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Chapter 3: 32E_3 (page 169)

Question :At the beginning of the year, Modish Advertising owed customers \(2,100 for unearned revenue collected in advance. During the year, Modish received advance cash receipts of \)6,100 and earned \(20,000 of service revenue (exclusive of any amount earned from advance payments). At year-end, the liability for unearned revenue is \)3,100 and unadjusted service revenue is $20,000. Requirements 1. Record the adjusting entry assuming that Modish records the cash receipt of unearned revenue by initially crediting a liability account. Post the adjusting entry to the Unearned Revenue and Service Revenue T-accounts. Make sure to include the beginning balance and additional unearned revenue in the Unearned Revenue T-account. 2. Record the adjusting entry assuming that Modish records the cash receipt of unearned revenue by initially crediting a revenue account. Post the adjusting entry to the Unearned Revenue and Service Revenue T-accounts. Make sure to include the beginning balance in the Unearned Revenue T-account and the additional unearned revenue in the Service Revenue T-account. 3. Compare the ending balances of the T-accounts under both approaches. Are they the same?

Short Answer

Expert verified

Under both the method balances are same.

Step by step solution

01

Step-by-Step-SolutionStep 1: Explanation on Adjusting Entries

Adjustingn entries are recorded to record accrued revenues and expenses for the period. Also it is recorded to make adjustments in the accounts, in case wrong account is debited or credited.

02

Explanation on Both Method

In method 1, ending balance of service revenue equals $25,100 and unearned revenue balance equals $3,100, which is same as compared to method 2.

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Most popular questions from this chapter

Question :The accounting records of Mackay Architects include the following selected, unadjusted balances at March 31: Accounts Receivable, \(1,500; Office Supplies, \)700; Prepaid Rent, \(2,240; Equipment, \)8,000; Accumulated Depreciation—Equipment, \(0; Salaries Payable, \)0; Unearned Revenue, \(900; Service Revenue, \)4,100; Salaries Expense, \(800; Supplies Expense, \)0; Rent Expense, \(0; Depreciation Expense—Equipment, \)0. The data developed for the March 31 adjusting entries are as follows: a. Service revenue accrued, \(700. b. Unearned revenue that has been earned, \)100. c. Office Supplies on hand, \(300. d. Salaries owed to employees, \)200. e. One month of prepaid rent has expired, \(560. f. Depreciation on equipment, \)120. Requirements 1. Open a T-account for each account using the unadjusted balances given. 2. Journalize the adjusting entries using the letter and March 31 date in the date column. 3. Post the adjustments to the T-accounts, entering each adjustment by letter. Show each account’s adjusted balance.

Question :Birch Park Senior Center has a weekly payroll of \(12,500. December 31 falls on Wednesday, and Birch Park Senior Center will pay its employees the following Monday (January 5) for the previous full week. Assume Birch Park Senior Center has a five-day workweek and has an unadjusted balance in Salaries Expense of \)620,000. Requirements 1. Record the adjusting entry for accrued salaries on December 31. 2. Post the adjusting entry to the accounts involved, and show their balances after adjustments. 3. Record the journal entry for payment of salaries made on January 5

What is the difference between cash basis accounting and accrual basis accounting?

Question :Consider the following independent situations at December 31: a. On October 1, a business collected \(3,000 rent in advance, debiting Cash and crediting Unearned Revenue. The tenant was paying one year’s rent in advance. On December 31, the business must account for the amount of rent it has earned. b. Salaries expense is \)1,800 per day—Monday through Friday—and the business pays employees each Friday. This year, December 31 falls on a Thursday. c. The unadjusted balance of the Office Supplies account is \(3,000. Office supplies on hand total \)1,900. d. Equipment depreciation was \(500. e. On April 1, when the business prepaid \)4,320 for a two-year insurance policy, the business debited Prepaid Insurance and credited Cash. Journalize the adjusting entry needed on December 31 for each situation. Use the letters to label the journal entries

Question :Griffin Fishing Charters has collected the following data for the December 31 adjusting entries: a. The company received its electric bill on December 31 for \(375 but will not pay it until January 5. (Use the Utilities Payable account.) b. Griffin purchased a three-month boat insurance policy on November 1 for \)1,200. Griffin recorded a debit to Prepaid Insurance. c. As of December 31, Griffin had earned \(3,000 of charter revenue that has not been recorded or received. d. Griffin’s fishing boat was purchased on January 1 at a cost of \)33,500. Griffin expects to use the boat for 10 years and that it will have a residual value of \(3,500. Determine annual depreciation assuming the straight-line depreciation method is used. e. On October 1, Griffin received \)9,000 prepayment for a deep-sea fishing charter to take place in December. As of December 31, Griffin has completed the charter. Requirements 1. Journalize the adjusting entries needed on December 31 for Griffin Fishing Charters. Assume Griffin records adjusting entries only at the end of the year. 2. If Griffin had not recorded the adjusting entries, indicate which specific category of accounts on the financial statements would be misstated and if the misstatement is overstated or understated. Use the following table as a guide
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