Concept explainers
Problem 3-64A Identification and Preparation of
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:
- On December 1, Kuepper borrowed $50,000 by issuing a 5-year, 9% note payable.
- Daycare service in the amount of $13,390 was provided to individual families during December. These families will not be billed until January 2020.
- At l, the balance in unearned service revenue was S26,780. At December 31, determined that$10,300 of this revenue was still unearned.
- On December 31, the daycare center collected $40,170 from businesses for services to be provided in 2020.
- On December 31, the center recorded
depreciation of $1,875 on a bus that it uses for field trips. - 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.
- Interest on the $50,000 note payable (see Transaction a) is unpaid and unrecorded at December 31.
- Salaries of $35,480 are owed but unpaid on December 31.
- Supplies of disposable diapers on December 1 are $4,200. At December 31, the cost of diapers in supplies is $750.
Required:
- 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. - Prepare the entries necessary to record the transactions above and on the previous page.
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.
Answer to Problem 64APSA
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. | Required | Accrued Revenue | |||||||
d. | Required | Deferred Revenue | |||||||
e. | Required | Accrued Expense | |||||||
f. | Required | Accrued Expense | |||||||
g. | Required | Accrued Expense | |||||||
h. | Required | Accrued Expense | |||||||
i. | Required | 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 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. | Required | Accrued Revenue | |||||||
d. | Required | Deferred Revenue | |||||||
e. | Required | Accrued Expense | |||||||
f. | Required | Accrued Expense | |||||||
g. | Required | Accrued Expense | |||||||
h. | Required | Accrued Expense | |||||||
i. | Required | Accrued Expense |
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:
To Prepare The journal entries for the given adjustments.
Answer to Problem 64APSA
The journal entries for the given adjustments are as follows:
Kuepper's Day Care | |||||||||
Adjusting entries | |||||||||
# | Date | Account Title | Debit | Credit | |||||
a | Dec. 31 | Not Required | |||||||
b | Dec. 31 | Accounts Receivable | $ 13,390 | ||||||
Service Revenue | $ 13,390 | ||||||||
c | Dec. 31 | Unearned Service Revenue | $ 16,480 | ||||||
Service Revenue | $ 16,480 | ||||||||
d | Dec. 31 | Cash | $ 40,170 | ||||||
Unearned Service Revenue | $ 40,170 | ||||||||
e | Dec. 31 | Depreciation Expense- Bus | $ 1,875 | ||||||
Accumulated Depreciation- Bus | $ 1,875 | ||||||||
f | Dec. 31 | Insurance Expense | $ 600 | ||||||
Prepaid Insurance | $ 600 | ||||||||
g | Dec. 31 | Interest Expense | $ 375 | ||||||
Interest Payable | $ 375 | ||||||||
h | Dec. 31 | Salaries Expense | $ 35,480 | ||||||
Salaries Payable | $ 35,480 | ||||||||
i | Dec. 31 | Supplies Expense | $ 3,450 | ||||||
Supplies | $ 3,450 |
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 adjustments are as follows:
Kuepper's Day Care | |||||||||
Adjusting entries | |||||||||
# | Date | Account Title | Debit | Credit | |||||
a | Dec. 31 | Not Required | |||||||
b | Dec. 31 | Accounts Receivable | $ 13,390 | ||||||
Service Revenue | $ 13,390 | ||||||||
(Being revenue accrued) | |||||||||
c | Dec. 31 | Unearned Service Revenue | $ 16,480 | ||||||
Service Revenue (26780-10300) | $ 16,480 | ||||||||
(Being revenue accrued) | |||||||||
d | Dec. 31 | Cash | $ 40,170 | ||||||
Unearned Service Revenue | $ 40,170 | ||||||||
(Being adjustment made fo the deferred revenue) | |||||||||
e | Dec. 31 | Depreciation Expense- Bus | $ 1,875 | ||||||
Accumulated Depreciation- Bus | $ 1,875 | ||||||||
(Being expense accrued) | |||||||||
f | Dec. 31 | Insurance Expense (3600-3000) | $ 600 | ||||||
Prepaid Insurance | $ 600 | ||||||||
(Being expense accrued) | |||||||||
g | Dec. 31 | Interest Expense (50000*9%*1/12) | $ 375 | ||||||
Interest Payable | $ 375 | ||||||||
(Being expense accrued) | |||||||||
h | Dec. 31 | Salaries Expense | $ 35,480 | ||||||
Salaries Payable | $ 35,480 | ||||||||
(Being expense accrued) | |||||||||
i | Dec. 31 | Supplies Expense (4200-750) | $ 3,450 | ||||||
Supplies | $ 3,450 | ||||||||
(Being expense accrued) |
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Chapter 3 Solutions
Cornerstones of Financial Accounting
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- Problem 3-71 A Preparing a Worksheet (Appendix 3A) Marsteller Properties Inc. owns apartments that it rents to university students. At December 31, 2019, the following unadjusted account balances were available: The following information is available for adjusting entries: An analysis of apartment rental contracts indicates that S3,800 of apartment rent is unbilled and unrecorded at year end. A physical count Of supplies reveals that $1,400 of supplies are on hand at December 31 , 2019. Annual depreciation on the buildings is $204,250. An examination of insurance policies indicates that $12,000 Of the prepaid insurance applies to coverage for 2019. Six months' interest at 9% is unrecorded and unpaid on the notes payable.arrow_forwardExercise 3-45 Identification of Adjusting Entries Conklin Services prepares financial statements only once per year using an annual accounting ending on December 31. Each of the following statements describes an entry made by Conklin on December 31 of a recent year. On December 31, Conklin completed a service agreement for Pizza Planet and recorded the related revenue. The job started in August. Conklin provides weekly service visits to the local C.J. Nickel department store to check and maintain various pieces of computer printing equipment. On December 31, Conklin recorded revenue for the visits completed during December. The cash will not be received until January. Conklins salaried employees are paid on the last day of every month. On December 31, Conklin recorded the payment Of December salaries. Conklins hourly wage employees are paid every Friday. On 31, Conklin recorded as payable the wages for the first three working days of the week in which the year ended. On December 31, Conklin recorded the receipt of a shipment of office supplies from Office Supplies Inc. to be paid for in January. On December 31, Conklin recorded the estimated use of supplies for the year. The supplies were purchased for cash earlier in the year. Early in December, Conklin was in by Parker Enterprises for 2 months of weekly visits. Conklin recorded the advance payment as a liability. On December 31 , Conklin recorded revenue for the service visits to Parker Enterprises that were completed during December. On December 3 1, Conklin recorded depreciation expense on office equipment for the year. Required: Indicate whether each entry is an adjusting entry or a regular journal entry, and, if it is an adjusting entry, identify it as one of the following types: (1) revenue recognized before collection of cash, (2) expense recognized before payment of cash, (3) revenue recognized after collection of cash, or (4) expense recognized after payment of cash.arrow_forwardCase 3-72 Cash- or Accrual-Basis Accounting Karen Ragsdale owns a business that rents parking spots to students at the local university. Karens typical rental contract requires the student to pay the years rent of $450 ($50 per month) on September 1. When Karen prepares financial statements at the end of December, her accountant requires that Karen spread the $450 over the 9 months that each parking Spot is rented. Therefore, Karen can recognize only $200 of revenue (4 months) from each parking spot rental contract in the year the cash is collected and must defer (delay) recognition of the remaining $250 (5 months) to the next year. Karen argues that getting students to agree to rent the parking Spot is the most difficult part of the activity so she Ought to be able to recognize all $450 as revenue when the cash is received from a student. Required: Why do generally accepted accounting principles require the use of accrual accounting rather than cash-basis accounting for transactions like the one described here?arrow_forward
- Problem 3-71B Preparing a Worksheet (Appendix 3A) Flint Inc. operates a cable television System. At December 31, 2019, the following unadjusted account balances were available: The following data are available for adjusting entries: At year end, $1,500 Of office supplies remain unused. Annual depreciation on the building is $20,000. Annual depreciation on the equipment is $150,000 The interest rate on the note is 8%. Four months' interest is unpaid and unrecorded at December 31, 2019. At December 31, 2019, services of $94,000 have performed but are unbilled and unrecorded. Utility bills of $2,800 are unpaid and unrecorded at December 31, 2019. Income taxes of $49,633 were unpaid and unrecorded at year end. Â Required: Prepare a worksheet for Flint. Prepare an income statement, a retained earnings statement, and a classified balance sheet for Flint. Prepare the closing entries.arrow_forwardCase 2-68 Accounting for Partially Completed Events: 3 Prelude to Chapter 3 Ehrlich Smith. the owner of The Shoe Bone has asked you to help him understand the proper way to account for certain accounting items as he prepares his 2019 financial statements. Smith has provided the following information and observations: (Continued) a. A 3-year fire insurance policy was purchased on 2019, for $2,400. Smith believes that a part of the cost of the insurance policy should be allocated to each period that benefits from its coverage. b. The store building was purchased for 580,000 in January 2011. Smith expected then (as he does now) that the building will be serviceable as a shoe store for 20 years from the date of purchase. In 2011, Smith estimated that he could sell the property for $6,000 at the end of its serviceable life. He feels that each period should bear some portion of the cost of this long-lived asset that is slowly being consumed. c. The Shoe Box borrowed 520300 on a 1-year, 8% note that is due on September 1 next year) Smith notes that $21,600 cash will be required to repay the note at maturity. The $1,600 difference is, he feels, a cost of using the loaned funds and should be spread over the periods that benefit from the use of' the loan funds; Required: Explain what Smith is trying to accomplish with the three items. Are his objectives supported by the concepts that underlie accounting?arrow_forwardExercise 3-46 Identification and Analysis of Adjusting Entries Medina Motor Service is preparing adjusting entries for the year ended December 31, 2019. The following items describe Medina s continuous transactions during 2019: Medinas salaried employees are paid on the last day of every month. Medinas hourly employees are paid every other Friday for the 2 weeks' work. The next payday falls on January 5, 2020. In November 2019, Medina borrowed $600,000 from Bank One, giving a 9% note payable with interest due in January 2020. The note was properly recorded. Medina rents a portion of its parking lot to the neighboring business under a long-term lease agreement that requires payment of rent 6 months in advance on April 1 and October 1 of each year. The October 1, 2019, payment was made and recorded as prepaid rent. Medinas department recognizes the entire revenue on every auto service job when the job is complete. At December 31, several service jobs are in process. Medina recognizes depreciation on shop equipment annually at the end of each year. Medina purchases all of its office supplies from Office Supplies Inc. All purchases are recorded in the supplies account. Supplies expense is calculated and recorded annually at the end of each year. Required: Indicate whether or not each item requires an adjusting entry at December 31, 2019. If an item requires an adjusting entry, indicate which accounts are increased by the adjustment and which are decreased.arrow_forward
- Expense Adjustments Faraday Electronic Service repairs stereos and DVD players. During 2019, Faraday engaged in the following activities: On September 1, Faraday paid Wausau Insurance $4,860 for its liability insurance for the next 12 months. The full amount of the prepayment was debited to prepaid insurance. At December 31, Faraday estimates that $1,520 of utility costs are unrecorded and unpaid. Faraday rents its testing equipment from JVC. Equipment rent in the amount of $1,440 is unpaid and unrecorded at December 31. In late October, Faraday agreed to become the sponsor for the sports segment of the evening news program on a local television station. The station billed Faraday $4,350 for 3 months' sponsorship-November 2019, December 2019, and January 2020-in advance. When these payments were made, Faraday debited prepaid advertising. At December 31, 2 months' advertising has been and I month remains unused. Required: Prepare adjusting entries at December 31 for these four activities. CONCEPTUAL CONNECTION What would be the effect on expenses if the adjusting entries were not made?arrow_forwardExercise 3-43 Recognizing Expenses Treadway Dental Services gives each of its patients a toothbrush with the name and phone number of the dentist office and a logo imprinted on the brush. Treadway purchased 15,000 of the toothbrushes in October 2019 for $3,130. The toothbrushes were delivered in November and paid for in December 2019. Treadway began to give the patients the toothbrushes in February 2020. By the end of 2020, 4,500 of the toothbrushes remained in the supplies account. Required: How much expense should be recorded for the toothbrushes in 2019 and 2020 to properly match expenses with revenues? Describe how the 4,500 toothbrushes that remain in the supplies account will handled in 2021.arrow_forwardProblem 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 Morgans 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, Morgans hourly employees were paid $1,415 for work performed in January. Morgans 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 regular journal 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.arrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning