Question

In: Accounting

Prove your mastery! Your results will report to the gradebook. If you are not ready to...

Prove your mastery! Your results will report to the gradebook. If you are not ready to submit work for a grade, you can try activities again or attempt the Practice Mastery. Your work will be saved as you work through each part.

Read each scenario, decide whether the company is using Cash basis or Accrual basis, and then enter your answers to the questions.

The Orange Lily Law Firm prepays for advertising in the local newspaper. On January 1, the law firm paid $1,640 for six months of advertising. Orange Lily Law Firm recorded $1,640 in the Prepaid Advertising account.

Accrual basis or Cash basis

If Orange Lily Law Firm had recorded their expenses using the other method, how much advertising expense would they have recorded for the two months ending February 28? Enter this value as a positive number.

Safe Home provides house-sitting for people while they are away on vacation. Some of its customers pay immediately after the job is finished. Some customers ask that the business send them a bill. As of the end of the year, Safe Home has collected $2,780 from cash-paying customers. Safe Home’s remaining customers owe the business $3,870. Safe Home recorded $2,780 of service revenue for the year.

Accrual basis or Cash basis

If Safe Home had recorded their service revenue using the other method, how much service revenue would they have recorded for the year?

Marvelous Occasions received $1,510 for services to be performed for the next 10 months on July 31 and recorded this transaction using the Unearned Revenue account.

Accrual basis or Cash basis

If Marvelous Occasions had recorded their service revenue using the other method, how much service revenue would they have recorded for the year?

Sweet Catering completed the following selected transactions during May 2016:

  • May 5: Received and paid electricity bill, $90
  • May 9: Received cash for meals served to customers, $2,140
  • May 23: Served a banquet on account, $1,500
  • May 31: Accrued salary expense, $1,010
  • May 31: Recorded prepaid insurance expired, $260

If Sweet Catering had recorded transactions using the Cash method, how much net income (loss) would they have recorded for the month of May? If there is a loss, enter it with parentheses or a negative sign.

If Sweet Catering had recorded transactions using the Accrual method, how much net income (loss) would they have recorded for the month of May? If there is a loss, enter it with parentheses or a negative sign.

Identify whether each account would appear on the Balance Sheet or the Income Statement.

Unearned Revenue            -                           Balance Sheet                           Income Statement                     

Income Taxes Payable            -                           Balance Sheet                           Income Statement                     

Advertising Expense            -                           Balance Sheet                           Income Statement                     

Mortgages Payable            -                           Balance Sheet                           Income Statement                     

Copyright            -                           Balance Sheet                           Income Statement                     

Common Stock            -                           Balance Sheet                           Income Statement                     

Fill in the t-accounts for each situation and label each transaction as Deferrals/Prepaid, Accrual, or Depreciation. Use Unadj. Bal. as the label for the opening balance of each account. Calculate the adjusted balance and use a Bal. posting reference to show the ending balance of each account. Enter each transaction on the first available line in the T-Account.

Completed services that were paid for six months earlier, $2,220. The Service Revenue unadjusted balance as of December 31 is $9,300. The Unearned Revenue balance as of December 31 is $10,100.

Adjustment Type:  

AccrualDeferrals/PrepaidsDepreciation

Unearned Revenue

Nov. 1Nov. 15Dec. 1Dec. 31Unadj. Bal.

Nov. 1Nov. 15Dec. 1Dec. 31Unadj. Bal.

Nov. 1Nov. 15Dec. 1Dec. 31Unadj. Bal.

Nov. 1Nov. 15Dec. 1Dec. 31Unadj. Bal.

Bal.

Bal.

Service Revenue

Nov. 1Nov. 15Dec. 1Dec. 31Unadj. Bal.

Nov. 1Nov. 15Dec. 1Dec. 31Unadj. Bal.

Nov. 1Nov. 15Dec. 1Dec. 31Unadj. Bal.

Nov. 1Nov. 15Dec. 1Dec. 31Unadj. Bal.

Bal.

Bal.

Customers were billed for $3,300 for work completed. The Service Revenue unadjusted balance as of December 31 is $11,800.

Adjustment Type:  

AccrualDeferrals/PrepaidsDepreciation

Accounts Receivable

Nov. 1Nov. 15Dec. 1Dec. 31Unadj. Bal.

Nov. 1Nov. 15Dec. 1Dec. 31Unadj. Bal.

Nov. 1Nov. 15Dec. 1Dec. 31Unadj. Bal.

Nov. 1Nov. 15Dec. 1Dec. 31Unadj. Bal.

Bal.

Bal.

Service Revenue

Nov. 1Nov. 15Dec. 1Dec. 31Unadj. Bal.

Nov. 1Nov. 15Dec. 1Dec. 31Unadj. Bal.

Nov. 1Nov. 15Dec. 1Dec. 31Unadj. Bal.

Nov. 1Nov. 15Dec. 1Dec. 31Unadj. Bal.

Bal.

Bal.

Employees earned $3,790 in salaries that will be paid next month. The Salaries Expense unadjusted balance as of December 31 is $8,300.

Adjustment Type:  

AccrualDeferrals/PrepaidsDepreciation

Salaries Expense

Nov. 1Nov. 15Dec. 1Dec. 31Unadj. Bal.

Nov. 1Nov. 15Dec. 1Dec. 31Unadj. Bal.

Nov. 1Nov. 15Dec. 1Dec. 31Unadj. Bal.

Nov. 1Nov. 15Dec. 1Dec. 31Unadj. Bal.

Bal.

Bal.

Salaries Payable

Nov. 1Nov. 15Dec. 1Dec. 31Unadj. Bal.

Nov. 1Nov. 15Dec. 1Dec. 31Unadj. Bal.

Nov. 1Nov. 15Dec. 1Dec. 31Unadj. Bal.

Nov. 1Nov. 15Dec. 1Dec. 31Unadj. Bal.

Bal.

Bal.

A T is drawn. The vertical line divides the account into its left and right sides. The left side of the T-account is called the debit side and the right side is called the credit side. The account name is at the top, above the horizontal line.

Journalize the adjusting entry needed at December 31 for each situation. Record debits first, then credits. Check your spelling carefully and do not abbreviate. Use account names exactly as given in the Chart of Accounts.

Customers were billed for $700 for work completed.

Customers were billed for $700 for work completed.

Date

Accounts and Explanation

Debit

Credit

Nov. 1Nov. 30Dec. 1Dec. 31Jan. 1

Rent for the year was prepaid on January 1 in the amount of $1,320. Record the transaction for December's rent that has expired.

Rent for the year was prepaid on January 1 in the amount of $1,320. Record the transaction for December's rent that has expired.

Date

Accounts and Explanation

Debit

Credit

Nov. 1Nov. 30Dec. 1Dec. 31Jan. 1

Insurance for the next six months was paid on November 1st in the amount of $1,170. Record the journal entry for the two months of insurance expired at year-end.

Insurance for the next six months was paid on November 1st in the amount of $1,170. Record the journal entry for the two months of insurance expired at year-end.

Date

Accounts and Explanation

Debit

Credit

Nov. 1Nov. 30Dec. 1Dec. 31Jan. 1

Solutions

Expert Solution

1.The Orange Lily Law Firm prepays for advertising in the local newspaper. On January 1, the law firm paid $1,640 for six months of advertising. Orange Lily Law Firm recorded $1,640 in the Prepaid Advertising account.

If Orange Lily Law Firm had recorded their expenses using Cash Method the advertising expense would be $1640

As per accrual basis it would be (1640/6)*2=$546.67 in two months

2.Safe Home provides house-sitting for people while they are away on vacation. Some of its customers pay immediately after the job is finished. Some customers ask that the business send them a bill. As of the end of the year, Safe Home has collected $2,780 from cash-paying customers. Safe Home’s remaining customers owe the business $3,870. Safe Home recorded $2,780 of service revenue for the year.


If Safe Home had recorded their service revenue using accrual basis,( the other method), service revenue would be (2780+3870)=$6650

3.

Marvelous Occasions received $1,510 for services to be performed for the next 10 months on July 31 and recorded this transaction using the Unearned Revenue account.

If Marvelous Occasions had recorded their service revenue using cash basis service revenue for the year would be $1510.As per accrual basis , service revenue would be 1510*(6/12)=$755

4.

Sweet Catering completed the following selected transactions during May 2016:

· May 5: Received and paid electricity bill, $90

· May 9: Received cash for meals served to customers, $2,140

· May 23: Served a banquet on account, $1,500

· May 31: Accrued salary expense, $1,010

· May 31: Recorded prepaid insurance expired, $260


If Sweet Catering had recorded transactions using the Cash method, net income (loss) they would have recorded for the month of May:

REVENUE          $2140

Less: EXPENSE   $90

NET INCOME       $2050

If Sweet Catering had recorded transactions using the Accrual method,net income (loss) they would have recorded for the month of May:

If the Electricity bill is for prior months consumption:

REVENUE:      $3640 (2140+1500)

Less: SALARY: $1010

Less: INSURANCE: $260

NET INCOME:$2370

If the Electricity bill is for the month of May,

Net Income =2370-90=$2280

5. Identify whether each account would appear on the Balance Sheet or the Income Statement.

All Revenues and expenses would appear in Income Statement and All Assets and Liabilities and Stockholders Equity will appear in Balance sheet

Unearned Revenue            -                        Balance Sheet                                                

Income Taxes Payable            -                  Balance Sheet                                      

Advertising Expense            -                     Income Statement                     

Mortgages Payable            -                        Balance Sheet                                               

Copyright            -                                       Balance Sheet                                          

Common Stock            -                               Balance Sheet                       


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