Exercise 3-1 Preparing adjusting entries LO P1 a

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Exercise 3-1 Preparing adjusting entries LO P1

a.	Depreciation on the company’s equipment for 2013 is computed to be $18,000.
b.	The Prepaid Insurance account had a $6,000 debit balance at December 31, 2013, before adjusting for the costs of any expired coverage. An analysis of the company’s insurance policies showed that $1,100 of unexpired insurance coverage remains.
c.	The Office Supplies account had a $700 debit balance on December 31, 2012; and $3,480 of office supplies were purchased during the year. The December 31, 2013, physical count showed $298 of supplies available.
d.	Two-thirds of the work related to $15,000 of cash received in advance was performed this period.
e.	The Prepaid Insurance account had a $6,800 debit balance at December 31, 2013, before adjusting for the costs of any expired coverage. An analysis of insurance policies showed that $5,800 of coverage had expired.
f.	Wage expenses of $3,200 have been incurred but are not paid as of December 31, 2013.

  

Prepare adjusting journal entries for the year ended (date of) December 31, 2013, for each of these separate situations. Assume that prepaid expenses are initially recorded in asset accounts. Also assume that fees collected in advance of work are initially recorded as liabilities.

 

Exercise 3-3 Adjusting and paying accrued wages LO C1, P1

Pablo Management has five part-time employees, each of whom earns $250 per day. They are normally paid on Fridays for work completed Monday through Friday of the same week. They were paid in full on Friday, December 28, 2013. The next week, the five employees worked only four days because New Year’s Day was an unpaid holiday.

    

a.	Prepare the adjusting entry that would be recorded on Monday, December 31, 2013.

b.	Prepare the journal entry that would be made to record payment of the employees' wages on Friday, January 4, 2014.

 

Exercise 3-4 Adjusting and paying accrued expenses LO A1

a.	On April 1, the company retained an attorney for a flat monthly fee of $3,500. Payment for April legal services was made by the company on May 12.
b.	A $1,080,000 note payable requires 10% annual interest, or $9,000 to be paid at the 20th day of each month. The interest was last paid on April 20 and the next payment is due on May 20. As of April 30, $3,000 of interest expense has accrued.
c.	Total weekly salaries expense for all employees is $10,000. This amount is paid at the end of the day on Friday of each five-day workweek. April 30 falls on Tuesday of this year, which means that the employees had worked two days since the last payday. The next payday is May 3.

  
 

The above three separate situations require adjusting journal entries to prepare financial statements as of April 30. For each situation, present both the April 30 adjusting entry and the subsequent entry during May to record the payment of the accrued expenses. (Use 360 days a year. Do not round intermediate calculations and round your final answers to the nearest dollar amount.)

Problem 3-1A Identifying adjusting entries with explanations LO P1 For each of the following entries, enter the letter of the explanation that most closely describes it in the space beside each entry. (You can use letters more than once.)       A.  To record receipt of unearned revenue. B.  To record this period's earning of prior unearned revenue. C.  To record payment of an accrued expense. D.  To record receipt of an accrued revenue. E.  To record an accrued expense. F.  To record an accrued revenue. G.  To record this period's use of a prepaid expense. H.  To record payment of a prepaid expense. I.  To record this period's depreciation expense. Problem 3-3A Preparing adjusting entries, adjusted trial balance, and financial statements LO A1, P1, P2, P3 [The following information applies to the questions displayed below.]   Wells Technical Institute (WTI), a school owned by Tristana Wells, provides training to individuals who pay tuition directly to the school. WTI also offers training to groups in off-site locations. Its unadjusted trial balance as of December 31, 2013, follows. WTI initially records prepaid expenses and unearned revenues in balance sheet accounts. Descriptions of items a through h that require adjusting entries on December 31, 2013, follow.    Additional Information Items    a. An analysis of WTI's insurance policies shows that $2,400 of coverage has expired. b. An inventory count shows that teaching supplies costing $2,800 are available at year-end 2013. c. Annual depreciation on the equipment is $13,200. d. Annual depreciation on the professional library is $7,200. e. On November 1, WTI agreed to do a special six-month course (starting immediately) for a client. The contract calls for a monthly fee of $2,500, and the client paid the first five months' fees in advance. When the cash was received, the Unearned Training Fees account was credited. The fee for the sixth month will be recorded when it is collected in 2014. f. On October 15, WTI agreed to teach a four-month class (beginning immediately) for an individual for $3,000 tuition per month payable at the end of the class. The class started on October 15, but no payment has yet been received. (WTI's accruals are applied to the nearest half-month; for example, October recognizes one-half month accrual.) g. WTI's two employees are paid weekly. As of the end of the year, two days' salaries have accrued at the rate of $100 per day for each employee. h. The balance in the Prepaid Rent account represents rent for December.      WELLS TECHNICAL INSTITUTE Unadjusted Trial Balance December 31, 2013     Debit   Credit   Cash $ 34,000            Accounts receivable   0            Teaching supplies   8,000            Prepaid insurance   12,000            Prepaid rent   3,000            Professional library   35,000            Accumulated depreciation—Professional library     $ 10,000     Equipment   80,000            Accumulated depreciation—Equipment       15,000     Accounts payable        26,000     Salaries payable       0     Unearned training fees       12,500     Common stock       10,000     Retained earnings       80,000     Dividends   50,000            Tuition fees earned       123,900     Training fees earned       40,000     Depreciation expense—Professional library   0            Depreciation expense—Equipment   0            Salaries expense   50,000            Insurance expense   0            Rent expense   33,000            Teaching supplies expense   0            Advertising expense   6,000            Utilities expense   6,400              Totals $ 317,400      $ 317,400           Problem 3-3A Part 1 1. Prepare the necessary adjusting journal entries for items a through h. Problem 3-3A Part 2 2.1 Post the balance from the unadjusted trial balance and the adjusting entries to the T-accounts     2.2 Prepare an adjusted trial balance. Problem 3-3A Part 3 3.1 Prepare Wells Technical Institute's income statement for the year 2013.     Problem 3-8A Preparing closing entries, financial statements, and ratios C4 A2 A3 P3 P4 The adjusted trial balance for Tybalt Construction as of December 31, 2013, follows.     TYBALT CONSTRUCTION Adjusted Trial Balance December 31, 2013  No. Account Title Debit Credit 101   Cash   $ 5,000           104   Short-term investments     23,000           126   Supplies     8,100           128   Prepaid insurance     7,000           167   Equipment     40,000           168   Accumulated depreciation—Equipment           $ 20,000   173   Building     150,000           174   Accumulated depreciation—Building             50,000   183   Land     55,000           201   Accounts payable             16,500   203   Interest payable             2,500   208   Rent payable             3,500   210   Wages payable             2,500   213   Property taxes payable             900   233   Unearned professional fees             7,500   251   Long-term notes payable             67,000   307   Common stock             5,000   318   Retained earnings             121,400   319   Dividends     13,000           401   Professional fees earned             97,000   406   Rent earned             14,000   407   Dividends earned             2,000   409   Interest earned             2,100   606   Depreciation expense—Building     11,000           612   Depreciation expense—Equipment     6,000           623   Wages expense     32,000           633   Interest expense     5,100           637   Insurance expense     10,000           640   Rent expense     13,400           652   Supplies expense     7,400           682   Postage expense     4,200           683   Property taxes expense     5,000           684   Repairs expense     8,900           688   Telephone expense     3,200           690   Utilities expense     4,600                     Totals   $ 411,900     $ 411,900            O. Tybalt invested $5,000 cash in the business in exchange for more common stock during year 2013 (the December 31, 2012, credit balance of retained earnings was $121,400). Tybalt Construction is required to make a $7,000 payment on its long-term notes payable during 2014.    Required: 1.1 Prepare the income statement for the calendar year 2013