Cornerstones of Financial Accounting
4th Edition
ISBN: 9781337690881
Author: Jay Rich, Jeff Jones
Publisher: Cengage Learning
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Textbook Question
Chapter 3, Problem 64BPSB
Problem 3-64B Identification and Preparation of Entries
Morgan Dance Inc. provides ballet, tap, and jazz dancing instruction to promising young dancers. Morgan began operations in January 2020 and is preparing its monthly financial statements. The following items describe Morgan’s transactions in January 2020:
- Morgan requires that dance instruction be paid in advance-either monthly or quarterly.
- On January 1, Morgan received $4,125 for dance instruction to be provided during 2020.
- On January 31, Morgan noted that $825 of dance instruction revenue is still unearned.
- On January 20, Morgan’s hourly employees were paid $1,415 for work performed in January.
- Morgan’s insurance policy requires semiannual premium payments. Morgan paid the $3,000 insurance policy which covered the first half of 2020 in December 2019.
- When there are no scheduled dance classes, Morgan rents its dance studio for birthday parties for $100 per two-hour party. Four birthday parties were held during January. Morgan will not bill the parents until February.
- Morgan purchased $350 of office supplies on January 10.
- On January 31, Morgan determined that Office supplies of $770 were unused.
- Morgan received a January utility bill for S770. The bill will not be paid until it is due in February.
Required:
- Identify whether each transaction is an
adjusting entry or a regularjournal entry . If the entry is an adjusting entry, identify it as an accrued revenue, accrued expense, deferred revenue, or deferred expense. - Prepare the entries necessary to record the transactions above and on the previous page.
Expert Solution
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 is regular or adjusting journal entry and type of adjusting journal entry, if any.
Answer to Problem 64BPSB
The given transactions are regular or adjusting journal entry and type of adjusting journal entry, if any as follows:
| Morgan Dance Inc. | |||||||||
| Transaction | Type of entry | Type of adjusting entry | |||||||
| a. | Regular Journal Entry | NA | |||||||
| b. | Adjusting entry | Accrued Revenue | |||||||
| c. | Regular Journal Entry | NA | |||||||
| d. | Regular Journal Entry | NA | |||||||
| e. | Adjusting entry | Accrued Revenue | |||||||
| f. | Regular Journal Entry | NA | |||||||
| g. | Adjusting entry | Accrued Expense | |||||||
| h. | Adjusting entry | Accrued Expense | |||||||
Explanation of Solution
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 are regular or adjusting journal entry and type of adjusting journal entry, if any as follows:
| Morgan Dance Inc. | |||||||||
| Transaction | Type of entry | Type of adjusting entry | |||||||
| a. | Regular Journal Entry | NA | |||||||
| b. | Adjusting entry | Accrued Revenue | |||||||
| c. | Regular Journal Entry | NA | |||||||
| d. | Regular Journal Entry | NA | |||||||
| e. | Adjusting entry | Accrued Revenue | |||||||
| f. | Regular Journal Entry | NA | |||||||
| g. | Adjusting entry | Accrued Expense | |||||||
| h. | Adjusting entry | Accrued Expense | |||||||
Expert Solution
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 transactions.
Answer to Problem 64BPSB
The journal entries for the given transactions are as follows:
| Morgan Dance Inc. | |||||||||
| Adjusting entries | |||||||||
| # | Date | Account Title | Debit | Credit | |||||
| a | Jan. 1 | Cash | $ 4,125 | ||||||
| Unearned Service Revenue | $ 4,125 | ||||||||
| b | Jan. 31 | Unearned Service Revenue | $ 3,300 | ||||||
| Service Revenue | $ 3,300 | ||||||||
| c. | Jan. 20 | Salaries Expense | $ 1,415 | ||||||
| Cash | $ 1,415 | ||||||||
| d. | Prepaid Insurance | $ 3,000 | |||||||
| Cash | $ 3,000 | ||||||||
| e. | Jan. 31 | Accounts Receivable | $ 400 | ||||||
| Service Revenue | $ 400 | ||||||||
| f. | Jan. 10 | Office Supplies | $ 350 | ||||||
| Cash | $ 350 | ||||||||
| g. | Jan. 31 | Office Supplies Expense | $ 265 | ||||||
| Office Supplies | $ 265 | ||||||||
| h. | Jan. 31 | Utilities Expense | $ 770 | ||||||
| Utilities Payable | $ 770 | ||||||||
Explanation of Solution
Adjusting entries are required to adjust the accounts according to the accrual basis of accounting at the end of the every accounting period.
The journal entries for the given transactions are as follows:
| Morgan Dance Inc. | |||||||||
| Adjusting entries | |||||||||
| # | Date | Account Title | Debit | Credit | |||||
| a | Jan. 1 | Cash | $ 4,125 | ||||||
| Unearned Service Revenue | $ 4,125 | ||||||||
| (Being amount received in advance) | |||||||||
| b | Jan. 31 | Unearned Service Revenue | $ 3,300 | ||||||
| Service Revenue (4125-825) | $ 3,300 | ||||||||
| (Being revenue accrued) | |||||||||
| c. | Jan. 20 | Salaries Expense | $ 1,415 | ||||||
| Cash | $ 1,415 | ||||||||
| (Being expense paid in cash) | |||||||||
| d. | Prepaid Insurance | $ 3,000 | |||||||
| Cash | $ 3,000 | ||||||||
| (Being amount paid in advance ) | |||||||||
| e. | Jan. 31 | Accounts Receivable | $ 400 | ||||||
| Service Revenue (100*4) | $ 400 | ||||||||
| (Being revenue accrued) | |||||||||
| f. | Jan. 10 | Office Supplies | $ 350 | ||||||
| Cash | $ 350 | ||||||||
| (Being supplies purchased ) | |||||||||
| g. | Jan. 31 | Office Supplies Expense (350-85) | $ 265 | ||||||
| Office Supplies | $ 265 | ||||||||
| (Being expense accrued) | |||||||||
| h. | Jan. 31 | Utilities Expense | $ 770 | ||||||
| Utilities Payable | $ 770 | ||||||||
| (Being expense accrued) | |||||||||
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Chapter 3 Solutions
Cornerstones of Financial Accounting
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The account balances at the beginning of 2019 were: During 2019, the following transactions occurred: Wilburton provided animal care services, all on credit, for $210,300. Wilburton rented stables to customers for $20,500 cash. Wilburton rented its grounds to individual riders, groups, and show organizations for $41,800 cash. There remains $15,600 of accounts receivable to be collected at December 31, 2019. Feed in the amount of $62,900 was purchased on credit and debited to the supplies Straw was purchased for $7,400 cash and debited to the supplies account. Wages payable at the beginning of 2019 were paid early in 2019. Wages were earned and paid during 2019 in the amount of $12,000. The income taxes payable at the beginning of 2019 were paid early in 2019. Payments of $73,000 were made to creditors for supplies previously purchased on credit. One years interest at 9% was paid on the note payable on July 1, 2019. During 2019, Jon Wilburton, a principal stockholder, purchased a horse for his Wife, Jennifer, to ride. The horse cost $7,000, and Wilburton used his personal credit to purchase it. The horse is stabled at the Wilburton home rather than at the riding stables. Property taxes were paid on the land and buildings in the amount of S17,000. Dividends were declared and paid in the amount Of The following data are available for adjusting entries: • Supplies (feed and straw) in the amount of $30,400 remained at year end. • Annual depreciation on the buildings is $6,000. • Annual depreciation on the equipment is • Wages of $4,000 were unrecorded and unpaid at year end. • Interest for 6 months at 9% per year on the note is unpaid and unrecorded at year end. • Income taxes of $16,500 were unpaid and unrecorded at year end. Required: Post the 2019 beginning balances to T-accounts. Prepare journal entries for Transactions a through k and post the journal entries to T-accounts, adding any new T-accounts you need. Prepare the adjustments and post the adjustments to the T-accounts, adding any new T-accounts you need. Prepare an income statement. Prepare a retained earnings statement. Prepare a classified balance sheet. Prepare closing entries. CONCEPTUAL CONNECTION Did you include Transaction i among Wilburtons 2019 journal entries? Why or why not?arrow_forwardProblem 3-70B Comprehensive Problem: Reviewing the Accounting Cycle Wilburton Riding Stables provides stables, care for animals, and grounds for riding and showing horses. The account balances at the beginning of 2019 were: During 2019, the following transactions occurred: Wilburton provided animal care services, all on credit, for $210,300. Wilburton rented stables to customers for $20,500 cash. Wilburton rented its grounds to individual riders, groups, and show organizations for $41,800 cash. There remains $15,600 of accounts receivable to be collected at December 31, 2019. Feed in the amount of $62,900 was purchased on credit and debited to the supplies Straw was purchased for $7,400 cash and debited to the supplies account. Wages payable at the beginning of 2019 were paid early in 2019. Wages were earned and paid during 2019 in the amount of $12,000. The income taxes payable at the beginning of 2019 were paid early in 2019. Payments of $73,000 were made to creditors for supplies previously purchased on credit. One years interest at 9% was paid on the note payable on July 1, 2019. During 2019, Jon Wilburton, a principal stockholder, purchased a horse for his Wife, Jennifer, to ride. The horse cost $7,000, and Wilburton used his personal credit to purchase it. The horse is stabled at the Wilburton home rather than at the riding stables. Property taxes were paid on the land and buildings in the amount of S17,000. Dividends were declared and paid in the amount Of The following data are available for adjusting entries: • Supplies (feed and straw) in the amount of $30,400 remained at year end. • Annual depreciation on the buildings is $6,000. • Annual depreciation on the equipment is • Wages of $4,000 were unrecorded and unpaid at year end. • Interest for 6 months at 9% per year on the note is unpaid and unrecorded at year end. • Income taxes of $16,500 were unpaid and unrecorded at year end. Required: Post the 2019 beginning balances to T-accounts. Prepare journal entries for Transactions a through j and post the journal entries to T-accounts, adding any new T-accounts you need. Prepare the adjustments and post the adjustments to the T-accounts, adding any new T-accounts you need. Prepare an income statement. Prepare a retained earnings statement. Prepare a classified balance sheet Prepare closing entries. CONCEPTUAL CONNECTION Did you include Transaction g among Tarkingtons 2019 journal entries? Why or why not?arrow_forward
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