Question

For each separate case below, follow the three-step process for adjusting the prepaid asset account at December 31.

Step 1: Determine what the current account balance equals.
Step 2: Determine what the current account balance should equal.
Step 3: Record the December 31 adjusting entry to get from step 1 to step 2.

Assume no other adjusting entries are made during the year.

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 $3,996 of coverage has expired.
2. An inventory count shows that teaching supplies costing $3,464 are available at year-end 2017.
3. Annual depreciation on the equipment is $15,986.
4. Annual depreciation on the professional library is $7,993.
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 $2,400, 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 $5,461 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	$	27,396
Accounts receivable		0
Teaching supplies		10,536
Prepaid insurance		15,806
Prepaid rent		2,108
Professional library		31,610
Accumulated depreciation—Professional library				$	9,484
Equipment		73,751
Accumulated depreciation—Equipment					16,861
Accounts payable					37,522
Salaries payable					0
Unearned training fees					12,000
Common stock					13,000
Retained earnings					54,016
Dividends		42,149
Tuition fees earned					107,477
Training fees earned					40,040
Depreciation expense—Professional library		0
Depreciation expense—Equipment		0
Salaries expense		50,579
Insurance expense		0
Rent expense		23,188
Teaching supplies expense		0
Advertising expense		7,376
Utilities expense		5,901
Totals	$	290,400		$	290,400

3-a. Prepare Wells Technical Institute's income statement for the year 2017.
3-b. Prepare Wells Technical Institute's statement of owner's equity for the year 2017.
3-c. Prepare Wells Technical Institute's balance sheet as of December 31, 2017.

Prepare Wells Technical Institute's income statement for the year 2017.

	WELLS TECHNICAL INSTITUTE Income Statement For Year Ended December 31, 2017 $0 0

Prepare Wells Technical Institute's statement of owner's equity for the year 2017.

	WELLS TECHNICAL INSTITUTE Statement of Retained Earnings For Year Ended December 31, 2017 Retained earnings, December 31, 2016 0 Retained earnings, December 31, 2017 $0

• Req 3C

Prepare Wells Technical Institute's balance sheet as of December 31, 2017.

	WELLS TECHNICAL INSTITUTE Balance Sheet December 31, 2017 0 0 $0 0 Total equity 0 $0

Answer 1

Preparing Adjusting Entries for Wells Technical Institute:-

WELLS TECHNICAL INSTITUTE

General Journal (Adjusting Entries)

December 31,2017

Date	Accounts	Debit	Credit
December 31	Insurance Expense	$3,996
	Prepaid Insurance		$3,996
December 31	Teaching Supplies Expense	$7,072
	Teaching Supplies		$7,072
December 31	Depreciation Expense, Equipment	$15,986
	Accumulated Depreciation, Equipment		$15,986
December 31	Depreciation Expense, Professional Library	$7,993
	Accumulated Depreciation, Professional Library		$7,993
December 31	Unearned Training Fees	$4,800
	Training Fees Earned		$4,800
December 31	Accounts Receivable	$13,652.50
	Tuition Fees Earned		$13,652.50
December 31	Salaries Expense	$200
	Salaries Payable		$200
December 31	Rent Expense	$2,108
	Prepaid Rent		$2,108

Preparing Worksheet to show the Adjusting Entries effect on Unadjusted Trial Balance and Preparing Adjusted Trial Balance , because Financial Statements are prepared from Adjusted Trial Balance.

WELLS TECHNICAL INSTITUTE

Worksheet

December 31,2017

Accounts	Unadjusted	Trial Balance	Adjusting	Entries	Adjusted	Trial Balance
	Debit	Credit	Debit	Credit	Debit	Credit
Cash	$27,396				$27,396
Accounts Receivable	0		13,652.50		13,652.50
Teaching Supplies	10,536			7,072	3,464
Prepaid Insurance	15,806			3,996	11,810
Prepaid Rent	2,108			2,108	0
Professional Library	31,610				31,610
Accumulated Depreciation, Professional Library		$9,484		7,993		$17,477
Equipment	73,751				73,751
Accumulated Depreciation, Equipment		16,861		15,986		32,847
Accounts Payable		37,522				37,522
Salaries Payable		0		200		200
Unearned Training Fees		12,000	4,800			7,200
Common Stock		13,000				13,000
Retained Earnings		54,016				54,016
Dividends	42,149				42,149
Tuition Fees Earned		107,477		13,652.50		121,129.50
Training Fees Earned		40,040		4,800		44,840
Depreciation Expense, Professional Library	0		7,993		7,993
Depreciation Expense, Equipment	0		15,986		15,986
Salaries Expense	50,579		200		50,779
Insurance Expense	0		3,996		3,996
Rent Expense	23,188		2,108		25,296
Teaching Supplies Expense	0		7,072		7,072
Advertising Expense	7,376				7,376
Utilities Expense	5,901				5,901
Totals	$290,400	$290,400	$55,807.50	$55,807.50	$328,231.50	$328,231.50

Preparing Financial Statements:-

WELLS TECHNICAL INSTITUTE

Income Statement

For the Year Ended December 31,2017

Accounts	Amount	Amount
Revenues:-
Tuition Fees Earned	$121,129.50
Training Fees Earned	44,840
Total Revenues		$165,969.50
Less:- Expenses
Depreciation Expense, Professional Library	$7993
Depreciation Expense, Equipment	15,986
Salaries Expense	50,779
Insurance Expense	3,996
Rent Expense	25,296
Teaching Supplies Expense	7,072
Advertising Expense	7,376
Utilities Expense	5,901
Total Expenses		$(124,399)
Net Income		$41,570.50

WELLS TECHNICAL INSTITUTE

Statement of Retained Earnings

For the Year Ended December 31,2017

Accounts	Amount
Retained Earnings	$54,016
Add:- Net Income	41,570.50
	$95,586.50
Less:- Dividends	(42,149)
Retained Earnings, December 31,2017	$53,437.5

WELLS TECHNICAL INSTITUTE

Balance Sheet

December 31,2017

Accounts	Amount	Amount
Assets:-
Cash	$27,396
Accounts Receivable	13,652.50
Teaching Supplies	3,464
Prepaid Insurance	11,810
Prepaid Rent	0
Professional Library	31,610
Less:- Accumulated Depreciation, Professional Library	(17,477)
Equipment	73,751
Less:- Accumulated Depreciation, Equipment	(32,847)
Total Assets		$111,359.50
Liabilities and Stockholders Equity:-
Liabilities:-
Accounts Payable	$37,522
Salaries Payable	200
Unearned Training Fees	7,200
Total Liabilities		$44,922
Stockholders Equity:-
Common Stock	$13,000
Retained Earnings, December 31, 2017	53,43750
Total Stockholders Equity		$66,437.50
Total Liabilities and Stockholders Equity		$111,359.50

Working Notes:-

2. Teaching Supplies Expense=(Teaching Supplies Available - Teaching Supplies at year end)

=($10,536-$3,464)

=$7,072

5. Training Fees received in advance for five months at the rate of $2,400 per month from which two months (November and December) Training Fees Earned of $4,800 ($2,400×2months) So that Unearned Training Fees Debited and Training Fees Earned Credited by $4,800.

6. Tuition Fees Earned but not received for two and half months (15 October to December 31) at the rate of $5,461 per month, so Tuition Fees Earned for Two and half month is $13,652.50 ($5,461×2.5 months) . Debited Accounts Receivable and Credited Tuition Fees Earned by $13,652.50.

7. Salaries accrued for two day at the rate of $100 per day,So Salaries Payable for Two days is $200.

8. Prepaid Rent Account represent rent for December, so $2,108 Debited as Rent Expense.

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