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3.14: Problems

  • Page ID
    48937
  • Problem A Among other items, the trial balance of Filmblaster, Inc., a movie rental company, at December 31 of the current year includes the following account balances:

     

    Debits

    Prepaid Insurance

    USD 10,000

    Prepaid Rent

    USD 14,400

    Supplies on Hand

    USD 2,800

    Examination of the records shows that adjustments should be made for the following items:

    a. Of the prepaid insurance in the trial balance, USD 4,000 is for coverage during the months after December 31 of the current year.

    b. The balance in the Prepaid Rent account is for a 12-month period that started October 1 of the current year.

    c. USD 300 of interest has been earned but not received.

    d. Supplies used during the year amount to USD 1,800.

    Prepare the annual year-end adjusting journal entries at December 31.

    Problem B Marathon Magazine, Inc., has the following account balances, among others, in its trial balance at December 31 of the current year:

     

    Debits

    Credits

    Supplies on Hand..................

    $3,720

     

    Prepaid Rent .........................

    7,200

     

    Unearned Subscription Fees ...

     

    $15,000

    Subscriptions Revenue...........

     

    261,000

    Salaries Expense ...................

    123,000

     

    • The inventory of supplies on hand at December 31 amounts to USD 720.

    • The balance in the Prepaid Rent account is for a one-year period starting October 1 of the current year.

    • One-third of the USD 15,000 balance in Unearned Subscription Fees has been earned.

    • Since the last payday, the employees of the company have earned additional salaries in the amount of USD 5,430.

    a. Prepare the year-end adjusting journal entries at December 31.

    b. Open ledger accounts for each of the accounts involved, enter the balances as shown in the trial balance, post the adjusting journal entries, and calculate year-end balances.

    Problem C Hillside Apartments, Inc., adjusts and closes its books each December 31. Assume the accounts for all prior years have been properly adjusted and closed. Following are some of the company’s account balances prior to adjustment on 2010 December 31:

    HILLSIDE APARTMENTS, INC.

    Partial Trial Balance

    2010 December 31

     

    Debits

    Credits

    Prepaid insurance

    $ 7,500

     

    Supplies on hand

    7,000

     

    Buildings

    255,000

     

    Accumulated deprecation – Buildings

     

    $ 96,000

    Unearned rent

     

    2,700

    Salaries expense

    69,000

     

    Rent revenue

     

    277,500

    The Prepaid Insurance account balance represents the remaining cost of a four-year insurance policy dated 2011 June 30, having a total premium of USD 12,000.

    The physical inventory of the office supply stockroom indicates that the supplies on hand cost USD 3,000.

    The building was originally acquired on 1994 January 1, at which time management estimated that the building would last 40 years and have a residual value of USD 15,000.

    Salaries earned since the last payday but unpaid at December 31 amount to USD 5,000.

    Interest earned but not collected on a savings account during the year amounts to USD 400.

    The Unearned Rent account arose through the prepayment of rent by a tenant in the building for 12 months beginning 2010 October 1.

    Prepare the annual year-end adjusting entries indicated by the additional data.

    Problem D The reported net income amounts for Gulf Coast Magazine, Inc., for calendar years 2010 and 2011 were USD 200,000 and USD 222,000, respectively. No annual adjusting entries were made at either year-end for any of the following transactions:

    A fire insurance policy to cover a three-year period from the date of payment was purchased on 2010 March 1 for USD 3,600. The Prepaid Insurance account was debited at the date of purchase.

    Subscriptions for magazines in the amount of USD 72,000 to cover an 18-month period from 2010 May 1, were received on 2010 April 15. The Unearned Subscription Fees account was credited when the payments were received.

    A building costing USD 180,000 and having an estimated useful life of 50 years and a residual value of USD 30,000 was purchased and put into service on 2010 January 1.

    On 2011 January 12, salaries of USD 9,600 were paid to employees. The account debited was Salaries Expense. One-third of the amount paid was earned by employees in December of 2010.

    Calculate the correct net income for 2010 and 2011. In your answer, start with the reported net income. Then show the effects of each correction (adjustment), using a plus or a minus to indicate whether reported income should be increased or decreased as a result of the correction. When the corrections are added to or deducted from the reported net income amounts, the result should be the correct net income amounts. The answer format should appear as follows:

    Explanation of corrections

    2010

    2011

    Reported net income

    $200,000

    $222,000

    To correct error in accounting for:

     

     

    Fire insurance policy premium:

     

     

      Correct expense in 2010

    -1,000

     

      Correct expense in 2011

     

    -1,200

    Problem E Jupiter Publishing Company began operations on 2010 December 1. The company’s bookkeeper intended to use the cash basis of accounting. Consequently, the bookkeeper recorded all cash receipts and disbursements for items relating to operations in revenue and expense accounts. No adjusting entries were made prior to preparing the financial statements for December.

    Dec. 1 Issued capital stock for USD 300,000 cash.

               3               Received USD 144,000 for magazine subscriptions to run for two years from this date. The magazine is published monthly on the 23rd.

               4               Paid for advertising to be run in a national periodical for six months (starting this month). The cost was USD 36,000.

               7                Purchased for cash an insurance policy to cover a two-year period beginning            December 15, USD 24,000.

               12             Paid the annual rent on the building, USD 36,000, effective through 2011 November 30.

               15             Received USD 216,000 cash for two-year subscriptions starting with the December                issue.

               15             Salaries for the period December 1–15 amounted to USD 48,000. Beginning as of this date, salaries will be paid on the 5th and 20th of each month for the preceding two-week period.

               20            Salaries for the period December 1–15 were paid.

               23             Supplies purchased for cash, USD 21,600. (Only USD 1,800 of these were subsequently used in 2010.)

               27             Printing costs applicable equally to the next six issues beginning with the December issue were paid in cash, USD 144,000.

               31             Cash sales of the December issue, USD 84,000.

               31             Unpaid salaries for the period December 16–31 amounted to USD 22,000.

               31             Sales on account of December issue, USD 14,000.

    a. Prepare journal entries for the transactions as the bookkeeper prepared them.

    b. Prepare journal entries as they would have been prepared under the accrual basis. Where the entry is the same as under the cash basis, merely indicate “same”. Where possible, record the original transaction so that no adjusting entry would be                necessary at the end of the month. Ignore explanations.

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