Question

PART A: Cantonio Corporation adjusts its accounts only at year-end. The following information is available as a source for preparing adjusting entries at December 31, 2017.

1. On August 31, 2017, Cantonio paid $10,200 for a two-year insurance policy and Cantonio recognized the entire amount as a debit to prepaid insurance.

2. On September 1, 2017, Cantonio sold 120 one-year subscriptions for their monthly publication at $100 each, with the subscriptions starting September 1. The total amount received was credited to Unearned Subscription Revenue.

3. The Supplies Inventory account had a $6,000 balance at the beginning of the year (January 1, 2017). During the year, $3,500 of supplies were acquired, with the Supplies Expense account debited at the time of purchase. The supplies count at the end of the year (December 31, 2017) showed $7,000 of supplies still on hand.

4. The company failed to recognize $1,500 in rent owed to them by another company that rents a part of Cantonio’s building.

Required:

A. For each of the above numbered items, prepare the necessary adjusting journal entry. If no adjusting entry is required, explain why. Put the adjusting journal entries in the worksheet tab titled “Part A, Question A.”

B. If Cantonio failed to prepare necessary adjusting entries like you did in Question A, indicate the effect that each item will have on the company’s financial statements for the year ended December 31, 2017. Use O for overstated, U for understated, and NE for no effect. Organize your answer in tabular form, using the column headings shown below and provided in the worksheet titled “Part A, Question B.”

Example 0: At year end, employees earned $4,000 in wages which will be paid on the next payroll date in January 2017. The adjusting journal entry will be:

   Compensation Expense (+E, -NI, -R/E, -SE)       4,000

       Salaries Payable (+L)                   4,000

	Income Statement				Balance Sheet
Adjusting entry	Revenue -	Expense	= Net Income		Assets =	Liabilities +	Stockholders’ Equity
Example 0	NE	U	O		NE	U	O

PART B: During 2017, the Buckeye Corporation added a new product line to its production and sales. Buckeye’s Balance Sheet and Income Statement are provided in the “Homework #4 Student Workbook” in the worksheet titled “Part B Financials.”

Required:

Calculate the following ratios for both 2017 and 2016. Do not retype the amounts used in the ratios (instead refer to the appropriate cells from the provided balance sheet and income statement). Round your answers to 3 decimal places. In 2-3 sentences each, discuss your interpretation of the change in each ratio across the two years, in light of the product line improvement. Put your answers in the worksheet titled “Part B Answer.” Use a textbox for your discussion of the ratios.

Debt to Asset Ratio (Total Liabilities/Total Assets)

Total Asset Turnover (Net Sales/Average Total Assets)

Net Profit Margin (Net Income/Net Sales)

Return on Assets (ROA)

Total assets were $960,000 on December 31, 2015.

Answer 1

PART A:

A.

Cantonio Coporation
Adjusting journal entries
for the year ended December 31,2017
Date	Account Title	Debit	Credit
Dec.31,2017	Insurance Expense	1700
	Prepaid Insurance		1700
	(Insurance expired from Sept.1 to Dec.31)
	Unearned Subsrciption Revenue	4000
	Subscription Revenue		4000
	(Subscription revenue earned in four moths fromSept.1 to Dec.31)
	Supplies Inventory	3500
	Supplies Expense		3500
	(Correction of entry for purchase of supplies inventory)
	Supplies Expense	2500
	Supplies Inventory		2500
	(Supplies used during the year recorded - 6,000+3,500-7,000)
	Rent receivable	1500
	Rent Revenue		1500
	(Accrued rent due from a company which rentedpremises)

B.

Adjusting Entry	Income Statement						Balance Sheet
	Revenue	-	Expenses	=	Net Income		Assets	=	Liabilities	+	Stockholders' Equity
1			U		O		O				O
2	U				U				O		U
3			O		U		U				U
4	U				U		U				U