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Week Two Exercise Assignment - Revenue and Expenses




Question;Week Two Exercise Assignment;Revenue and Expenses;1. Recognition of concepts.;Jim Armstrong operates a small company that books enter?tainers for theaters;parties, conventions, and so forth. The company?s fiscal year ends on June 30.;Consider the following items and classify each as either (1) pre?paid expense;(2) unearned revenue, (3) accrued expense, (4) accrued revenue, or (5) none of;the foregoing.;a Interest owed on the company's;bank loan, to be paid in early July;b Professional fees earned but not;billed as of June 30;c Office supplies on hand at;year-end;d An advance payment from a client;for a performance next month at a convention;e The payment in part (d) from the;client's point of view;f Amounts paid on June 30 for a;1-year insurance policy;g The bank loan payable in part (a);h Repairs to the firm's copy machine;incurred and paid in June;2. Understanding the closing process. Examine the;following list of accounts;Note Payable;Accumulated Depreciation: Building;Alex Kenzy, Drawing;Accounts Payable;Product Revenue;Cash;Accounts Receivable;Supplies Expense;Utility Expense;Which of the preceding;accounts;a. appear on a post-closing trial;balance?;b. are commonly known as temporary;or nominal, accounts?;c. generate a debit to Income Summary;in the closing process?;d. are closed to;the capital account in the closing process?;3. Adjusting entries and;financial statements. The following information pertains to Sally;Corporation;?;The company previously collected $1,500 as an;advance payment for services to be rendered in the future. By the end of;December, one half of this amount had been earned.;?;Sally Corporation provided $1,500 of services to;Artech Corporation, no billing had been made by December 31.;?;Salaries owed to employees at year-end amounted;to $1,000.;?;The Supplies account revealed a balance of;$8,800, yet only $3,300 of supplies were actually on hand at the end of the;period.;?;The company paid $18,000 on October 1 of the;current year to Vantage Property Management. The payment was for 6 months? rent;of Sally Corporation?s headquarters, beginning on November 1.;Sally Corporation?s accounting year ends on December 31.;Instructions;Analyze the;five preceding cases individually and determine the following;a. The typeof;adjusting entry needed at year-end (Use the following codes: A, adjust?ment of;a prepaid expense, B, adjustment of an unearned revenue, C, adjustment to;record an accrued expense, or D, adjustment to record an accrued revenue.);b. The year-end;journal entry to adjust the accounts;c. The income;statement impact of each adjustment (e.g., increases total revenues by $500);4. Adjusting entries. You;have been retained to examine the records of Mary?s Day Care Center as of;December 31, 20X3, the close of the current reporting period. In the course of;your examination, you discover the following;?;On January 1, 20X3, the Supplies account had a;balance of $1,350. During the year, $5,520 worth of supplies was purchased, and;a balance of $1,620 remained unused on December 31.;?;Unrecorded interest owed to the center totaled;$275 as of December 31.;?;All clients pay tuition in advance, and their;payments are credited to the Unearned Tuition Revenue account. The account was;credited for $65,500 on August 31. With the exception of $15,500 all amounts;were for the current semester ending on December 31.;?;Depreciation on the school?s van was $3,000 for;the year.;?;On August 1, the center began to pay rent in;6-month installments of $24,000. Mary wrote a check to the owner of the;building and recorded the check in Pre?paid Rent, a new account.;?;Two salaried employees earn $400 each for a;5-day week. The employees are paid every Friday, and December 31 falls on a;Thursday.;?;Mary?s Day Care paid insurance premiums as;follows, each time debiting Pre?paid Insurance;Date;Paid;Policy;No.;Length;of Policy;Amount;Feb. 1;20X2;1033MCM19;1 year;$540;Jan. 1;20X3;7952789HP;1 year;912;Aug. 1;20X3;XQ943675ST;2 years;840;Instructions;The center?s accounts were last;adjusted on December 31, 20X2.;Prepare the adjusting entries necessary under the accrual basis of accounting.;5. Bank reconciliation and;entries. The following information was taken from the accounting records of;Palmetto Company for the month of January;Balance per bank;$6,150;Balance per company records;3,580;Bank service charge for January;20;Deposits in transit;940;Interest on note collected by bank;100;Note collected by bank;1,000;NSF check returned by the bank with the bank statement;650;Outstanding checks;3,080;Instructions;a.;Prepare Palmetto?s January bank reconciliation.;b.;Prepare any necessary journal entries for Palmetto.;6. Direct write-off method.;Harrisburg Company, which began business in early 20X7, reported $40,000 of;accounts receivable on the December 31, 20X7, balance sheet. Included in this;amount was $550 for a sale made to Tom;Mattingly in July. On January 4, 20X8, the company learned that Mattingly had;filed for personal bankruptcy. Harrisburg uses the direct write-off method to;account for uncollectibles.;a. Prepare the journal entry needed;to write off Mattingly?s account.;b. Comment on the ability of the direct write-off method to value;receivables on the year-end balance sheet.;7. Allowance method: analysis of;receivables. At a January 20X2 meeting, the presi?dent of Sonic Sound;directed the sales staff ?to move some product this year.? The president noted;that the credit evaluation department was being disbanded be?cause it had;restricted the company?s growth. Credit decisions would now be made by the;sales staff.;By the end of the year, Sonic had;generated significant gains in sales, and the president was very pleased. The;following data were provided by the accounting department;20X2;20X1;Sales;$23,987,000;$8,423,000;Accounts Receivable, 12/31;12,444,000;1,056,000;Allowance for Uncollectible Accounts, 12/31;?;23,000 cr.;The $12,444,000 receivables balance was aged as follows;Age of Receivable;Amount;Percentage of Accounts Expected to Be Collected;Under 31 days;$4,321,000;99%;31260 days;4,890,000;90;61290 days;1,067,000;80;Over 90 days;2,166,000;60;Assume;that no accounts were written off during 20X2.;Instructions;a. Estimate;the amount of Uncollectible Accounts as of December 31, 20X2.;b. What is;the company?s Uncollectible Accounts expense for 20X2?;c. Compute;the net realizable value of Accounts Receivable at the end of 20X1 and 20X2.;d. Compute the net realizable value at;the end of 20X1 and 20X2 as a percentage of respective year-end receivables;balances. Analyze your findings and comment on the president?s decision to;close the credit evaluation department.


Paper#45123 | Written in 18-Jul-2015

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