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, 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.

An analysis of WTI's insurance policies shows that $4,129 of coverage has expired.

An inventory count shows that teaching supplies costing $3,578 are available at year-end 2017.

Annual depreciation on the equipment is $16,515.

Annual depreciation on the professional library is $8,258.

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 $2,700, 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.

On October 15, WTI agreed to teach a four-month class (beginning immediately) for an individual for $5,420 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.)

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.

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

1. Prepare the necessary adjusting journal entries for items a through h. Assume that adjusting entries are made only at year-end.

2-a. Post the balance from the unadjusted trial balance and the adjusting entries into the T-accounts.

2-b. Prepare an adjusted trial balance

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.

Answer 1

Hi,

Following will be adjusting journal entries required for given items.

1. Insurance coverage of $4,129 has expired.

Account Title	Dr/Cr	Debit Amount	Credit Amount
Insurance Expense	Dr	4,129
Prepaid Insurance	Cr		4,129

2. Teaching supplier of $3,578 are available at 2017 year end

Account Title	Dr/Cr	Debit Amount	Credit Amount
Inventory	Dr	3,578
Purchases	Cr		3,578

3. Annual depreciation on equipment is $16,515

Account Title	Dr/Cr	Debit Amount	Credit Amount
Depreciation on Equipment (Expense)	Dr	16,515
Equipment / Allowance for Depreciation	Cr		16,515

4. Annual depreciation on professional library is $8,258

Account Title	Dr/Cr	Debit Amount	Credit Amount
Depreciation on Professional Library (Expense)	Dr	8,258
Professional Library / Allowance for Depreciation	Cr		8,258

5. Adjustment of unearned training fees for 2 months i.e. November and December 2017 @ $2,700 per month

Account Title	Dr/Cr	Debit Amount	Credit Amount
Unearned Training Fees	Dr	5,400
Training Fees (Revenue)	Cr		5,400

6. Adjustment towards two and half month's tution fee. (i.e. one-half month for October 2017 and one month each for November and December 2017 @ $5,420 per month)

Account Title	Dr/Cr	Debit Amount	Credit Amount
Accounts Receivable / Tution Fee Receivable	Dr	13,550
Tution Fees (Revenue)	Cr		13,550

7. Accrued salary of 2 employees for 2 days @ $100 per day per employee

Account Title	Dr/Cr	Debit Amount	Credit Amount
Salary and Wages	Dr	400
Accounts Payable / Salary Payable	Cr		400

8. Rent for December 2017 lying in Prepaid Rent Account.

Account Title	Dr/Cr	Debit Amount	Credit Amount
Rent Expense	Dr	XXXX
Prepaid Rent	Cr		XXXX
(Unadjusted Trial Balance is not given. Amount of Dr/Cr effect will be equal to balace of
Prepaid Rent account in Unadjusted Trial Balance)