Question

Problem 3-3A Preparing adjusting entries, adjusted trial balance, and financial statements LO 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, 2017, 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, 2017, follow.
  
Additional Information Items

1. An analysis of WTI's insurance policies shows that $2,400 of coverage has expired.
2. An inventory count shows that teaching supplies costing $2,800 are available at year-end 2017.
3. Annual depreciation on the equipment is $13,200.
4. Annual depreciation on the professional library is $7,200.
5. 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 2018.
6. 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.)
7. 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.
8. The balance in the Prepaid Rent account represents rent for December.
   

WELLS TECHNICAL INSTITUTE Unadjusted Trial Balance December 31, 2017
	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 2

2-a. Post the balance from the unadjusted trial balance and the adjusting entries in to the T-accounts.
2-b. Prepare an adjusted trial balance.
  

Answer 1

Date	Account titles and explanation	Debit	Credit
1	Insurance expense	$2400
	Prepaid insurance		$2400
	(To record insurance expense)
2	Teaching supplies expense (8000-2800)	$5200
	Teaching supplies		$5200
	(To record supplies expense)
3	Depreciation expense- Equipment	$13200
	Accumulated depreciation- Equipment		$13200
	(To record depreciation on equipment)
4	Depreciation expense-Professional library	$7200
	Accumulated depreciation- Professional library		$7200
	(To record depreciation on professional library)
5	Unearned training fees ($2500*2)	$5000
	Training fees earned		$5000
	(To record training fees)
6	Account receivable ($3000*2.5)	$7500
	Tuition fees earned		$7500
	(To record fees earned on account)
7	Salaries expense ($100*2*2)	$400
	Salaries payable		$400
	(To record accrued salaries)
8	Rent expense	$3000
	Prepaid rent		$3000
	(To record rent expense)

Cash					Equipment
Unadj. Bal.	34000				Unadj. Bal.	80000
Adj. Bal.	34000				Adj. Bal.	80000
Account Receivable					Accumulated depreciation- Equipment
Unadj. Bal.	0				Unadj. Bal.			15000
6	7500						3	13200
Adj. Bal.	7500				Adj. Bal.			28200
Teaching Supplies					Account Payable
Unadj. Bal.	8000	2	5200		Unadj. Bal.			26000
			(8000-2800)
Adj. Bal.	2800				Adj. Bal.			26000
Prepaid Insurance					Salaries Payable
Unadj. Bal.	12000	1	2400		Unadj. Bal.			0
							7	400
Adj. Bal.	9600				Adj. Bal.			400
Prepaid Rent					Unearned Training Fees
Unadj. Bal.	3000	8	3000		Unadj. Bal.			12500
					5	5000
Adj. Bal.	0				Adj. Bal.			7500
Professional Library					Common Stock
Unadj. Bal.	35000				Unadj. Bal.			10000
Adj. Bal.	35000				Adj. Bal.			10000
Accumulated depreciation- Professional Library					Retained Earnings
Unadj. Bal.			10000		Unadj. Bal.			80000
		4	7200
Adj. Bal.			17200		Adj. Bal.			80000
Tuition Fees Earned					Dividends
Unadj. Bal.			123900		Unadj. Bal.	50000
		6	7500
Adj. Bal.			131400		Adj. Bal.	50000
Training Fees Earned					Rent Expense
Unadj. Bal.			40000		Unadj. Bal.	33000
		5	5000		8	3000
Adj. Bal.			45000		Adj. Bal.	36000
Depreciation Expense- Professional Library					Teaching Supplies Expense
Unadj. Bal.	0				Unadj. Bal.	0
4	7200				2	5200
Adj. Bal.	7200				Adj. Bal.	5200
Depreciation Expense- Equipment					Advertising Expense
Unadj. Bal.	0				Unadj. Bal.	6000
3	13200
Adj. Bal.	13200				Adj. Bal.	6000
Salaries Expense					Utilities Expense
Unadj. Bal.	50000				Unadj. Bal.	6400
7	400
Adj. Bal.	50400				Adj. Bal.	6400
Insurance Expense
Unadj. Bal.	0
1	2400
Adj. Bal.	2400

WELLS TECHNICAL INSTITUTE
Adjusted Trial Balance
December 31, 2017
Cash	$34000
Account receivable	7500
Teaching Supplies	2800
Prepaid Insurance	9600
Prepaid Rent	0
Professional Library	35000
Accumulated depreciation- Professional Library		17200
Equipment	80000
Accumulated depreciation- Equipment		28200
Account Payable		26000
Salaries Payable		400
Unearned Training Fees		7500
Common Stock		10000
Retained Earnings		80000
Dividends	50000
Tuition Fees Earned		131400
Training Fees Earned		45000
Depreciation Expense- Professional Library	7200
Depreciation Expense- Equipment	13200
Salaries Expense	50400
Insurance Expense	2400
Rent Expense	36000
Teaching Supplies Expense	5200
Advertising Expense	6000
Utilities Expense	6400
Totals	$345700	$345700

WELLS TECHNICAL INSTITUTE
Income Statement
December 31, 2017
Revenues:
Tuition fees earned	$131400
Training fees earned	45000
Total revenues		176400
Expenses:
Depreciation Expense- Professional Library	7200
Depreciation Expense- Equipment	13200
Salaries Expense	50400
Insurance Expense	2400
Rent Expense	36000
Teaching Supplies Expense	5200
Advertising Expense	6000
Utilities Expense	6400
Total expenses		(126800)
Net income		$49600

WELLS TECHNICAL INSTITUTE
Statement of Retained Earnings
December 31, 2017
Beginning retained earnings	$80000
Add: Net income	49600
	129600
Less: Dividends	(50000)
Ending retained earnings	$79600

WELLS TECHNICAL INSTITUTE
Balance Sheet
December 31, 2017
ASSETS
Cash		$34000
Accounts receivable		7500
Teaching supplies		2800
Prepaid insurance		9600
Professional library	35000
Accumulated depreciation	(17200)	17800
Equipment	80000
Accumulated depreciation	(28200)	51800
Total assets		$123500
LIABILITIES
Accounts payable		26000
Salaries payable		400
Unearned training fees		7500
Total liabilities		33900
SHAREHOLDERS' EQUITY
Common stock		10000
Retained earnings		79600
Total liabilities and shareholders' equity		$123500