Chapter 4 Adjustments Financial Statements and the Quality of Earnings 1 2 In each of the following transactions a through c for Romney s Marketing Company use the three step process illustrated in the chapter to record the adjusting entry at year end December 31 2015 The process includes 1 determining if revenue was earned or an expense incurred 2 determining whether cash was received or paid in the past or will be received or paid in the future and 3 computing the amount of the adjustment If no entry is required for a transaction event select No journal entry required in the first account field Indicate the amounts and direction of effects of the adjusting entry on the elements of the balance sheet and income statement Indicate for increase for decrease a Collected 1 200 rent for the period December 1 2015 to April 1 2016 which was credited to Unearned Rent Revenue on December 1 2015 Dec 1 Description Debit Credit Dec 31 Description Debit Credit Assets Balance Sheet Liabilities Revenues Income Statement Expenses Net income Stockholder s Equity b Purchased a machine for 32 000 cash on January 1 2011 The company estimates annual depreciation at 3 200 Dec 1 Description Debit Credit Dec 31 2015 Description Debit Credit Assets Balance Sheet Liabilities Revenues Income Statement Expenses Net income Stockholder s Equity c Paid 5 000 for a two year insurance premium on July 1 2015 debited Prepaid Insurance for that amount Dec 1 Description Debit Credit Dec 31 Description Debit Credit Assets Balance Sheet Liabilities Revenues Income Statement Expenses Net income Stockholder s Equity 3 5 1 Identify each of the following transactions as a deferred revenue deferred expense accrued revenue or accrued expense 2 Prepare the adjusting entries that should be recorded for Dittman s Variety Store at December 31 2014 a Wages earned by employees during December 2014 unpaid and unrecorded at December 31 2014 amounted to 2 700 The last payroll was December 28 the next payroll will be January 6 2015 Dec 31 Description Debit Credit Assets Balance Sheet Liabilities Revenues Income Statement Expenses Net income Stockholder s Equity b Office supplies on hand at January 1 2014 totaled 450 Office supplies purchased and debited to Office Supplies during the year amounted to 500 The year end count showed 275 of supplies on hand Dec 31 Description Debit Credit Assets Balance Sheet Liabilities Revenues Income Statement Expenses Net income Stockholder s Equity c One fourth of the basement space is rented to Heald s Specialty Shop for 560 per month payable monthly On December 31 2014 the rent for November and December 2014 had not been collected or recorded Collection is expected January 10 2015 Dec 31 Description Debit Credit Assets Balance Sheet Liabilities Revenues Income Statement Expenses Net income Stockholder s Equity d The store used delivery equipment that cost 60 500 12 100 was the estimated depreciation for 2014 Dec 31 Description Debit Credit Assets Balance Sheet Liabilities Revenues Income Statement Expenses Net income Stockholder s Equity e On July 1 2014 a two year insurance premium amounting to 2 400 was paid in cash and debited in full to Prepaid Insurance Coverage began on July 1 2014 Dec 31 Description Debit Credit Assets Balance Sheet Liabilities Revenues Income Statement Expenses Net income Stockholder s Equity f The remaining basement of the store is rented for 1 600 per month to another merchant M Carlos Inc Carlos sells compatible but not competitive merchandise On November 1 2014 the store collected six months rent in the amount of 9 600 in advance from Carlos it was credited in full to Unearned Rent Revenue when collected Dec 31 Description Debit Credit Assets Balance Sheet Liabilities Revenues Income Statement Expenses Net income Stockholder s Equity g Dittman s Variety Store operates a repair shop to meet its own needs The shop also does repairs for M Carlos At the end of December 31 2014 Carlos had not paid 800 for completed repairs This amount has not yet been recorded as Repair Shop Revenue Collection is expected during January 2015 Dec 31 Description Debit Credit Assets Balance Sheet Liabilities Revenues Income Statement Expenses Net income Stockholder s Equity 6 Tunstall Inc a small service company keeps its records without the help of an accountant After much effort an outside accountant prepared the following unadjusted trial balance as of the end of the annual accounting period December 31 2014 a The supplies count on December 31 2014 reflected 300 remaining supplies on hand to be used in 2015 Description Debit Credit b Insurance expired during 2014 800 Description Debit Credit c Depreciation expense for 2014 3 700 Description Debit Credit d Wages earned by employees not yet paid on December 31 2014 640 Credit Description Debit e Income tax expense 5 540 Description Debit Credit 7 Prepare an income statement that include the effects of the preceding five transactions Round Earnings per share to 2 decimal places Tunstall INC Income Statement For the year ended December 31 2014 Net income Earnings per share 8 Prepare a classified balance sheet that include the effects of the preceding five transactions Amounts to be deducted should be indicated by a minus sign Dell inc Balance Sheet As of February 1 2013 Assets Liabilities Stockholders Equity 8 Record the 2014 closing entry If no entry is required for a transaction event select No journal entry required in the first account field General Journal Credit Debit Debit 1 200 Debit 300 Debit 32 000 Credit 1 200 Credit 300 300 Credit 32 000 Chapter 4 Adjustments Financial Statements and the Quality of Earnings 1 2 In each of the following transactions a through c for Romney s Marketing Company use the three step process illustrated in the chapter to record the adjusting entry at year end December 31 2015 The process includes 1 determining if revenue was earned or an expense incurred 2 determining whether cash was received or paid in the past or will be received or paid in the future and 3 computing the amount of the adjustment If no entry is required for a transaction event select No journal entry required in the first account field Indicate the amounts and direction of effects of the adjusting entry on the elements of the balance sheet and income statement Indicate for increase for decrease a Collected 1 200 rent for the period December 1 2015 to April 1 2016 which was credited to Unearned Rent Revenue on December 1 2015 Dec 1 Dec 31
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