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Title: Accountign Cycle Excersise iii
Description: This exercise book is the third of four exercise books that correspond directly with the Accounting Cycle textbook. The exercises relate specifically to Part 3 of the Accounting Cycle textbook. The exercises in this book center around income measurement, the basic elements of revenue and expense recognition, the process of recording adjusting entries, preparation of an adjusted trial balance, and the concept of accrual versus cash basis accounting
Description: This exercise book is the third of four exercise books that correspond directly with the Accounting Cycle textbook. The exercises relate specifically to Part 3 of the Accounting Cycle textbook. The exercises in this book center around income measurement, the basic elements of revenue and expense recognition, the process of recording adjusting entries, preparation of an adjusted trial balance, and the concept of accrual versus cash basis accounting
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Accounting Cycle Exercises III
Larry M
...
Skousen
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Larry M
...
Skousen
Accounting Cycle Exercises III
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Walther, Christopher J
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com
ISBN 978-87-7681-630-8
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...
sylvania
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Accounting Cycle Exercises III
Contents
Problem 5
16
Worksheet 5
16
Solution 5
17
Problem 6
18
Worksheet 6
19
Solution 6
20
Problem 7
21
Worksheet 7
22
Solution 7
26
Problem 8
31
Worksheet 8
Solution 8
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33
360°
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© Deloitte & Touche LLP and affiliated entities
...
com
Deloitte & Touche LLP and affiliated entities
...
deloitte
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Dis
Accounting Cycle Exercises III
Problem 1
Problem 1
Following are three separate transactions that pertain to prepaid items
...
Assume the company uses the balance sheet approach, and the initial recording is to an asset account
...
1) The company purchased an 18-month insurance policy for $9,000 on June 1, 20X3
...
3) e company paid $1,200 to rent a truck
...
Worksheet 1
GENERAL JOURNAL
Date
Accounts
Debit
Credit
Accounts
Debit
Credit
Jun
...
30
GENERAL JOURNAL
Date
Various
Dec
...
com
6
Accounting Cycle Exercises III
Problem 1
GENERAL JOURNAL
Date
Accounts
Debit
Credit
Accounts
Debit
Credit
Dec
...
31
Solution 1
GENERAL JOURNAL
Date
Jun
...
31
Supplies Expense
18,500
Supplies
18,500
To record supplies used ($10,000 beginning +
$15,000 purchased – $6,500 remaining)
GENERAL JOURNAL
Date
Dec
...
31
Rent Expense
300
Prepaid Rent
300
To record use of truck for 15 days
(15/60 X $1,200)
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The company’s primary sources of revenue are sales of
subscriptions to customers and sales of advertising in the Weekly Welder
...
The following transactions involved the receipt of advance payments
...
1) n September 1, 20X7, the company received a $48,000 payment from an advertising
O
client for a 6-month advertising campaign
...
Prepare the journal entry on September 1, and the
December 31 end-of-year adjusting entry
...
During 20X7, additional subscriptions were sold for
$3,490,000
...
Prepare a summary journal entry to reflect the sales of subscriptions, and the
end-of-year adjusting entry to reflect magazines delivered
...
Prepare the December 16 journal entry, as
well as the December 31 end-of-year adjusting entry
Worksheet 2
GENERAL JOURNAL
Date
Accounts
Debit
Sep
...
31
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31
GENERAL JOURNAL
Date
Dec
...
31
Solution 2
GENERAL JOURNAL
Date
Sep
...
31
Unearned Advertising Revenue
Advertising Revenue
16,000
16,000
To record delivery of ad services for 2 months
(2/6 X $48,000)
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31
Unearned Subscription Revenue
3,060,000
Subscription Revenue
3,060,000
To record subscriptions delivered
GENERAL JOURNAL
Date
Dec
...
31
Unearned Rental Revenue
4,500
Rental Revenue
4,500
To record rents earned for last half
of December
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Accounting Cycle Exercises III
Problem 3
Problem 3
EarCreations Technologies of Manchester recently introduced a blue-tooth enabled hearing aid that
allows hearing-disabled users to not only hear better, but also interface with their cell phones and digital
music players
...
1) n December 1, the company borrowed £20,000,000 at an 8% per annum interest rate
...
2) arly in December, the company licensed their new technology to Quick Computer, Inc
...
The agreement provides for a royalty payment from
Quick to EarCreations based on Quick’s sales of products using the licensed technology
...
3) arCreations pays many employee’s on an hourly basis
...
4) e company estimates that utilities used during December, for which bills will be received
Th
in January, amount to £40,000
...
31
Dec
...
31
Dec
...
com
11
Credit
Accounting Cycle Exercises III
Problem 3
Solution 3
GENERAL JOURNAL
Date
Dec
...
31
Accounts Receivable
90,000
Royalty Revenue
90,000
To record accrued revenue for December
licensing agreement
Dec
...
31
Utilities Expense
40,000
Utilities Payable
40,000
To record accrued utilities payable
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Accounting Cycle Exercises III
Problem 4
Problem 4
Nathan Goldstien’s administrative assistant maintains a very simple computerized general ledger system
...
However,
the system is not sufficiently robust to automate end-of-period adjustments
...
This trial balance has not been adjusted for the various items that
are described on the following page
...
NATHAN CORPORATION
Trial Balance
January 31, 20X8
Debits
Cash
Credits
$ 112,500
Accounts Receivable
$
-
37,230
-
7,200
-
21,339
-
105,000
-
Accumulated Depreciation
-
30,000
Accounts Payable
-
22,707
Unearned Revenue
-
25,500
Loan Payable
-
45,000
Capital Stock
-
72,000
Retained Earnings, Jan
...
As of January 1, the equipment was 40 months old
...
As of the end of the month, Asher Corporation has provided services to customers for which the earnings
process is complete
...
January’s unbilled work is $75,000
...
com
13
Accounting Cycle Exercises III
Problem 4
Utilities used during January, for which bills will soon be forthcoming from providers, are estimated
at $4,500
...
The $7,200 balance in prepaid insurance was for a 6-month policy running from January 1 to June 30
...
60% of that amount was actually earned in
January, with the remainder to be earned in February
...
No interest was paid in January
...
31
Jan
...
31
Jan
...
31
Jan
...
31
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31
Accounts
Debit
Depreciation Expense
Credit
750
Accumulated Depreciation
750
To record depreciation expense
($105,000 /140 months)
Jan
...
31
Utilities Expense
4,500
Utilities Payable
4,500
To record accrued utilities
Jan
...
31
Insurance Expense
1,200
Prepaid Insurance
1,200
To record expired insurance
($7,200/6 months = $400)
Jan
...
31
Interest Expense
450
Interest Payable
450
To record accrued interest
($45,000 X 1% = $450)
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Revenues
A Company had beginning accounts receivable of $16,000
...
The ending accounts receivable
amounted to $36,000
...
Supplies on hand decreased by
$10,000 during the period
...
Rent expense on a cash basis was $26,000
...
The equipment has a 4-year life, and will be worthless
after four years
...
E Company
paid $290,000 in wages during the year, and owed an additional $24,000 at
year’s end
...
com
16
Accounting Cycle Exercises III
Problem 5
Solution 5
Revenues
$220,000
...
Therefore, accrual basis revenues exceed cash basis
revenues by $20,000
...
The decrease in supplies means that $10,000 more was used than
purchased
...
Rent
$24,000
...
Equipment
$10,000
...
Wages
$314,000
...
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...
The following information is pertinent to adjusting entries that are needed for Toto, as of March 31,
20X5
...
Toto has a large investment in repair equipment, and maintains detailed asset records
...
As of March 31, 20X5, accrued interest on loans owed by Toto is $10,839
...
This work is done on account, and billed monthly
...
Toto maintains a general business liability insurance policy
...
The
policy was purchased on October 1, 20X4
...
Both policies were initially recorded as
prepaid insurance
...
$18,952 was on hand at that
date
...
During the fiscal year 20X5, Toto purchased an additional $62,500 of supplies,
and debited the Supplies account
...
During the fiscal year, Toto began offering a service contract to retail customers entitling them regular
tire rotations, car washing, and other routine maintenance items
...
The service plan is a flat
fee of $189, and Toto sold the plan to 678 customers
...
Toto’s primary advertising is on billboards
...
Because Toto agreed to prepay the full price of $13,000, Big
and Wide agreed to leave the signs up for 13 months
...
However, the advertising campaign was not begun until July 1, 20X4
...
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Monthly rent is due and payable on the first day of each month
...
Prepare adjusting entries (hint: when necessary) for Toto, as of March 31, 20X5
...
31
Mar
...
31
Mar
...
31
Mar
...
31
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...
31
Accounts
Debit
Depreciation Expense
Credit
61,700
Accumulated Depreciation
61,700
To record depreciation expense
Mar
...
31
Accounts Receivable
27,400
Revenues
27,400
To record unbilled services
Mar
...
31
Supplies Expense
74,652
Supplies
74,652
To record supplies expense
($18,952 + $62,500 – $6,800)
Mar
...
31
Advertising Expense
9,750
Prepaid Advertising
9,750
To record advertising expense
($13,000 X 9/13)
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...
You may assume a calendar year end for each scenario
...
The preprinted worksheet includes an illustrative
solution for the first scenario
...
A
Scenario 2
$60,000 of unearned revenue was collected on August 1, 20X1
...
Scenario 3 December 1, 20X1, $9,000 was prepaid for space in a trade-show booth
...
Scenario 4 $3,000 customer deposit for future services was received on April 1, 20X1
...
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22
1,875
12/31/X1
Accounting Cycle Exercises III
Problem 7
Scenario 2: Balance Sheet Approach
08/01/X1
12/31/X1
Unearned Revenue
Revenue
Scenario 2: Income Statement Approach
08/01/X1
12/31/X1
Unearned Revenue
Revenue
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Accounting Cycle Exercises III
Problem 7
Scenario 4: Income Statement Approach
04/01/X1
06/20/X1
Unearned Revenue
Revenue
Solution 7
Scenario 1: Balance Sheet Approach
06/01/X1
Prepaid Insurance
4,500
Cash
4,500
To record payment for 1-year policy
12/31/X1
Insurance Expense
2,625
Prepaid Insurance
2,625
To record insurance “used”
($4,500 X 7/12)
Prepaid Insurance
06/01/X1
4,500
2,625
Insurance Expense
12/31/X1
12/31/X1
1,875
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Accounting Cycle Exercises III
Problem 7
Scenario 2: Balance Sheet Approach
08/01/X1
Cash
60,000
Unearned Revenue
60,000
To record receipt of payment for
future service
12/31/X1
Unearned Revenue
24,000
Revenue
24,000
To record revenue earned ($60,000 X 40%)
Unearned Revenue
12/31/X1
24,000
60,000
Revenue
24,000
08/01/X1
12/31/X1
36,000
Scenario 2: Income Statement Approach
08/01/X1
Cash
60,000
Revenue
60,000
To record receipt of payment for
future service
12/31/X1
Revenue
36,000
Unearned Revenue
36,000
To record revenue not earned
($60,000 X 60%)
Unearned Revenue
36,000
Revenue
12/31/X1
12/31/X1
36,000
60,000
24,000
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29
9,000
12/31/X1
Accounting Cycle Exercises III
Problem 7
Scenario 4: Balance Sheet Approach
04/01/X1
Cash
3,000
Unearned Revenue
3,000
To record receipt of payment for
future service
06/20/X1
Unearned Revenue
3,000
Cash
3,000
To record fund
Unearned Revenue
06/20/X1
3,000
Revenue
3,000
0
04/01/X1
0
Scenario 4: Income Statement Approach
04/01/X1
Cash
3,000
Revenue
3,000
To record receipt of payment for
future service
06/20/X1
Revenue
3,000
Cash
3,000
To record fund
Unearned Revenue
Revenue
0
06/20/X1
3,000
3,000
0
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He has numerous clients, one of which is Wonderful Weekend Events (WWE)
...
WWPS uses the cash basis of accounting
...
Begin by evaluating
the following facts for June
...
The package requires
a $2,000 down payment at the time the contract is signed, a $1,000 payment on
the date of the event, and a final $950 payment 30 days after the wedding
...
All of these events were booked in
earlier months
...
Final payments were received during June for 47 weddings performed
in May
...
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Accounting Cycle Exercises III
Problem 8
Expenses
During June $124,000 was actually paid for wages
...
At the end of the month, $46,000 was
owed to employees
...
Coming into June, WWPS owned equipment with a total cost of $900,000
...
Supplies on hand at the beginning of the month totaled $225,300
...
At the end of the month, supplies on
hand were $282,400
...
Preliminarily, WWE is willing to pay a price
P
equal to 75 × June’s monthly income
...
Calculate accrual basis income
...
Worksheet 8
a)
WWPS
Cash Basis Income Statement
For the Month Ending June 30, 20XX
Revenues
Services to customers
$
-
Expenses
Wages
$
-
Equipment
-
Supplies
-
Cash basis income
$
Cash basis revenues:
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33
303,650
Accounting Cycle Exercises III
Problem 8
b)
WWPS
Income Statement
For the Month Ending June 30, 20XX
Revenues
Services to customers
$
296,250
Expenses
Wages
$
Depreciation
146,000
18,000
Supplies
124,900
Net income
288,900
$
7,350
$
296,250
$
124,000
Accrual basis revenues:
75 weddings photographed @ $3,950
Expenses:
Wages paid
Less: Beginning accrued wages
(24,000)
Plus: Ending accrued wages
46,000
Accrual basis wages
$
146,000
Depreciation ($900,000/50 months)
$
18,000
Supplies purchased
$
152,000
Plus: Beginning supplies
225,300
Less: Ending supplies
(252,400)
$
Accrual basis supplies:
124,900
c) The proposed purchase price is $551,250 ($7,350 × 75)
...
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Title: Accountign Cycle Excersise iii
Description: This exercise book is the third of four exercise books that correspond directly with the Accounting Cycle textbook. The exercises relate specifically to Part 3 of the Accounting Cycle textbook. The exercises in this book center around income measurement, the basic elements of revenue and expense recognition, the process of recording adjusting entries, preparation of an adjusted trial balance, and the concept of accrual versus cash basis accounting
Description: This exercise book is the third of four exercise books that correspond directly with the Accounting Cycle textbook. The exercises relate specifically to Part 3 of the Accounting Cycle textbook. The exercises in this book center around income measurement, the basic elements of revenue and expense recognition, the process of recording adjusting entries, preparation of an adjusted trial balance, and the concept of accrual versus cash basis accounting