3.16: Alternate problems

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Alternate problem A The trial balance of Caribbean Vacation Tours, Inc., at December 31 of the current year includes, among other items, the following account balances:

 Debits Credits Prepaid Insurance ........................................ $24,000 Prepaid Rent ................................................ 24,000 Buildings...................................................... 188,000 Accumulated Depreciation—Buildings.............$31,600 Salaries Expense .......................................... 200,000

The balance in the Prepaid Insurance account is the advance premium for one year from September 1 of the current year.

The buildings are expected to last 25 years, with an expected residual value of USD 30,000.

Salaries incurred but not paid as of December 31 amount to USD 8,400.

The balance in Prepaid Rent is for a one-year period that started March 1 of the current year.

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

Alternate problem B Among the account balances shown in the trial balance of Dunwoody Mail Station, Inc., at December 31 of the current year are the following:

 Debits Credits Supplies on hand $10,000 Prepaid insurance 6,000 Buildings 168,000 Accumulated deprecation and buildings$ 39,000

The inventory of supplies on hand at December 31 amounts to USD 3,000.

The balance in the Prepaid Insurance account is for a two-year policy taken out June 1 of the current year.

Depreciation for the buildings is based on the cost shown in the Buildings account, less residual value estimated at USD18,000. When acquired, the lives of the buildings were estimated at 50 years each.

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.

Alternate problem C Nevada Camping Equipment Rental Company occupies rented quarters on the main street of Las Vegas. To get this location, the company rented a store larger than needed and subleased (rented) a portion of the area to Max’s Restaurant. The partial trial balance of Nevada Camping Equipment Rental Company as of 2010 December 31, is as follows:

 NEVEDA CAMPING EQUIPMENT RENTAL COMPANY Trial Balance 2010 December 31 Debits Credits Cash $100,000 Prepaid Insurance 11,400 Supplies on Hand 20,000 Camping Equipment 176,000 Accumulated Depreciation—Camping Equipment$ 19,200 Notes Payable 40,000 Equipment Rental Revenue 1,500,000 Sublease Rental Revenue 8,800 Building Rent Expense 14,400 Salaries Expense 196,000

a. Salaries of employees amount to USD 300 per day and were last paid through Wednesday, December 27. December 31 is a Sunday. The store is closed Sundays.

b. An analysis of the Camping Equipment account disclosed:

 Balance, 2010 January 1 $128,000 Addition, 2010 July 1 48,000 Balance, 2010 December 31, per trial balance$176,000

The company estimates that all equipment will last 20 years from the date they were acquired and that the residual value will be zero.

c. The store carries one combined insurance policy, which is taken out once a year effective August 1. The premium on the policy now in force amounts to USD 7,200 per year.

d. Unused supplies on hand at 2010 December 31, have a cost of USD 9,200.

e. December’s rent from Max’s Restaurant has not yet been received, USD 800.

f. Interest accrued on the note payable is USD 700.

Prepare the annual year-end entries required by the preceding statement of facts.

Alternate problem D The reported net income amounts for Safety Waste Control Company were 2010, USD 200,000; and 2011, USD 230,000. No annual adjusting entries were made at either year-end for any of these transactions:

a. A building was rented on 2010 April 1. Cash of USD 14,400 was paid on that date to cover a two-year period. Prepaid Rent was debited.

b. The balance in the Office Supplies on Hand account on 2010 December 31, was USD 6,000. An inventory of the supplies on 2010 December 31, revealed that only USD 3,500 were actually on hand at that date. No new supplies were purchased during 2011. At 2011 December 31, an inventory of the supplies revealed that USD 800 were on hand.

c. A building costing USD 1,200,000 and having an estimated useful life of 40 years and a residual value of USD 240,000 was put into service on 2010 January 1.

d. Services were performed for customers in December 2010. The USD 24,000 bill for these services was not sent until January 2011. The only transaction that was recorded was a debit to Cash and a credit to Service Revenue when payment was received in January.

Calculate the correct net income for 2010 and 2011. In your answer, start with the reported net income amounts. 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 be as follows:

 Explanation of Corrections 2010 2011 Reported net income $200,000$230,000 To correct error in accounting for: Prepaid rent: Correct expense in 2010 -5,400 Correct expense in 2011 -7,200

Alternate problem E On 2010 June 1, Richard Cross opened a swimming pool cleaning and maintenance service, Cross Pool Company. He vaguely recalled the process of making journal entries and establishing ledger accounts from a high school bookkeeping course he had taken some years ago. At the end of June, he prepared an income statement for the month of June, but he had the feeling that he had not proceeded correctly. He contacted his brother, John, a recent college graduate with a major in accounting, for assistance. John immediately noted that his brother had kept his records on a cash basis.

June  1 Received cash of USD 28,000 from various customers in exchange for service agreements to clean and maintain their pools for June, July, August, and September.

5         Paid rent for automotive and cleaning equipment to be used during the period June through September, USD 8,000. The payment covered the entire period.

8        Purchased a two-year liability insurance policy effective June 1 for USD 12,000 cash.

10      Received an advance of USD 9,000 from a Florida building contractor in exchange for an agreement to help service pools in his housing development during October through May.

16      Paid salaries for the first half of June, USD 8,400.

17      Paid USD 900 for advertising to be run in a local newspaper for two weeks in June and four weeks in July.

19      Paid the rent of USD 24,000 under a four-month lease on a building rented and occupied on June 1.

26      Purchased USD 5,400 of supplies for cash. (Only USD 900 of these supplies were used in June.)

29      Billed various customers for services rendered, USD 16,000.

30     Unpaid employee services received in the last half of June amounted to USD 12,600.

30     Received a bill for USD 600 for gas and oil used in June.

a. Prepare the entries for the transactions as Richard must have recorded them under the cash basis of accounting.

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.

3.16: Alternate problems is shared under a not declared license and was authored, remixed, and/or curated by LibreTexts.