b. Do not recognize revenue until steel is shipped. c. Do not recognize revenue until next year after the games are played.

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1 CHAPTER FOUR SE4-2 Revenue recognition a. Recognize revenue from car sales for 12,000. Notes receivable $12,000 Sales revenue $12,000 b. Do not recognize revenue until steel is shipped. c. Do not recognize revenue until next year after the games are played. $50,000 Unearned revenue $50,000 d. Do not recognize revenue in current year. Revenue should have been recognized in previous year as accounts receivable. e. Do not recognize revenue until services are rendered in the following year. SE4-3 $5,000 Unearned revenue $5,000 Revenue recognition a. Recognize $5,000 of Salary Expense. b. Do not recognize expense until shirts are sold. c. Do not recognize expense. d. Recognize Cost of Goods Sold of $6,000. e. Recognize expense for the amount of the utility bill, Utilities Expense. f. Recognize Insurance Expense for $2,500. Page 1 of 6

2 E4-1 Transactions for JG Company and how they affect the accounts a. Increases assets (cash) and liabilities (notes payable) b. Increases assets (prepaid rent) and decreases assets (cash) c. Increases assets (prepaid insurance) and decreases assets (cash) d. Increases assets (supplies on hand) and decreases assets (cash) e. Increases assets (cash) and increases owners equity (revenue) E4-2 Prepaid insurance Revenues 5,000 (a) 3,000 (b) 960 (c) 35,000 (e) 35,000 (e) 960 (c) Supplies on hand Prepaid rent (on equipment) Notes payable BB*100 3,000 (b) 5,000 (a) * BB = beginning balance Adjustments to JG s accounts (from E4 1) Adjustment 1 (adj. 1) Adjustment 2 (adj. 2) Interest on note in transaction 4 1(a): $5, (9 12) = $300. Debit Interest expense; credit Interest payable. Rent on copy machine for June December 7 $250 per month = $1,750 Debit Rent expense; credit Prepaid rent. Adjustment 3 (adj. 3) Insurance expense from July 1 Dec. 31 (6 12) $960 = $480 Debit Insurance expense; credit Prepaid insurance Page 2 of 6

3 E4-2 CONTINUED Adjustment 4 (adj. 4) Record supplies expense for the period. Adjustment to make balance in Supplies $200. Debit Supplies expense; credit Supplies for $500. Prepaid insurance Revenues 5,000 (a) 3,000 (b) 960 (c) 35,000 (e) 35,000 (e) 960 (c) Supplies on hand Prepaid rent (on equipment) Notes payable BB*100 3,000 (b) 5,000 (a) * BB = beginning balance Interest expense Supplies expense Rent expense 300 (adj. 1) 500 (adj. 4) 1,750 (adj. 2) Interest payable Insurance expense 2,000 (adj. 5) 480 (adj. 3) E4-6 Climbers Rock Company: Closing entry and net income for the period Date Closing Journal Entry DR CR 12/31 Sales $94,000 Dividends $ 4,000 Cost of goods sold $ 45,000 Depreciation expense $ 3,000 Salaries expense $ 5,000 $27,000 Net income = $27,000 Page 3 of 6

4 P4-5A Randy s Radiator Repair Shop: Journal entries, closing entries, and trial balance a. Prepaid rent b. Supplies c. Equipment d. Prepaid insurance e. Prepaid advertising Journal Entries 12,000 10,000 2, ,000 10,000 2, f. Notes payable 30,000 30,000 g. Revenues h. No entry at this time. i. Dividends Adjusting Entries Interest expense Interest payable Depreciation expense Accumulated depreciation Rent expense Prepaid rent Supplies expense Supplies Insurance expense Prepaid insurance Advertising expense Prepaid advertising ,500 8, ,500 8, Page 4 of 6

5 P4-5A CONTINUED Closing Entries Revenues Depreciation expense Interest expense Rent expense Supplies expense Insurance expense Advertising expense Dividends 15, ,500 8, Trial Balance (in $) Unadjusted Adjusted DR CR DR CR 23,100 23,100 Supplies 10,000 2,000 Equipment 2,000 2,000 Accumulated depreciation 400 Prepaid rent 12,000 6,500 Prepaid insurance 250 Prepaid advertising Revenues Notes payable 30,000 30,000 Interest payable 600 Dividends Interest expense 600 Rent expense 5,500 Supplies expense 8,000 Depreciation expense 400 Insurance expense 750 Advertising expense 525 Totals $50,000 $50,000 $5 $5 Page 5 of 6

6 P4-5A CONTINUED Trial Balance (in $) Closing Postclosing DR CR DR CR 23,100 Supplies 2,000 Equipment 2,000 Accumulated depreciation 400 Prepaid rent 6,500 Prepaid insurance 250 Prepaid advertising 375 Revenues Notes payable 30,000 Interest payable 600 Dividends Interest expense 600 Rent expense 5,500 Supplies expense 8,000 Depreciation expense 400 Insurance expense 750 Advertising expense 525 3,225 3,225 Totals $ $ $34,225 $34,225 Page 6 of 6

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