Question

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, 2015, 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, 2015, follow

Required -Highlights may require your input if $0 place a $0 if no value leave as is

1. Problem 3-3B Set up a 6 column worksheet as depicted below and input the trial balance amounts- this is not the same as the book

Wells Technical Institute (WTI)

Unadjusted trail balance

December 31 , 2015

Entries a-h

Trial Balance

Adjustment Letter

Adjusments

Adjusted Trial balance

Debit

Credit

Debit

Credit

Debit

Credit

Cash

$34,000

AR

$0

Teaching supplies

$8,000

Prepaid insurance

$12,000

Prepaid rent

$3,000

Professional library

$35,000

Accum depr-Library

$10,000

Equipment

$80,000

Accum depr-Equipment

$15,000

AP

$26,000

Salaries Payable

$0

Unearned Revenue

$12,500

C Alonzo Capital

$90,000

C Alonzo Withdrawals

$50,000

Tuition fees earned

$123,900

Training fees earned

$40,000

Depreciation exp- Library

$0

Depreciation exp- Equipment

$0

Salaries Expense

$50,000

Insurance expense

$0

Rent expense

$33,000

Teaching Supplies expense

$0

Advertisng expense

$6,000

Utilities expense

$6,400

Totals

$317,400

$317,400

2. Prepare the necessary adjusting journal entries for items a through h, and post them to the work sheet. Assume that adjusting entries are made only at year-end.

a. An analysis of the WTI's insurance policies shows that $2,400 of coverage has expired.

Entry #

Account Titles & explanationas

Debits

Credits

a

b. An inventory count shows that teaching supplies costing $2,800 are available at year-end 2015.

Entry #

Account Titles & explanationas

Debits

Credits

b

c. Annual depreciation on the equipment is $13,200

Entry #

Account Titles & explanationas

Debits

Credits

c

d. Annual depreciation on the professional library is $7,200

Entry #

Account Titles & explanationas

Debits

Credits

d

e. 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 2016

Entry #

Account Titles & explanationas

Debits

Credits

e

f. 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 pay- ment has yet been received. (WTI’s accruals are applied to the nearest half-month; for example, October recognizes one-half month accrual.

Entry #

Account Titles & explanationas

Debits

Credits

f

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.

Entry #

Account Titles & explanationas

Debits

Credits

g

h. The balance in the Prepaid Rent account represents rent for December.

Entry #

Account Titles & explanationas

Debits

Credits

h

3- Update balances in the worksheet and prepare an adjusted trial balance

Wells Technical Institute (WTI)

Adjusted trail balance

December 31 , 2015

Entries a-h

Trial Balance

Adjustment Letter

Adjusments

Adjusted Trial balance

Debit

Credit

Debit

Credit

Debit

Credit

Cash

$34,000

$0

$0

AR

$0

$0

$0

Teaching supplies

$8,000

$0

$0

Prepaid insurance

$12,000

$0

$0

Prepaid rent

$3,000

$0

$0

Professional library

$35,000

$0

$0

Accum depr-Library

$10,000

$0

$0

Equipment

$80,000

$0

$0

Accum depr-Equipment

$15,000

$0

$0

AP

$26,000

$0

$0

Salaries Payable

$0

$0

$0

Unearned Revenue

$12,500

$0

$0

C Alonzo Capital

$90,000

$0

$0

C Alonzo Withdrawals

$50,000

$0

$0

Tuition fees earned

$123,900

$0

$0

Training fees earned

$40,000

$0

$0

Depreciation exp- Library

$0

$0

$0

Depreciation exp- Equipment

$0

$0

$0

Salaries Expense

$50,000

$0

$0

Insurance expense

$0

$0

$0

Rent expense

$33,000

$0

$0

Teaching Supplies expense

$0

$0

$0

Advertisng expense

$6,000

$0

$0

Utilities expense

$6,400

$0

$0

Totals

$317,400

$317,400

$0

$0

$0

$0

Prepare the company’s income statement and statement of owner’s equity for the year 2015, and prepare its balance sheet as of December 31, 2015.

Wells Technical Institute (WTI)

Income Statement

For Year Ended December 31, 2015

Revenue

Tuition fees earned

Training fees earned

Total Revenue

Expenses

Depreciation exp- Library

Depreciation exp- Equipment

Salaries Expense

Insurance expense

Rent expense

Teaching Supplies expense

Advertisng expense

Utilities expense

Total Expenses

Net Income

Wells Technical Institute (WTI)

Statement of Owners Equity

For Year Ended December 31, 2015

WTI, Capital, December 31, 2014

Plus: Net income

Less: Withdrawals

WTI, Capital, December 31, 2015

Wells Technical Institute (WTI)

Balance Sheet

December 31, 2015

Assets

Cash

Accounts receivable

Teaching supplies

Prepaid insurance

Professional library

Accumulated depreciation—Professional library

Equipment

Accumulated depreciation—Equipment

Total assets

Liabilities

Accounts payable

Salaries payable

Unearned Revenue

Total liabilities

Equity

C. Alonzo, Capital

Total liabilities and equity

Answer 1

2. Necessary adjusting entries

a. An analysis of the WTI's insurance policies shows that $2,400 of coverage has expired.

Entry	Account Titles & explanations	Debits	Credits
a	Insurance Expense	2,400
	Prepaid Insurance		2,400

b. An inventory count shows that teaching supplies costing $2,800 are available at year-end 2015.

Entry	Account Titles & explanations	Debits	Credits
b	Teaching Supplies expense	5,500
	Teaching supplies		5,500

Teaching expenses = Pre-closing balance – Closing Balance = (8,000 – 2,500) = $5,500

c. Annual depreciation on the equipment is $13,200

Entry	Account Titles & explanations	Debits	Credits
C	Depreciation exp- Equipment	13,200
	Accum depr- Equipment		13,200

d. Annual depreciation on the professional library is $7,200

Entry	Account Titles & explanations	Debits	Credits
d	Depreciation exp- Library	7,200
	Accum depr- Library		7,200

e. 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 2016.

Entry	Account Titles & explanations	Debits	Credits
e	Unearned Revenue	5,000
	Training fees earned		5,000

Fees for the month of Nov and Dec is recognized at $ 2,500 per month

f. 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 pay- ment has yet been received. (WTI’s accruals are applied to the nearest half-month; for example, October recognizes one-half month accrual.

Total fees earned in October = $3,000 * ½ (for half months) = $1,500

Fees for Nov and Dec =3,000*2 = $6,000

Total Fees earned but not received =6,000+1,500 = $7,500

Entry	Account Titles & explanations	Debits	Credits
f	AR (Accounts receivable)	7,500
	Tuition fees earned		7,500

g. 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.

Entry	Account Titles & explanations	Debits	Credits
g	Salaries expense	400
	Salaries payable		400

2 employee*100 per day* 2 days

h. The balance in the Prepaid Rent account represents rent for December.

Entry	Account Titles & explanations	Debits	Credits
H	Rent expense	3,000
	Prepaid rent		3,000

3. Update balances in the worksheet and prepare an adjusted trial balance
Wells Technical Institute (WTI) Adjusted trail balance December 31, 2015