Question

Use the following to answer the next six questions

MADONNA, INC.

Unadjusted Trial Balance

December 31, 2012

DR CR

Cash $ 51,000   

Equipment 38,000   

Retained Earnings $ 4,000

Accounts Payable 6,000

Unearned Fee Revenue 8,000

Accumulated Depreciation-Equipment 1,800

Accounts Receivable 1,500   

Supplies 950   

Salaries Expense 6,700   

Common StockInsurance Expense 500 61,050

Fee RevenueRent Expense 4,200 30,000

Notes Receivable 8,000   

$ 110,850 $ 110,850

1. On July 1, 2012, Madonna paid the landlord $4,200 for 10 months rent in advance. The adjusting entry at December 31, 2012 would include:

A. debit to Prepaid Rent for $2,520

B. credit to Rent Expense for $1,680

C. credit to Rent Expense for $2,520

D. debit to Rent Expense for $2,520

E. none of the above

2. On October 1, 2012, Madonna received $8,000 in advance for fees to be earned evenly over five months beginning on that date. The required adjusting journal entry at December 31, 2012 would include a:

A. debit to Fee Revenue for $3,200

B. credit to Unearned Fee Revenue for $4,800

C. credit to Fee Revenue for $3,200

D. credit to Fee Revenue for $4,800

E. none of the above

3. The Notes Receivable represent a loan given to a supplier for $8,000 on December 1, 2012. The loan carries a 12 percent interest rate and has a term of 180 days. The adjusting entry on December 31, 2012 will include:

A. A debit to Interest Expense for $80

B. A debit to Interest Receivable for $80

C. A credit to Interest Payable for $480

D. A debit to Notes Receivable for $480

E. none of the above

4. At December 31, 2012 there was $320 of supplies on hand. The adjusting entry would include a:

A. credit to Supplies Expense of $630

B. debit to Supplies of $320

C. debit to Supplies Expense of $630

D. debit to Supplies Expense of $320

E. None of the above

5. The Equipment was purchased on July 1, 2011. It has a useful life of ten years and an estimated salvage value of $2,000. The adjusting entry at December 31, 2012 would include a:

A. credit to Equipment for $3,600

B. debit to Depreciation Expense –Equipment for $3,800

C. credit to Accumulated Depreciation –Equipment for $3,600

D. debit to Depreciation Expense –Equipment for 5,400

E. none of the above

6. Refer to the previous question. The book value of the Equipment on the December 31, 2012 balance sheet (after adjusting depreciation expense for 2012) is:

A. $ 36,000

B. $ 32,600

C. $ 32,400

D. $ 30,600

E. none of the above

7. The accountant for the Mobe Company made an adjusting entry to record depreciation for the current year twice by mistake. The effect of this error would be:

A. An overstatement of assets offset by an understatement of owner’s equity.

B. An understatement of assets, net income, and owner’s equity.

C. An overstatement of assets and of net income, and an understatement of owner’s equity.

D. An overstatement of net income and an understatement of assets.

E. None of the above.

8. The Sweeney Theater offered books of theater tickets to its patrons at $30 per book. Each book contained a certain number of tickets to future performances. During the current period 1,000 books were sold for $30,000, and this amount was credited to a temporary account. At the end of the period it was determined that $17,000 worth of book tickets had been used by customers attending performances. The appropriate adjusting entry at the end of the period would be:

A. Debit Ticket Revenue $17,000 and credit Unearned Ticket Revenue $17,000.

B. Debit Unearned Ticket Revenue $13,000 and credit Ticket Revenue $13,000.

C. Debit Unearned Ticket Revenue $17,000 and credit Ticket Revenue $17,000.

D. Debit Ticket Revenue $13,000 and credit Unearned Ticket Revenue $13,000.

E. None of the above.

Answer 1

Solution 1:

On July 1, 2012, Madonna paid the landlord $4,200 for 10 months rent in advance. The adjusting entry at December 31, 2012 would include, "credit to Rent Expense for $1,680" ($4,200*4/10)

Hence option B is correct.

Solution 2:

On October 1, 2012, Madonna received $8,000 in advance for fees to be earned evenly over five months beginning on that date. The required adjusting journal entry at December 31, 2012 would include a "credit to Fee Revenue for $4,800" ($8,000*3/5)

Hence option D is correct.

Solution 3:

The Notes Receivable represent a loan given to a supplier for $8,000 on December 1, 2012. The loan carries a 12 percent interest rate and has a term of 180 days. The adjusting entry on December 31, 2012 will include "A debit to Interest Receivable for $80" ($8,000*12%*1/12)

Hence option B is correct.

Solution 4:

At December 31, 2012 there was $320 of supplies on hand. The adjusting entry would include a "debit to Supplies Expense of $630" ($950 - $320)

Hence option c is correct.

Solution 5:

Depreciation expense for the year = ($38,000 - $2,000) / 10 = $3,600

The Equipment was purchased on July 1, 2011. It has a useful life of ten years and an estimated salvage value of $2,000. The adjusting entry at December 31, 2012 would include a "credit to Accumulated Depreciation –Equipment for $3,600"

Hence option C is correct.

Solution 6:

book value of the Equipment on the December 31, 2012 balance sheet (after adjusting depreciation expense for 2012) is = $38,000 - ($3,600 + $1,800) = $32,600

Hence option B is correct.

Solution 7:

The accountant for the Mobe Company made an adjusting entry to record depreciation for the current year twice by mistake. The effect of this error would be "An understatement of assets, net income, and owner’s equity."

Hence option B is correct.

Solution 8:

he appropriate adjusting entry at the end of the period would be "Debit Unearned Ticket Revenue $17,000 and credit Ticket Revenue $17,000."

Hence option C is correct.