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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Problem 3-64A Identification and Preparation of Adjusting Entries

Kuepper’s Day Care is a large daycare center in South Orange, New Jersey. The daycare center serves several nearby businesses as well as a number of individual families. The businesses pay $6,180 child per year for daycare services for their employees' children. The businesses pay in on a quarterly basis. For individual families, daycare services are provided monthly and billed at the beginning of the next month. The following transactions describe Kuepper’s activities during December 2019:

  1. On December 1, Kuepper borrowed $50,000 by issuing a 5-year, 9% note payable.
  2. Daycare service in the amount of $13,390 was provided to individual families during December. These families will not be billed until January 2020.
  3. At l, the balance in unearned service revenue was S26,780. At December 31, determined that$10,300 of this revenue was still unearned.
  4. On December 31, the daycare center collected $40,170 from businesses for services to be provided in 2020.
  5. On December 31, the center recorded depreciation of $1,875 on a bus that it uses for field trips.
  6. The daycare center had prepaid insurance at December 1 of an examination of the insurance policies indicates that prepaid insurance at December 31 is $3,000.
  7. Interest on the $50,000 note payable (see Transaction a) is unpaid and unrecorded at December 31.
  8. Salaries of $35,480 are owed but unpaid on December 31.
  9. Supplies of disposable diapers on December 1 are $4,200. At December 31, the cost of diapers in supplies is $750.

Required:

  1. Identify whether each transaction is an adjusting entry or a regular journal entry. If the entry is an adjusting entry, identify it as an accrued revenue, accrued expense, deferred revenue, or deferred expense.
  2. Prepare the entries necessary to record the transactions above and on the previous page.

To determine

Concept Introduction:

Adjusting entries are required to adjust the accounts according to the accrual basis of accounting at the end of the every accounting period. For example: Recording the depreciation expense on depreciable assets at the end of each accounting year.

The business activity for each type of adjusting entry is explained as follows:

  • Accrued revenue: The adjusting entry for Accrued revenue is prepared to record the revenue earned during the period.
  • Accrued Expense: The adjusting entry for Accrued expense is prepared to record the expenses incurred during the period.
  • Deferred Revenue: The adjusting entry for Deferred revenue is prepared to defer the revenue that belong to next period.
  • Deferred expenses: The adjusting entry for Deferred expense is prepared to defer the expense that belong to next period.
  • Depreciation: The adjusting entry for depreciation expense is prepared to record the depreciation expense that belong to current period.
  • Requirement-1:

To Indicate:

If the given transactions require adjusting entry or not.

Explanation

Adjusting entries are required to adjust the accounts according to the accrual basis of accounting at the end of the every accounting period.

The given transactions require adjusting entry or not as follows:

    Kuepper's Day Care
    Transaction Adjusting entry required or not Type of adjusting entry
    a.Not Required NA
    b.Required Accrued Revenue
    c...
To determine

Concept Introduction:

Adjusting entries are required to adjust the accounts according to the accrual basis of accounting at the end of the every accounting period. For example: Recording the depreciation expense on depreciable assets at the end of each accounting year.

The business activity for each type of adjusting entry is explained as follows:

  • Accrued revenue: The adjusting entry for Accrued revenue is prepared to record the revenue earned during the period.
  • Accrued Expense: The adjusting entry for Accrued expense is prepared to record the expenses incurred during the period.
  • Deferred Revenue: The adjusting entry for Deferred revenue is prepared to defer the revenue that belong to next period.
  • Deferred expenses: The adjusting entry for Deferred expense is prepared to defer the expense that belong to next period.
  • Depreciation: The adjusting entry for depreciation expense is prepared to record the depreciation expense that belong to current period.
  • Requirement-2:

    To Prepare The journal entries for the given adjustments.

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