Question

In: Accounting

TRUE OR FALSE One of the adjusting entries that entity B has made at year end...

TRUE OR FALSE One of the adjusting entries that entity B has made at year end involved a debit to an income amount and a credit to a liability (unearned income) account. Entity A must have used the income method or initial recording of advances collections of items of income.

SPLITTING OF MIXED AMOUNTS

1. On May 1, 20x1, Entity B received one-year advanced rent of 480,000 from one of its tenants. The advanced rent covers the months of May 1, 20x1 to April 20, 20x2. Requirements:

a. Provide the journal entry to record the collection on May 1, 20x1 under each of the following methods:

i. Liability method ii. Income method b. Provide the adjusting netries on Dec 31, 20x1 under each of the method listed above.

2. On August 1, 20x1 Entity C paid one year insurance of 360,000.

Requirements

a. Provide the journal entry to record the prepayment on August 1, 20x1 under each of the following methods.

i. Asset method ii. Expense method PREPARE FOR ADJUSTING ENTRIES

1. Your business has total accounts receivable of 400,000 as of December 31, 20x1. Of that amount, 5% is doubtful of collection and should be expensed. What is the adjusting entry on December 31, 20x1?

2. Your business acquired a building on May 1, 20x1 for a total of 15,000,000. The building has an estimated useful life of 20 years. Your business records depreciation only at year-end. What is the adjusting entry on Dec. 31, 20x1?

3. Your business collected royalty income of 720,000 in advance on November 1, 20x1. As of December 31, 20x1, 560,000 of the advanced collection is earned.

Requirements:

a. Provide the journal entry to record the collection on Nov. 1, 20x1 under each of the following methods.

i. Liability method ii. Income method b. provide the adjusting entries on December 31, 20x1 under each of the methods listed above.

4. Your business has accounts receivable of 300,000. You estimated that out of that amount, 10% is doubtful of collection and needs to be charged to expense. What is the adjusting entry to record the doubtful accounts?

5. Your business is renting out properties. On June 1, 20x1, your business receives one-year advanced rent of 360,000 from one of your tenants. The advanced rent covers the months of June 1, 20x1 to May 31, 20x2.

Requirements:

a. provide the journal entry to record the collection on June 1, 20x1 under each of the following methods.

i. liability method ii. income method

b. Provide the adjusting entries on December 31, 20x1 under each of the methods listed above.

8. Your business pays one-year insurance of 360,000 on September 1, 20x1.

Requirements:

a. Provide the journal entry to record the prepayment on September 1, 2x1 under each of the follwong methods:

i. asset method ii. expense method b. provide the adjusting entries on december 31, 20x1 under each of the methods listed above.

Solutions

Expert Solution

1) Record of Journal Entry for Entity B For Rental Income

As per Liablity method

Date Entries Debit Credit
01.05.20XX Cash 480000
to Advance Rent Received 480000
31.12.20XX Advance Rent Received 320000
to Rent Income 320000

As per Income Method

Date Entries Debit Credit
01.05.20XX Cash 480000
to Advance Rent Received 480000
31.12.20XX Advance Rent Received 320000
to Rent Income 320000

2) Record of Journal Entry for Entity C for Insurance Expense

Asset Method

Date Entries Debit Credit
01.08.20XX Prepaid Insurance Expense 360000
to cash 360000
31.12.20XX Insurance Expense 150000
to Prepaid Insurance 150000

Expense Method

Date Entries Debit Credit
01.08.20XX Insurance Expense 360000
to Cash 360000
31.12.20XX Prepaid Insurance Expense 210000
to Insurance Expense 210000

3)Journal entry for Doubt ful Debt at the year end(i.e., on 31.12.20XX)

Date Entries Debit Credit
31.12.20XX Bad Debts (400000*5%) 20000
to Accounts Receivable 20000

4)Journal Entry for Depreciation at the year end(i.e., on 31.12.20XX)

Date Entries Debit Credit
31.12.20XX Depreciation(15000000/20) 750000
to Asset 750000

5) Record of Journal Entry for Royalty Income

As per Liablity method

Date Entries Debit Credit
01.11.20XX Cash 720000
to Advance Rent Received 720000
31.12.20XX Advance Rent Received 560000
to Rent Income 560000

As per Income Method

Date Entries Debit Credit
01.11.20XX Cash 720000
to Advance Rent Received 720000
31.12.20XX Advance Rent Received 160000
to Rent Income 160000

6)Journal entry for Doubt ful Debt at the year end(i.e., on 31.12.20XX)

Date Entries Debit Credit
31.12.20XX Bad Debts (300000*10%) 30000
to Accounts Receivable 30000

7) Record of Journal Entry For Rental Income

As per Liablity method

Date Entries Debit Credit
01.06.20XX Cash 360000
to Advance Rent Received 360000
31.12.20XX Advance Rent Received 210000
to Rent Income 210000

As per Income Method

Date Entries Debit Credit
01.06.20XX Cash 360000
to Advance Rent Received 360000
31.12.20XX Advance Rent Received 150000
to Rent Income 150000

8) Record of Journal Entry for Insurance Expense

Asset Method

Date Entries Debit Credit
01.09.20XX Prepaid Insurance Expense 360000
to cash 360000
31.12.20XX Insurance Expense 120000
to Prepaid Insurance 120000

Expense Method

Date Entries Debit Credit
01.09.20XX Insurance Expense 360000
to Cash 360000
31.12.20XX Prepaid Insurance Expense 240000
to Insurance Expense 240000

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