ACC 205 Week 2 Complete
DQ1.From Chapter 3,
Ethical Issue 3-1.Complete all parts of the case and respond to at least two of
your classmates’ postings.
- Compute the overall effects of these transaction o the store’s
reported income 2014.
- Why
is Steinbach taking this action? Is his action ethical? Give your reason,
identifying the parties helped and the parties harmed by Steinbach’s
action.
- As a personal friend, what advice would you give the accountant?
DQ2.Explain the purpose
of adjusting entries. How is net income affected if adjusting entries are not
made? Describe the four closing entries and explain their purpose. Respond to
at least two of your classmates’ postings.
1. Recognition
of concepts. Ron Carroll operates a small company that books entertainers
for theaters, parties, conventions, and so forth. The company’s fiscal year
ends on June 30. Consider the following items and classify each as either (1)
prepaid expense, (2) unearned revenue, (3) accrued expense, (4) accrued
revenue, or (5) none of the foregoing.
a.
Amounts paid on June 30 for a 1-year insurance policy
b.
Professional fees earned but not billed as of June 30
c.
Repairs to the firm’s copy machine, incurred and paid in June
d.
An advance payment from a client for a performance next month at a convention
e.
The payment in part (d) from the client’s point of view
f.
Interest owed on the company’s bank loan, to be paid in early July
g.
The bank loan payable in part (f)
h.
Office supplies on hand at year-end
2. Analysis
of prepaid account balance. The following information relates to Action
Sign Company for 20X2:
Compute
the balance in the Prepaid Insurance account on January 1, 20X2.
3. Understanding
the closing process. Examine the following list of accounts:
Interest
Payable
Accumulated
Depreciation: Equipment
Alex
Kenzy, Drawing
Accounts
Payable
Service
Revenue
Cash
Accounts
Receivable
Supplies
Expense
Interest
Expense
Which
of the preceding accounts
a.
appear on a post-closing trial balance?
b.
are commonly known as temporary, or nominal, accounts?
c.
generate a debit to Income Summary in the closing process?
d.
are closed to the capital account in the closing process?
4. Adjusting
entries and financial statements. The following information pertains to
Fixation Enterprises:
·
The company previously collected $1,500 as an advance payment for services to
be rendered in the future. By the end of December, one third of this amount had
been earned.
·
Fixation provided $2,500 of services to Artech Corporation; no billing had been
made by December 31.
·
Salaries owed to employees at year-end amounted to $1,650.
·
The Supplies account revealed a balance of $8,800, yet only $3,300 of supplies
were actually on hand at the end of the period.
·
The company paid $18,000 on October 1 of the current year to Vantage Property
Management. The payment was for 6 months’ rent of Fixation’s headquarters,
beginning on November 1.
Fixation’s
accounting year ends on December 31.
Instructions
Analyze
the five preceding cases individually and determine the following:
a.
The type of adjusting entry needed at year-end (Use the
following codes: A, adjustment of a prepaid expense; B, adjustment of an
unearned revenue; C, adjustment to record an accrued expense; or D, adjustment
to record an accrued revenue.)
b.
The year-end journal entry to adjust the accounts
c.
The income statement impact of each adjustment (e.g., increases total revenues
by $500)
5. Adjusting
entries. You have been retained to examine the records of Kathy’s Day Care
Center as of December 31, 20X3, the close of the current reporting period. In
the course of your examination, you discover the following:
·
On January 1, 20X3, the Supplies account had a balance of $2,350. During the
year, $5,520 worth of supplies was purchased, and a balance of $1,620 remained
unused on December 31.
·
Unrecorded interest owed to the center totaled $275 as of December 31.
·
All clients pay tuition in advance, and their payments are credited to the
Unearned Tuition Revenue account. The account was credited for $75,500 on August
31. With the exception of $15,500 all amounts were for the current semester
ending on December 31.
·
Depreciation on the school’s van was $3,000 for the year.
·
On August 1, the center began to pay rent in 6-month installments of $21,000.
Kathy wrote a check to the owner of the building and recorded the check in Prepaid
Rent, a new account.
·
Two salaried employees earn $400 each for a 5-day week. The employees are paid
every Friday, and December 31 falls on a Thursday.
·
Kathy’s Day Care paid insurance premiums as follows, each time debiting Prepaid
Insurance:
Date
Paid
Policy
No.
Length
of Policy
Instructions
The
center’s accounts were last adjusted on December 31, 20X2. Prepare the
adjusting entries necessary under the accrual basis of accounting.
6. Bank
reconciliation and entries. The following information was taken from the
accounting records of Palmetto Company for the month of January:
Balance
per bank
Instructions:
a.
Prepare Palmetto’s January bank reconciliation.
b.
Prepare any necessary journal entries for Palmetto.
7. Direct
write-off method. Harrisburg Company, which began business in early 20X7,
reported $40,000 of accounts receivable on the December 31, 20X7, balance
sheet. Included in this amount was $550 for a sale made to Tom Mattingly
in July. On January 4, 20X8, the company learned that Mattingly had filed for
personal bankruptcy. Harrisburg uses the direct write-off method to account for
uncollectibles.
a.
Prepare the journal entry needed to write off Mattingly’s account.
b.
Comment on the ability of the direct write-off method to value receivables on
the year-end balance sheet.
8. Allowance
method: estimation and balance sheet disclosure. The following pre-adjusted
information for the Maverick Company is available on December 31:
a.
Prepare the journal entries necessary to record Maverick’s uncollectible
accounts expense under each of the following assumptions:
(1)
Uncollectible accounts are estimated to be 5% of Credit Sales.
(2)
Uncollectible accounts are estimated to be 14% of Accounts Receivable.
b.
How would Maverick’s Accounts Receivable appear on the December 31 balance
sheet under assumption (1) of part (a)?
c.
How would Maverick’s Accounts Receivable appear on the December 31 balance
sheet under assumption (2) of part (a)?
9. Direct
write-off and allowance methods: matching approach. The December 31, 20X2,
year-end trial balance of Targa Company revealed the following account
information:
Instructions
a.
Determine the adjusting entry for bad debts under each of the following conditions:
(1)
An aging schedule indicates that $12,420 of accounts receivable will be
uncollectible.
(2)
Uncollectible accounts are estimated at 2% of net sales.
b.
On January 19, 20X3, Targa learned that House Company, a customer, had declared
bankruptcy. Present the proper entry to write off House’s $950 balance using
the allowance method.
c.
Repeat the requirement in part (b), using the direct write-off method.
d.
In light of the House bankruptcy, examine the allowance and direct write-off
methods in terms of their ability to properly match revenues and expenses.
10. Allowance
method: analysis of receivables. At a January 20X2 meeting, the president
of Sonic Sound directed the sales staff “to move some product this year.” The
president noted that the credit evaluation department was being disbanded because
it had restricted the company’s growth. Credit decisions would now be made by
the sales staff.
By
the end of the year, Sonic had generated significant gains in sales, and the
president was very pleased. The following data were provided by the accounting
department:
Age
of Receivable
Amount
Percentage
of Accounts Expected to Be Collected
Instructions
a.
Estimate the amount of Uncollectible Accounts as of December 31, 20X2.
b.
What is the company’s Uncollectible Accounts expense for 20X2?
c.
Compute the net realizable value of Accounts Receivable at the end of 20X1 and
20X2.
d.
Compute the net realizable value at the end of 20X1 and 20X2 as a percentage of
respective year-end receivables balances. Analyze your findings and comment on
the president’s decision to close the credit evaluation department.
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