Concept explainers
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.
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 |
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
- Exercise 3-40 Revenue and Expense Recognition Electronic Repair Company repaired a high-definition television for Sarah Merrifield in December 2019. Sarah paid $80 at the time of the repair and agreed to pay Electronic Repair $80 each month for 5 months beginning on January 15, 2020. Electronic Repair used $120 of supplies, which were purchased in November 2020, to repair the television. Assume that Electronic Repair uses accrual-basis accounting. Required: In what month or months should revenue from this service be recorded by Electronic Repaid? In what month or months should the expense related to the repair of the television be recorded by Electronic Repair? CONCEPTUAL CONNECTION Describe the accounting principles used to answer the above questions.arrow_forwardProblem 3-65B Preparation of Adjusting Entries West Beach Resort operates a resort complex that specializes in hosting small business and professional meetings. West Beach closes its fiscal year on January 31, a time when it has few meetings under way. At January 31, 2020, the following data are available: A training meeting is under way for 16 individuals from Fashion Design. Fashion Design paid $4,500 in advance for each attending the 10-day training session. The meeting began on January 28 and will end on February 6. Twenty-one people from Northern Publishing are attending a sales meeting. The daily fee for each person attending the meeting is $280 (charged for each night a stays at the resort). The meeting began on January 29, and guests will depart on February 2. Northern will be billed at the end of the meeting. Depreciation on the golf carts used to transport the guests' luggage to and from their rooms is $11,250 for the year. West Beach records depreciation yearly. At January 31, Friedrich Catering is owed $1,795 for food provided for guests through that date. This amount is unrecorded. West Beach classifies the cost of food as an other expense on the income statement. An examination indicates that the cost of office supplies on hand at January 31 is $189. During the year, $850 of office supplies was purchased from Supply Depot. The cost of supplies purchased was debited to Office Supplies Inventory. No office supplies were on hand on January 31, 2019. Required: Prepare adjusting entries at January 31 for each of these items. CONCEPTUAL CONNECTION By how much would net income be overstated or understated if the accountant failed to make the adjusting entries?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
- Case 3-73 Recognition of Service Contract Revenue Zac Murphy is president of Blooming Colors Inc. which provides landscaping services in Tallahassee, Florida. On November 20, 2019, Mr. Murphy signed a service contract with Eastern State University. Under the contract, Blooming Colors will provide landscaping services for all Of Easterns buildings for a period of 2 years beginning on January l, 2020, and Eastern will pay Blooming Colors on a monthly basis beginning on January 31, 2020. Although the same amount of landscaping services will be rendered in every month, the contract provides for higher monthly payments in the first year. Initially, Mr. Murphy proposed that the revenue from the contract should be recognized when the contract is signed in 2019; however, his accountant, Sue Storm, convinced him that this would be inappropriate. Then Mr. Murphy proposed that the revenue should be recognized in an amount equal to the cash collected under the contract. Again, Ms. Storm argued against his proposal, indicating that generally accepted accounting principles (GAAP) required recognition of an equal amount of contract revenue each month. Required: Put yourself in the position of Sue Storm. How would you convince Mr. Murphy that his two proposals are unacceptable and that an equal amount of revenue should be recognized every month?arrow_forwardCase 3-73 Recognition of Service Contract Revenue Zac Murphy is president of Blooming Colors Inc. which provides landscaping services in Tallahassee, Florida. On November 20, 2019, Mr. Murphy signed a service contract with Eastern State University. Under the contract, Blooming Colors will provide landscaping services for all Of Easterns buildings for a period of 2 years beginning on January l, 2020, and Eastern will pay Blooming Colors on a monthly basis beginning on January 31, 2020. Although the same amount of landscaping services will be rendered in every month, the contract provides for higher monthly payments in the first year. Initially, Mr. Murphy proposed that the revenue from the contract should be recognized when the contract is signed in 2019; however, his accountant, Sue Storm, convinced him that this would be inappropriate. Then Mr. Murphy proposed that the revenue should be recognized in an amount equal to the cash collected under the contract. Again, Ms. Storm argued against his proposal, indicating that generally accepted accounting principles (GAAP) required recognition of an equal amount of contract revenue each month. Required: 3. If Ms. Storms proposal is adopted. how would the contract be reflected in the balancesheets at the end of 2019 and at the end of 2020?arrow_forwardCase 3-73 Recognition of Service Contract Revenue Zac Murphy is president of Blooming Colors Inc. which provides landscaping services in Tallahassee, Florida. On November 20, 2019, Mr. Murphy signed a service contract with Eastern State University. Under the contract, Blooming Colors will provide landscaping services for all Of Easterns buildings for a period of 2 years beginning on January l, 2020, and Eastern will pay Blooming Colors on a monthly basis beginning on January 31, 2020. Although the same amount of landscaping services will be rendered in every month, the contract provides for higher monthly payments in the first year. Initially, Mr. Murphy proposed that the revenue from the contract should be recognized when the contract is signed in 2019; however, his accountant, Sue Storm, convinced him that this would be inappropriate. Then Mr. Murphy proposed that the revenue should be recognized in an amount equal to the cash collected under the contract. Again, Ms. Storm argued against his proposal, indicating that generally accepted accounting principles (GAAP) required recognition of an equal amount of contract revenue each month. Required: 1. Give a reason that might explain Mr. Murphys desire to recognize contract revenue earlier rather than later.arrow_forward
- Exercise 3-44 Revenue Expense and Recognition Carrico Advertising Inc. performs advertising services for several Fortune 500 companies. The following information describes Carricos activities during 2019. At the beginning of 2019, customers owed Carrico $45,800 for advertising services formed during 2018. During 2019, Carrico performed an additional $695,100 of advertising services on account. Carrico collected $708,700 cash from customers during 2019. At the beginning of 2019, Carrico had $13,350 of supplies on hand for which it owed suppliers SS, 150. During 2019, Carrico purchased an additional $14,600 of supplies on account. Carrico also paid $19,300 cash owed to suppliers for goods previously purchased on credit. Carrico had of supplies on hand at the end of 2019. Carricos 2019 operating and interest were $437 and $133,400, respectively. Required: Calculate Carricos 2019 income before taxes. Calculate the ending balance of receivable, the supplies used, and the ending balance of accounts payable. CONCEPTUAL CONNECTION Explain the underlying principles behind why the three accounts computed in Requirement 2 exist.arrow_forwardExercise 1-38 Identifying Current Assets and Liabilities Dunn Sporting Goods sells athletic clothing and footwear 10 retail customers. Dunns accountant indicates that the firms operating cycle averages 6 months. At December 31, 2019, Dunn has the following assets and liabilities: Prepaid rent in the amount of 58,500. Dunns rent is $500 per month. A $9,700 account payable due in 45 days. Inventory in the amount of $46,230. Dunn expects to sell $38,000 of the inventory within 3 months. The remainder will be placed in storage until September 2020. The items placed in storage should be sold by November 2020. An investment in marketable securities in the amount of $1,900. Dunn expects to sell $700 of the marketable securities in 6 months. The remainder are not expected to be sold until 2022. Cash in the amount of $1,050. An equipment loan in the amount of $60,000 due in March 2024. Interest of $4,500 is due in March 2020 ($3,750 of the interest relates to 2019. with the remainder relating to the first 3 months of 2020). An account receivable from a local university in the amount of $2,850. The university has promised to pay the full amount in 3 months. Store equipment at a cost of $9,200. Accumulated depreciation has been recorded on the store equipment in the amount of 51,250. Required: Prepare the current asset and current liability portions of Dunns December 31, 20191 balance-sheet. Compute Dunns working capital and current ratio at December 31, 2019. CONCEPTUAL CONNECTION As in investor or creditor. what do these ratios tell you about Dunns liquidity?arrow_forwardProblem 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_forward
- Problem 2-62B Comprehensive Problem Mulberry Services sells electronic data processing services to firms too Email to own their own computing equipment. Mulberry had the following amounts and amount balances as of January 1, 2019: During 2019, the following transactions occurred (the events described below are aggregations of many individual events): During 2019, Mulberry sold $690,000 of computing services, all on credit. Mulberry collected $570,000 from the credit sales in Transaction a and an additional $129,000 from the accounts receivable outstanding at the beginning of the year. Mulberry paid the interest payable of $8,000. A Wages of $379,000 were paid in cash. Repairs and maintenance of $9,000 were incurred and paid. The prepaid rent at the beginning of the year was used in 2019. In addition, $28,000 of computer rental costs were incurred and paid. There is no prepaid rent or rent payable at year-end. Mulberry purchased computer paper for $13,000 cash in late December. None of the paper was used by year-end. Advertising expense of $26,000 was incurred and paid. Income tax of $10,300 was incurred and paid in 2019. Interest of $5,000 was paid on the long-term loan. (Continued) Required: 1. Establish a ledger for the accounts listed above and enter the beginning balances. Use a chart of accounts to order the ledger accounts. 2. Analyze each transaction, Journalize as appropriate. (Note: Ignore the date because these events are aggregations of individual events.) 3. Post your journal entries to T-accounts, Add additional T-accounts when needed. 4. Use the ending balances in the T-accounts to prepare a trial balancearrow_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 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
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning