remote chance Hermani will have to pay the loan. 2. One of Hermani’s rental tents collapsed at a wedding and injured the bride and groom. Answer Answer Hermani’s legal counsel believes it is probable that Hermani will have to pay damages of $400,000. 3. Hermani Rental is being audited by the Internal Revenue Service. Its tax returns for Answer Answer the past two years are being examined. At the company’s year-end, the audit is still in process. Hermani’s CPA believes that payment of significant taxes is possible.arrow_forward
- Century 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:CengageCollege Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningCollege Accounting (Book Only): A Career ApproachAccountingISBN:9781337280570Author:Scott, Cathy J.Publisher:South-Western College PubFinancial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning