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Adjusting entries Crazy Mountain Outfitters Co., an outfitter store for fishing treks, prepared the following unadjusted trial balance at the end of its first year of operations: Crazy Mountain Outfitters Co. Unadjusted Trial Balance April 30, 20Y5 Debit Balances Credit Balances Cash Accounts Receivable Supplies Equipment Accounts Payable Unearned Fees Common Stock Retained Earnings Dividends Fees Earned Wages Expense 11,400 72,600 7,200 112,000 10,000 157,800 12.200 19,200 20.000 117.800 305.800 Rent Expense Utilities Expense Miscellaneous Expense 55,000 42,000 7,000 475,000 475,000 For preparing the adjusting entries, the following data were assembled: • Supplies on hand on April 30 were $1,380. • Fees earned but unbilled on April 30 were $3,900. • Depreciation of equipment was estimated to be $3,000 for the year. • Unpaid w ages accrued on April 30 w ere $2,475. • The balance in unearned fees represented the April 1 receipt in advance for services to be provided. Only $14,140 of the services was provided between April 1 and April 30. Instructions 1. Journalize the adjusting entries necessary on April 30. 20Y5. 2. Determine the revenues, expenses, and net income of Crazy Mountain Outfitters Co. before the adjusting entries. 3. Determine the revenues, expense, and net income of Crazy Mountain Outfitters Co. after the adjusting entries. 4. Determine the effect of the adjusting entries on Retained Earnings.

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Corporate Financial Accounting

15th Edition
Carl Warren + 1 other
Publisher: Cengage Learning
ISBN: 9781337398169
BuyFindarrow_forward

Corporate Financial Accounting

15th Edition
Carl Warren + 1 other
Publisher: Cengage Learning
ISBN: 9781337398169
Chapter 3, Problem 3.3BPR
Textbook Problem
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Adjusting entries

 Crazy Mountain Outfitters Co., an outfitter store for fishing treks, prepared the following unadjusted trial balance at the end of its first year of operations:

Crazy Mountain Outfitters Co. Unadjusted Trial Balance April 30, 20Y5
  Debit Balances Credit Balances

Cash

Accounts Receivable

Supplies

Equipment

Accounts Payable

Unearned Fees

Common Stock

Retained Earnings

Dividends

Fees Earned

Wages Expense

11,400

72,600

7,200

112,000

10,000

157,800

12.200

19,200

20.000

117.800

305.800

Rent Expense

Utilities Expense

Miscellaneous Expense

55,000

42,000

7,000

 
  475,000 475,000

 For preparing the adjusting entries, the following data were assembled:

• Supplies on hand on April 30 were $1,380.

• Fees earned but unbilled on April 30 were $3,900.

• Depreciation of equipment was estimated to be $3,000 for the year.

• Unpaid w ages accrued on April 30 w ere $2,475.

• The balance in unearned fees represented the April 1 receipt in advance for services to be provided. Only $14,140 of the services was provided between April 1 and April 30.

Instructions

1. Journalize the adjusting entries necessary on April 30. 20Y5.

2. Determine the revenues, expenses, and net income of Crazy Mountain Outfitters Co. before the adjusting entries.

3. Determine the revenues, expense, and net income of Crazy Mountain Outfitters Co. after the adjusting entries.

4. Determine the effect of the adjusting entries on Retained Earnings.

(1)

To determine

To journalize: The adjusting entry for CM Outfitters as on April 30, 20Y5

Explanation of Solution

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

  • Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
  • Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

Adjusting entries: Adjusting entries are those entries which are recorded at the end of the year to update the income statement accounts (revenue and expenses) and balance sheet accounts (assets, liabilities, and stockholders’ equity) to maintain the records according to accrual basis principle.

Prepare adjusting entry for the supplies as on April 30, 20Y5.

Date Account Titles and Explanation Post Ref. Debit ($) Credit ($)
20Y5
April 30 Supplies Expense 14,900
Supplies 14,900
(To record part of supplies consumed)

Table (1)

Description:

  • Supplies Expense is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
  • Supplies is an asset account. Since amount of supplies is used, asset account decreased, and a decrease in asset is credited.

Working Note:

Determine supplies expense as on April 30, 20Y5.

Supplies expense = (Value of supplies before adjustmentClosing balance of supplies)= $7,200 $1,380 = $5,820

Prepare adjusting entry for the accounts receivable as on April 30, 20Y5.

Date Account Titles and Explanation Post Ref. Debit ($) Credit ($)
20Y5
April 30 Accounts Receivable 3,900
Fees Earned 3,900
(To record revenue earned on account for the services performed)

Table (2)

Description:

  • Accounts Receivable is an asset account. Since amount to be received has increased, asset account increased, and an increase in asset is debited

(2)

To determine
The revenues, expenses and net income of CM Outfitters adjusting entries

(3)

To determine
The revenues, expenses and net income of CM Outfitters after adjusting entries

(4)

To determine
The effect of the adjusting entries on the retained earnings of CM Outfitters

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Chapter 3 Solutions

Corporate Financial Accounting
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