CHAPTER 12 ACCRUALS, DEFERRALS, AND THE WORKSHEET Chapter Opener: Thinking Critically Students may assess that an unexpected decline in sales would mean surplus inventory which would have to be reduced most likely by selling the too sophisticated merchandise at lower prices. Expenses for market research to determine a better merchandise strategy would also need to be recorded. Fast Facts Urban Outfitters achieved compounded annual sales growth of approximately 19% from 2005 to 2010, with sales of approximately $1.9 billion in fiscal 2010. The first Urban Outfitters store opened 1970 near the University of Pennsylvania campus in Philadelphia. The company circulates nearly 40 million catalogs per year. The company employs 14,000 people; the number fluctuates based upon seasonal demand. Managerial Implications: Thinking Critically Financial results and financial condition will be incorrectly stated. Discussion Questions Note to instructor : These questions are designed to check students understanding of new terms, concepts, and procedures presented in the chapter. 1. Debiting Allowance for Doubtful Accounts and Crediting Accounts Receivable. 2. To the Income Statement columns. 3. Dr. Uncollectible Accounts Expense, Cr. Allowance for Doubtful Accounts. 4. Transfers cost of asset to expense over life of asset. 5. Long-term assets whose usefulness is consumed over the life of the assets. (Buildings, furniture and fixtures, machinery.) 6. a. Estimated selling price upon disposal of an asset. b. Cost of asset less salvage value. c. Number of years that asset will be used. d. Equal amount of depreciation taken in each year of the asset s useful life. 7. Dr. Depreciation Exp. Office Equipment., Cr. Accum. Depr. Office Equipment. 8. An expense that does not yet appear in the accounts. (Accrued salaries, accrued payroll taxes, and accrued interest on notes payable.) 9. Dr. Salaries Expense, Cr. Salaries Payable. 10. Item that has been paid for and recorded in the accounts in advance of its use. (Prepaid rent, prepaid insurance, prepaid interest on notes payable.) 11. Dr. Prepaid Insurance, Cr. Cash. 12. Dr. Insurance Expense, Cr. Prepaid Insurance 422 Chapter 12 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.
Discussion Questions (continued) 13. Charge cost to expense account at the time cost is incurred. At end of period, amount still prepaid is debited to prepaid expense account and credited to the expense account. 14. Income earned but not yet received in cash or recorded as a receivable. (Interest on notes receivable.) 15. Dr. Interest Receivable, Cr. Interest Income. 16. Income for which payment has been received in advance, but which has not been earned. (Rent income received in advance.) 17. Dr. Cash, Cr. Unearned Income. 18. Dr. Unearned Income, Cr. Income. 19. Record amount received in advance as income at the time it is received in cash. At period end, unearned amount debited to Income and credited to Unearned Income. 20. Provides a single location for all information necessary to journalize adjusting entries and to prepare the financial statements. 21. Liability. Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 12 423
EXERCISE 12.1 GENERAL JOURNAL PAGE DATE DESCRIPTION POST. REF. DEBIT CREDIT 1 2013 1 2 Dec. 31 Income Summary 121 0 0 0 00 2 3 Merchandise Inventory 121 0 0 0 00 3 4 4 5 31 Merchandise Inventory 102 5 1 9 00 5 6 Income Summary 102 5 1 9 00 6 7 7 EXERCISE 12.2 Beginning Merchandise Inventory is $179,000 and ending Merchandise Inventory is $203,344. EXERCISE 12.3 GENERAL JOURNAL PAGE DATE DESCRIPTION POST. REF. DEBIT CREDIT 1 2013 1 2 Dec. 31 Uncollectible Accounts Expense 5 6 4 6 00 2 3 Allowance for Doubtful Accounts 5 6 4 6 00 3 4 4 5 31 Depreciation Expense Equipment 3 0 6 8 00 5 6 Accumulated Depreciation Equipment 3 0 6 8 00 6 7 7 8 31 Wages Expense 6 5 4 6 00 8 9 Wages Payable 6 5 4 6 00 9 10 10 11 31 Payroll Taxes Expense 5 0 0 77 11 12 Social Security Tax Payable 4 0 5 85 12 13 Medicare Tax Payable 9 4 92 13 14 14 15 31 Payroll Taxes Expense 4 0 5 85 15 16 Federal Unemployment Tax Payable 5 2 37 16 17 State Unemployment Tax Payable 3 5 3 48 17 18 18 424 Chapter 12 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.
EXERCISE 12.4 GENERAL JOURNAL PAGE DATE DESCRIPTION POST. REF. DEBIT CREDIT 1 2013 1 2 Dec. 31 Interest Expense 2 1 0 00 2 3 Interest Payable 2 1 0 00 3 4 4 5 31 Supplies Expense 4 4 3 3 00 5 6 Supplies 4 4 3 3 00 6 7 7 8 31 Insurance Expense 5 1 3 5 00 8 9 Prepaid Insurance 5 1 3 5 00 9 10 10 11 31 Advertising Expense 9 7 2 0 00 11 12 Prepaid Advertising 9 7 2 0 00 12 13 13 EXERCISE 12.5 GENERAL JOURNAL PAGE DATE DESCRIPTION POST. REF. DEBIT CREDIT 1 2013 1 2 Dec. 1 Cash 29 86400 2 3 Prepaid Interest 1 1 3 6 00 3 4 Notes Payable 31 0 0 0 00 4 5 5 6 31 Interest Expense 2 8 4 00 6 7 Prepaid Interest 2 8 4 00 7 8 8 EXERCISE 12.6 GENERAL JOURNAL PAGE DATE DESCRIPTION POST. REF. DEBIT CREDIT 1 2013 1 2 Dec. 31 Interest Expense 3 9 0 00 2 3 Interest Payable 3 9 0 00 3 4 4 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 12 425
EXERCISE 12.7 GENERAL JOURNAL PAGE DATE DESCRIPTION POST. REF. DEBIT CREDIT 1 2013 1 2 Dec. 31 Interest Receivable 6 4 0 00 2 3 Interest Income 6 4 0 00 3 4 4 5 31 Unearned Subscription Revenue 20 0 0 0 00 5 6 Subscription Revenue 20 0 0 0 00 6 7 7 8 31 Unearned Rent 16 0 0 0 00 8 9 Rent Income 16 0 0 0 00 9 10 10 11 31 Unearned Season Ticket Income 600 0 0 0 00 11 12 Season Ticket Income 600 0 0 0 00 12 13 13 426 Chapter 12 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 12.1A GENERAL JOURNAL PAGE 18 DATE DESCRIPTION POST. REF. DEBIT CREDIT 1 2013 1 2 June 30 (Adjustment a) 2 3 Income Summary 7500 00 3 4 Merchandise Inventory 750000 4 5 5 6 30 (Adjustment b) 6 7 Merchandise Inventory 8000 00 7 8 Income Summary 800000 8 9 9 10 30 (Adjustment c) 10 11 Unearned Seminar Fees 2400 00 11 12 Seminar Fees Income 240000 12 13 13 14 30 (Adjustment d) 14 15 Insurance Expense 4000 00 15 16 Prepaid Insurance 400000 16 17 17 18 30 (Adjustment e) 18 19 Depreciation Expense - Store Equipment 2 2 5 00 19 20 Accumulated Depreciation - Store Equipment 2 2 5 00 20 21 21 22 30 (Adjustment f) 22 23 Wages Expense 2 5 0 00 23 24 Wages Payable 2 5 0 00 24 25 25 26 30 (Adjustment g) 26 27 Payroll Taxes Expense 2 8 63 27 28 State Unemployment Taxes Payable 750 28 29 Federal Unemployment Taxes Payable 200 29 30 Medicare Taxes Payable 363 30 31 Social Security Taxes Payable 1 5 50 31 32 32 33 30 (Adjustment h) 33 34 Uncollectible Accounts Expense 2000000 34 35 Allowance for Doubtful Accounts 2000000 35 36 36 37 30 (Adjustment i) 37 38 Rent Expense 440000 38 39 Prepaid Rent 440000 39 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 12 427
PROBLEM 12.1A (continued) GENERAL JOURNAL PAGE 18 DATE DESCRIPTION POST. REF. DEBIT CREDIT 41 30 (Adjustment j) 41 42 Supplies Expense 2 5 0 00 42 43 Supplies 2 5 0 00 43 44 44 45 30 (Adjustment k) 45 46 Interest Expense 3 5 00 46 47 Interest Payable 3 5 00 47 Notes on calculations: a.-b. Amounts given. c. $6,000 cash received/5 seminars = $1,200/seminar. $1,200/seminar 2 seminars conducted = $2,400 earned. d. $12,000/6 months in policy = $2,000/month. $2,000/month 2 months expired (May and June) = $4,000 insurance expense. e. ($5,000 cost - $500 salvage value)/60 months = $75/month depreciation. $75/month 3 months of use (April, May and June) = $225. f. Amounts given. g. Amounts given. h. $2,000,000 1% = $20,000 i. $6,600/6 months in policy = $1,100/month; $1,100 4 months expired = $4,400. j. $400 balance - $150 supplies on hand = $250 of supplies used. k. $6,000 principal 7% interest rate 1/12 time factor = $35 Analyze: The balance of the Prepaid Rent account will be $2,200 ($6,600 - $4,400 expired). 428 Chapter 12 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 12.2A GENERAL JOURNAL PAGE 1 DATE DESCRIPTION POST. REF. DEBIT CREDIT 1 2013 1 2 July 1 Prepaid Rent 13 20000 2 3 Cash 13 20000 3 4 4 5 1 Cash 23 04000 5 6 Prepaid Interest 96000 6 7 Notes Payable 24 00000 7 8 8 9 1 Cash 72 00000 9 10 Unearned Accounting Fees 72 00000 10 11 11 12 1 Office Equipment 17 00000 12 13 Notes Payable 17 00000 13 14 14 15 1 Prepaid Insurance 162000 15 16 Cash 162000 16 17 17 18 3 Office Furniture 16 60000 18 19 Cash 840000 19 20 Accounts Payable 820000 20 21 21 22 5 Supplies 181000 22 23 Cash 181000 23 24 24 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 12 429
PROBLEM 12.2A (continued) GENERAL JOURNAL PAGE 2 DATE DESCRIPTION POST. REF. DEBIT CREDIT 1 Adjusting Entries 1 2 2013 2 3 July 31 Rent Expense 2200 00 3 4 Prepaid Rent 2200 00 4 5 5 6 31Interest Expense 240 00 6 7 Prepaid Interest 240 00 7 8 8 9 31Unearned Accounting Fees 6000 00 9 10 Accounting Fees 6000 00 10 11 11 12 31 Interest Expense 1 7 0 00 12 13 Interest Payable 1 7 0 00 13 14 14 15 31 Depreciation Expense Office Equipment 2 2 0 00 15 16 Accumulated Depreciation Office Equipment 2 2 0 00 16 17 17 18 31 Insurance Expense 1 3 5 00 18 19 Prepaid Insurance 1 3 5 00 19 20 20 21 31 Depreciation Expense Office Furniture 2 6 0 00 21 22 Accumulated Depreciation Office Furniture 2 6 0 00 22 23 23 24 31Supplies Expense 101000 24 25 Supplies 101000 25 26 26 Analyze: The Unearned Accounting Fees account would be $66,000. 430 Chapter 12 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 12.3A Michael Brady, Consultant Worksheet Month Ended July 31, 2013 TRIAL BALANCE ADJUSTMENTS ACCOUNT NAME DEBIT CREDIT DEBIT CREDIT 1 Cash 25 01000 2 Accounts Receivable 134000 3 Supplies 8 6 0 00 (a) 2 8 0 00 4 Prepaid Rent 900000 (b) 1 5 0 0 00 5 Prepaid Insurance 162000 (c) 13500 6 Prepaid Interest 3 6 0 00 (d) 9 0 00 7 Office Furniture 12 05000 8 Accumulated Depreciation 9 Office Furniture (e) 1 2 5 00 10 Office Equipment 640000 11 Accumulated (f) 8 0 00 Depreciation Equipment 12 Notes Payable 16 70000 13 Accounts Payable 450000 14 Interest Payable (g) 5 2 00 15Unearned Consulting Fees 480000 (h) 40000 16Michael Brady, Capital 2822000 17 Michael Brady, Drawing 200000 18 Consulting Fees 800000 (h) 40000 19 Salaries Expense 320000 20 Utilities Expense 2 2 0 00 21 Telephone Expense 1 6 0 00 22 Supplies Expense (a) 2 8 0 00 23 Rent Expense (b) 1 5 0 0 00 24 Insurance Expense (c) 1 3 5 00 25 Depreciation (e) 1 2 5 00 26 Expense Furniture Depreciation (f) 8 0 00 Expense Equipment 27 Interest Expense (d) 9 0 00 28 (g) 5 2 00 29 Totals 62 22000 6222000 266200 266200 30 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 12 431
PROBLEM 12.3A Continued ADJUSTED TRIAL BALANCE INCOME STATEMENT BALANCE SHEET DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT 25 0 1 0 00 1 1 3 4 0 00 2 5 8 0 00 3 7 5 0 0 00 4 1 4 8 5 00 5 2 7 0 00 6 12 0 5 0 00 7 8 1 2 5 00 9 6 4 0 0 00 10 8 0 00 11 16 7 0 0 00 12 4 5 0 0 00 13 5 2 00 14 4 4 0 0 00 15 28 2 2 0 00 16 2 0 0 0 00 17 8 4 0 0 00 18 3 2 0 0 00 19 2 2 0 00 20 1 6 0 00 21 2 8 0 00 22 1 5 0 0 00 23 1 3 5 00 24 1 2 5 00 25 8 0 00 26 9 0 00 27 5 2 00 28 62 4 7 7 00 62 4 7 7 00 29 30 Analyze: The expense accounts of the business were adjusted by $2,262 ($2,662 - $400). 432 Chapter 12 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 12.4A The Green Thumb Gallery Worksheet Year Ended December 31, 2013 TRIAL BALANCE ADJUSTMENTS ACCOUNT NAME DEBIT CREDIT DEBIT CREDIT 1Cash 570000 2Accounts Receivable 260000 3 Allowance for Doubtful Accounts 5 2 00 (c) 2 1 0 00 4 Merchandise Inventory 11 3 0 0 00 (b) 12 3 2 1 00 (a) 11 3 0 0 00 5Supplies 120000 (d) 92500 6 Prepaid Advertising 9 6 0 00 (e) 4 8 0 00 7Store Equipment 810000 8Accumulated Depr. Store Equipment 150000 (f) 1 5 0 0 00 9Office Equipment 160000 10 Accumulated Depr. Office Equipment 2 8 0 00 (g) 2 8 0 00 11Accounts Payable 262500 12 Social Security Tax Payable 4 3 0 00 (i) 1 1 3 46 13 Medicare Tax Payable 9 8 00 (i) 2 6 54 14 Federal Unemployment Tax Payable (j) 1 4 64 15 State Unemployment Tax Payable (j) 9 8 82 16 Salaries Payable (h) 1 8 3 0 00 17 Beth Argo, Capital 25 4 5 7 00 18 Beth Argo, Drawing 20 0 0 0 00 19 Sales 90 0 4 8 00 20Sales Returns & Allowances 110000 21 Purchases 46 4 0 0 00 22 Purchases Returns & Allowances 4 3 0 00 23Rent Expense 600000 24 Telephone Expense 5 9 0 00 25 Salaries Expense 14 1 0 0 00 (h) 1 8 3 0 00 26Payroll Taxes Expense 127000 (i) 14000 27 (j) 1 1 3 46 28 Income Summary (a) 11 3 0 0 00 (b) 12 3 2 1 00 29 Supplies Expense (d) 9 2 5 00 30 Advertising Expense (e) 4 8 0 00 31 Depreciation expense Store Equipment (f) 1 5 0 0 00 32 Depreciation expense Office Equipment (g) 2 8 0 00 33 Totals Carried Forward 120 9 2 0 00 120 9 2 0 00 28 8 8 9 46 29 0 9 9 46 34 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 12 433
PROBLEM 12.4A (continued) ADJUSTED TRIAL BALANCE INCOME STATEMENT BALANCE SHEET DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT 5 7 0 0 00 5 7 0 0 00 1 2 6 0 0 00 2 6 0 0 00 2 2 6 2 00 2 6 2 00 3 12 3 2 1 00 12 3 2 1 00 4 2 7 5 00 2 7 5 00 5 4 8 0 00 4 8 0 00 6 8 1 0 0 00 8 1 0 0 00 7 3 0 0 0 00 3 0 0 0 00 8 1 6 0 0 00 1 6 0 0 00 9 5 6 0 00 5 6 0 00 10 2 6 2 5 00 2 6 2 5 00 11 5 4 3 46 5 4 3 46 12 1 2 4 54 1 2 4 54 13 1 4 64 1 4 64 14 9 8 82 9 8 82 15 1 8 3 0 00 1 8 3 0 00 16 25 4 5 7 00 25 4 5 7 00 17 20 0 0 0 00 20 0 0 0 00 18 90 0 4 8 00 90 0 4 8 00 19 1 1 0 0 00 1 1 0 0 00 20 46 4 0 0 00 46 4 0 0 00 21 4 3 0 00 4 3 0 00 22 6 0 0 0 00 6 0 0 0 00 23 5 9 0 00 5 9 0 00 24 15 9 3 0 00 15 9 3 0 00 25 1 5 2 3 46 1 5 2 3 46 26 27 11 3 0 0 00 12 3 2 1 00 11 3 0 0 00 12 3 2 1 00 28 9 2 5 00 9 2 5 00 29 4 8 0 00 4 8 0 00 30 1 5 0 0 00 1 5 0 0 00 31 2 8 0 00 2 8 0 00 32 137 1 0 4 46 137 3 1 4 46 86 0 2 8 46 102 7 9 9 00 51 0 7 6 00 34 5 1 5 46 33 34 434 Chapter 12 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 12.4A (continued) The Green Thumb Gallery Worksheet (Continued) Year Ended December 31, 2013 TRIAL BALANCE ADJUSTMENTS ACCOUNT NAME DEBIT CREDIT DEBIT CREDIT 1 Totals Brought Forward 120 9 2 0 00 120 9 2 0 00 28 8 8 9 46 29 0 9 9 46 2 Uncollectible Accounts Expense (c) 2 1 0 00 3 Totals 120 9 2 0 00 120 9 2 0 00 29 0 9 9 46 29 0 9 9 46 4 5 6 Net Income Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 12 435
PROBLEM 12.4A (continued) ADJUSTED TRIAL BALANCE INCOME STATEMENT BALANCE SHEET DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT 137 1 0 4 46 137 3 1 4 46 86 0 2 8 46 102 7 9 9 00 51 0 7 6 00 34 5 1 5 46 1 21000 21000 2 137 3 1 4 46 137 3 1 4 46 86 2 3 8 46 102 7 9 9 00 51 0 7 6 00 34 5 1 5 46 3 16 5 6 0 54 16 5 6 0 54 4 102 7 9 9 00 102 7 9 9 00 51 0 7 6 00 51 0 7 6 00 5 6 Analyze: The total assets (assets, less accumulated depreciation) were decreased $2,374 by adjustments. 436 Chapter 12 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 12.5A Healthy Habits Foods Company Worksheet Year Ended December 31, 2013 TRIAL BALANCE ADJUSTMENTS ACCOUNT NAME DEBIT CREDIT DEBIT CREDIT 1 Cash 30 1 0 0 00 2 Accounts Receivable 3520000 3 Allowance for Doubtful Accounts 4 2 0 00 (c) 2 8 0 0 00 4 Merchandise Inventory 86 0 0 0 00 (b) 78 0 0 0 00 (a) 86 0 0 0 00 5 Supplies 10 4 0 0 00 (d) 9 2 2 0 00 6 Prepaid Insurance 540000 (e) 3 6 0 0 00 7 Office Equipment 830000 8 Accumulated Depr. Office 265000 (f) 1 3 2 5 00 9 Warehouse Equipment 2800000 10 Accumulated Depr. Warehouse 960000 (g) 4 8 0 0 00 11 Equipment Notes Payable Bank 32 0 0 0 00 12 Accounts Payable 12 2 0 0 00 13 Interest Payable (h) 6 4 0 00 14 Social Security Tax Payable 168000 (j) 31000 15 Medicare Tax Payable 3 8 8 00 (j) 7 2 50 16 Federal Unemployment Tax Payable (k) 4 0 00 17 State Unemployment Tax Payable (k) 2 7 0 00 18 Salaries Payable (i) 5 0 0 0 00 19 Phillip Tucker, Capital 108 6 8 4 00 20 Phillip Tucker, Drawing 56 0 0 0 00 21 Sales 653 7 7 8 00 22 Sales Returns and Allowances 10 0 0 0 00 23 Purchases 350 0 0 0 00 24 Purchases Returns and Allowance 920000 25 Income Summary (a) 86 0 0 0 00 (b) 78 0 0 0 00 26 Rent Expenses 36 0 0 0 00 27 Telephone Expense 220000 28 Salaries Expense 160 0 0 0 00 (i) 5 0 0 0 00 29 Payroll Taxes Expense 13 0 0 0 00 (j) 3 8 2 50 30 (k) 3 1 0 00 31 Supplies Expense (d) 9 2 2 0 00 32 Insurance Expense (e) 3 6 0 0 00 33 Totals Carried Forward 830 6 0 0 00 830 6 0 0 00 182 5 1 2 50 192 0 7 7 50 34 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 12 437
PROBLEM 12.5A (continued) ADJUSTED TRIAL BALANCE INCOME STATEMENT BALANCE SHEET DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT 30 1 0 0 00 30 1 0 0 00 1 35 2 0 0 00 35 2 0 0 00 2 322000 322000 3 78 0 0 0 00 78 0 0 0 00 4 118000 118000 5 180000 180000 6 830000 830000 7 397500 397500 8 28 0 0 0 00 28 0 0 0 00 9 14 4 0 0 00 14 4 0 0 00 10 32 0 0 0 00 32 0 0 0 00 11 12 2 0 0 00 12 2 0 0 00 12 64000 64000 13 199000 199000 14 46050 46050 15 4 0 00 4 0 00 16 27000 27000 17 500000 500000 18 108 6 8 4 00 108 6 8 4 00 19 56 0 0 0 00 56 0 0 0 00 20 653 7 7 8 00 653 7 7 8 00 21 10 0 0 0 00 10 0 0 0 00 22 350 0 0 0 00 350 0 0 0 00 23 920000 920000 24 86 0 0 0 00 78 0 0 0 00 86 0 0 0 00 78 0 0 0 00 25 36 0 0 0 00 36 0 0 0 00 26 220000 220000 27 165 0 0 0 00 165 0 0 0 00 28 13 6 9 2 50 13 6 9 2 50 29 30 922000 922000 31 360000 360000 32 914 2 9 2 50 923 8 5 7 50 675 7 1 2 50 740 9 7 8 00 238 5 8 0 00 182 8 7 9 50 33 34 438 Chapter 12 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 12.5A (continued) TRIAL BALANCE ADJUSTMENTS ACCOUNT NAME DEBIT CREDIT DEBIT CREDIT 1 Totals Brought Forward 830 6 0 0 00 830 6 0 0 00 182 5 1 2 50 192 0 7 7 50 2 Depr. Expense Office Equipment (f) 1 3 2 5 00 3 Depr. Expense Warehouse (g) 4 8 0 0 00 4 Equipment Uncollectible Accounts Expense (c) 2 8 0 0 00 5 Interest Expense (h) 6 4 0 00 6 Totals 830 6 0 0 00 830 6 0 0 00 192 0 7 7 50 192 0 7 7 50 7 8 9 Net Income Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 12 439
PROBLEM 12.5A (continued) ADJUSTED TRIAL BALANCE INCOME STATEMENT BALANCE SHEET DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT 914 2 9 2 50 923 8 5 7 50 675 7 1 2 50 740 9 7 8 00 238 5 8 0 00 182 8 7 9 50 1 132500 1 3 2 5 00 2 480000 4 8 0 0 00 3 280000 2 8 0 0 00 4 6 4 0 00 6 4 0 00 5 923 8 5 7 50 923 8 5 7 50 685 2 7 7 50 740 9 7 8 00 238 5 8 0 00 182 8 7 9 50 6 55 7 0 0 50 55 7 0 0 50 7 740 9 7 8 00 740 9 7 8 00 238 5 8 0 00 238 5 8 0 00 8 9 Analyze: The net income will be $55,700.50. 440 Chapter 12 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 12.6A The Wine Shop Worksheet Year Ended December 31, 2013 TRIAL BALANCE ADJUSTMENTS ACCOUNT NAME DEBIT CREDIT DEBIT CREDIT 1 Cash 28 3 8 6 00 2 Accounts Receivable 5 0 0 00 3 Prepaid Advertising 4 8 0 00 (c) 1 6 0 00 4 Supplies 3 0 0 00 (d) 2 0 0 00 5 Merchandise Inventory 15 0 0 0 00 (a) 12 0 0 0 00 15 0 0 0 00 6 Store Equipment 25 0 0 0 00 00 7 Accum. Depr., Store Equip. 300000 (e) 3 1 2 5 00 8 Office Equipment 500000 9 Accum. Depr., Office Equip. 150000 (f) 1 0 0 0 00 10 Notes Payable, due 2014 20 0 0 0 00 11 Accounts Payable 270500 12 Wages Payable (h) 5 0 0 00 13 Social Security Tax Payable (i) 3 1 00 14 Medicare Tax Payable 725 15 Unearned Seminar Fees 600000 (g) 2 0 0 0 00 16 Interest Payable (j) 1 0 0 00 17 Vincent Arroyo, Capital 32 7 0 0 00 18 Vincent Arroyo, Drawing 14 1 1 0 00 19 Income Summary (b) 15 0 0 0 00 (a) 12 0 0 0 00 20 Sales 153 9 7 0 00 21 Sales Discounts 2 0 0 00 22 Seminar Fee Income (g) 2 0 0 0 00 23 Purchases 91 0 0 0 00 24 Purchases Returns & Allow. 100000 25 Freight In 2 2 5 00 26 Rent Expense 13 2 0 0 00 27 Wages Expense 24 0 0 0 00 (h) 5 0 0 00 28 Payroll Taxes Expense 332400 (i) 3825 29 Depreciation Exp., Store Equip. (e) 3 1 2 5 00 30 Depreciation Exp., Office Equip. (f) 1 0 0 0 00 31 Advertising Expense (c) 1 6 0 00 32 Supplies Expense (d) 2 0 0 00 33 Interest Expense 1 5 0 00 (j) 1 0 0 00 34 220 8 7 5 00 220 8 7 5 00 34 1 2 3 25 34 1 2 3 25 35 Net income 36 Analyze: The firm earned $2,000 in 2013 by conducting seminars. Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 12 441
PROBLEM 12.6A (continued) ADJUSTED TRIAL BALANCE INCOME STATEMENT BALANCE SHEET DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT 28 3 8 6 00 28 3 8 6 00 1 5 0 0 00 5 0 0 00 2 3 2 0 00 3 2 0 00 3 1 0 0 00 1 0 0 00 4 12 0 0 0 00 12 0 0 0 00 5 25 0 0 0 00 25 0 0 0 00 6 6 1 2 5 00 6 1 2 5 00 7 5 0 0 0 00 5 0 0 0 00 8 2 5 0 0 00 2 5 0 0 00 9 20 0 0 0 00 20 0 0 0 00 10 2 7 0 5 00 2 7 0 5 00 11 5 0 0 00 5 0 0 00 12 3 1 00 3 1 00 13 7 25 7 25 14 4 0 0 0 00 4 0 0 0 00 15 1 0 0 00 1 0 0 00 16 32 7 0 0 00 14 1 1 0 00 32 7 0 0 00 17 14 1 1 0 00 18 15 0 0 0 00 12 0 0 0 00 15 0 0 0 00 12 0 0 0 00 19 153 9 7 0 00 153 9 7 0 00 20 2 0 0 00 2 0 0 00 21 2 0 0 0 00 2 0 0 0 00 22 91 0 0 0 00 91 0 0 0 00 23 1 0 0 0 00 1 0 0 0 00 24 2 2 5 00 2 2 5 00 25 13 2 0 0 00 13 2 0 0 00 26 24 5 0 0 00 24 5 0 0 00 27 3 3 6 2 25 3 3 6 2 25 28 3 1 2 5 00 3 1 2 5 00 29 1 0 0 0 00 1 0 0 0 00 30 1 6 0 00 1 6 0 00 31 2 0 0 00 2 0 0 00 32 2 5 0 00 2 5 0 00 33 237 6 3 8 25 237 6 3 8 25 152 2 2 2 25 168 9 7 0 00 85 4 1 6 00 68 6 6 8 25 34 16 7 4 7 75 16 7 4 7 75 35 168 9 7 0 00 168 9 7 0 00 85 4 1 6 00 85 4 1 6 00 36 442 Chapter 12 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 12.1B GENERAL JOURNAL PAGE 18 DATE DESCRIPTION POST. REF. DEBIT CREDIT 1 2013 1 2 Dec 31 (Adjustment a) 2 3 Income Summary 900000 3 4 Merchandise Inventory 9000 00 4 5 5 6 31 (Adjustment b) 6 7 Merchandise Inventory 10 50000 7 8 Income Summary 10 500 00 8 9 9 10 31 (Adjustment c) 10 11 Unearned Seminar Fees 750000 11 12 Seminar Fees Income 7500 00 12 13 13 14 31 (Adjustment d) 14 15 Insurance Expense 600000 15 16 Prepaid Insurance 6000 00 16 17 17 18 31 (Adjustment e) 18 19 Depreciation Expense - Store Equipment 3 0 0 00 19 20 Accumulated Depreciation - Store Equipment 3 0 0 00 20 21 21 22 31 (Adjustment f) 22 23 Wages Expense 5 0 0 00 23 24 Wages Payable 5 0 0 00 24 25 25 26 31 (Adjustment g) 26 27 Payroll Taxes Expense 5 7 25 27 28 State Unemployment Taxes Payable 1 5 00 28 29 Federal Unemployment Taxes Payable 4 00 29 30 Medicare Taxes Payable 7 25 30 31 Social Security Taxes Payable 3 1 00 31 32 32 33 31 (Adjustment h) 33 34 Uncollectible Accounts Expense 45 00000 34 35 Allowance for Doubtful Accounts 45 00000 35 36 36 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 12 443
PROBLEM 12.1B (continued) GENERAL JOURNAL PAGE 18 DATE DESCRIPTION POST. REF. DEBIT CREDIT 37 31 (Adjustment i) 37 38 Rent Expense 660000 38 39 Prepaid Rent 66000039 40 40 41 31 (Adjustment j) 41 42 Supplies Expense 2 7 5 00 42 43 Supplies 2 7 5 00 43 44 44 45 31 (Adjustment k) 45 46 Interest Expense 4 0 00 4 0 00 46 47 Interest Payable 47 Notes on calculations: a.-b. Amounts given. c. $10,000 cash received /4 seminars = $2,500/seminar. $2,500/seminar 3 seminars conducted = $7,500 earned. d. $12,000/6 months in policy = $2,000/month. $2,000/month 3 months expired (October, November and December) = $6,000 insurance expense. e. ($5,000 cost - $500 salvage value) /60 months = $75/month depreciation. $75/month 4 months of use (September, October, November and December) = $300. f. Amounts given. g. Amounts given. h. i. j. k. $3,000,000 1.5% = $45,000 $13,200/6 months prepaid = $2,200/month; $2,200 3 months expired = $6,600. $500 balance - $225 supplies on hand = $275 of supplies used. $8,000 principal 6% interest rate 1/12 time factor = $40 Analyze: The balance of the Unearned Seminar Fees account will be $2,500 ($10,000 - $7,500 earned). 444 Chapter 12 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 12.2B GENERAL JOURNAL PAGE 1 DATE DESCRIPTION POST. REF. DEBIT CREDIT 1 2013 1 2 June 1 Prepaid Rent 18 00000 2 3 Cash 18 00000 3 4 4 5 1 Cash 17 55000 5 6 Prepaid Interest 45000 6 7 Notes Payable 18 00000 7 8 8 9 1 Cash 54 60000 9 10 Unearned Advertising Fees 54 60000 10 11 11 12 1 Office Equipment 15 40000 12 13 Notes Payable 15 40000 13 14 14 15 1 Prepaid Insurance 194400 15 16 Cash 194400 16 17 17 18 3 Office Furniture 17 40000 18 19 Accounts Payable 900000 19 20 Cash 840000 20 21 21 22 5 Office Supplies 281000 22 23 Cash 281000 23 24 24 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 12 445
PROBLEM 12.2B (continued) GENERAL JOURNAL PAGE 2 DATE DESCRIPTION POST. REF. DEBIT CREDIT 1 Adjusting Entries 1 2 2013 2 3 June 30 Rent Expense 300000 3 4 Prepaid Rent 300000 4 5 5 6 30 Interest Expense 15000 6 7 Prepaid Interest 15000 7 8 8 9 30 Unearned Advertising Fees 455000 9 10 Advertising Fees 455000 10 11 11 12 30 Interest Expense 15400 12 13 Interest Payable 15400 13 14 14 15 30 Depreciation Expense Office Equipment 24000 15 16 Accumulated Depreciation Office Equipment 24000 16 17 17 18 30 Insurance Expense 16200 18 19 Prepaid Insurance 16200 19 20 20 21 30 Depreciation Expense Office Furniture 2 7 0 00 21 22 Accumulated Depreciation Office Furniture 2 7 0 00 22 23 23 24 30 Office Supplies Expense 166000 24 25 Office Supplies 166000 25 26 26 Analyze: Total Rent expense will be $18,000 at the end of the year. 446 Chapter 12 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 12.3B Cross Timbers Company Partial Worksheet Month Ended September 30, 2013 TRIAL BALANCE ADJUSTMENTS ACCOUNT NAME DEBIT CREDIT DEBIT CREDIT 1 Cash 2646000 2 Supplies 7 4 0 00 (a) 3 5 00 3 Prepaid Rent 420000 (b) 70000 4 Prepaid Advertising 375000 (c) 62500 5 Prepaid Interest 4 5 0 00 (d) 1 5 0 00 6 Furniture 484000 7 8 Accumulated Depreciation Office Furniture (e) 7 5 00 9 Equipment 900000 10 Accumulated (f) 1 3 0 00 Depreciation Equipment 11 Notes Payable 2025000 12 Accounts Payable 440000 13 Interest Payable (g) 3 5 00 14 Unearned Course Fees 2200000 (h) 7 0 0 0 00 15 Scott Nelson, Capital 673000 16 Scott Nelson, Drawing 200000 17 Course Fees (h) 7 0 0 0 00 18 Salaries Expense 160000 19 Telephone Expense 1 2 0 00 20 Entertainment Expense 2 2 0 00 21 Supplies Expense (a) 3 5 00 22 Rent Expense (b) 7 0 0 00 23 Advertising Expense (c) 6 2 5 00 24 Depreciation (e) 7 5 00 Expense Furniture 25 Depreciation (f) 1 3 0 00 26 Expense Equipment Interest Expense (d) 1 5 0 00 27 (g) 3 5 00 28 Totals 5338000 5338000 875000 875000 29 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 12 447
PROBLEM 12.3B (continued) ADJUSTED TRIAL BALANCE INCOME STATEMENT BALANCE SHEET DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT 26 4 6 0 00 1 70500 2 350000 3 312500 4 30000 5 484000 6 7 7 5 00 8 900000 9 1 3 0 00 10 20 2 5 0 00 11 440000 12 3 5 00 13 15 0 0 0 00 14 673000 15 200000 16 700000 17 160000 18 12000 19 22000 20 3500 21 70000 22 62500 23 7500 24 13000 25 18500 26 27 53 6 2 0 00 53 6 2 0 00 28 29 Analyze: The net dollar effect of the adjustments is an increase of $5,250.00 in income. 448 Chapter 12 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 12.4B Fun Depot Worksheet Year Ended December 31, 2013 TRIAL BALANCE ADJUSTMENTS ACCOUNT NAME DEBIT CREDIT DEBIT CREDIT 1 Cash 26 4 0 0 00 2 Accounts Receivable 22 7 0 0 00 3 Allowance for Doubtful Accounts 3 2 0 00 (c ) 3 0 8 0 00 4 Merchandise Inventory 138 0 0 0 00 (b)148 0 0 0 00 (a)138 0 0 0 00 5 Supplies 11 6 0 0 00 (d) 8 6 4 0 00 6 Prepaid Advertising 5 2 8 0 00 (e) 3 5 2 0 00 7 Store Equipment 32 5 0 0 00 8 Accumulated Depr. Store Equip. 5 7 6 0 00 (f) 5 7 6 0 00 9 Office Equipment 8 4 0 0 00 10 Accumulated Depr. Office Equip. 1 4 4 0 00 (g) 1 4 4 0 00 11 Accounts Payable 8 6 0 0 00 12 Social Security Tax Payable 5 9 2 0 00 (i) 4 9 6 00 13 Medicare Tax Payable 1 3 6 8 00 (i) 1 1 6 00 14 Federal Unemployment Tax Payable (j) 6 4 00 15 State Unemployment Tax Payable (j) 4 3 2 00 16 Salaries Payable (h) 8 0 0 0 00 17 Janie Fielder, Capital 112 2 5 0 00 18 Janie Fielder, Drawing 100 0 0 0 00 19 Sales 1,043 6 6 2 00 20 Sales Returns and Allowances 17 2 0 0 00 21 Purchases 507 6 0 0 00 22 Purchases Returns and Allowances 5 0 4 0 00 23 Rent Expense 125 0 0 0 00 24 Telephone Expense 4 2 8 0 00 25 Salaries Expense 164 2 0 0 00 (h) 8 0 0 0 00 26 Payroll Taxes Expense 15 2 0 0 00 (i) 6 1 2 00 27 (j) 4 9 6 00 28 Income Summary (a)138 0 0 0 00 (b)148 0 0 0 00 29 Supplies Expense (d) 8 6 4 0 00 30 Advertising Expense 6 0 0 0 00 (e) 3 5 2 0 00 31 Depreciation Expense Store Equip. (f) 5 7 6 0 00 32 Depreciation Expense Office (g) 1 4 4 0 00 33 EUncollectible i Accounts Expense (c) 3 0 8 0 00 34 Totals Carried Forward 1,184 3 6 0 00 1,184 3 6 0 00 317 5 4 8 00 317 5 4 8 00 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 12 449
PROBLEM 12.4B (continued) ADJUSTED TRIAL BALANCE INCOME STATEMENT BALANCE SHEET DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT 26 4 0 0 00 26 4 0 0 00 1 22 7 0 0 00 22 7 0 0 00 2 340000 340000 3 148 0 0 0 00 148 0 0 0 00 4 296000 296000 5 176000 176000 6 32 5 0 0 00 32 5 0 0 00 7 11 5 2 0 00 11 5 2 0 00 8 840000 840000 9 288000 288000 10 860000 860000 11 641600 641600 12 148400 148400 13 6 4 00 6 4 00 14 43200 43200 15 800000 800000 16 112 2 5 0 00 112 2 5 0 00 17 100 0 0 0 00 100 0 0 0 00 18 1043 6 6 2 00 1043 6 6 2 00 19 17 2 0 0 00 17 2 0 0 00 20 507 6 0 0 00 507 6 0 0 00 21 504000 504000 22 125 0 0 0 00 125 0 0 0 00 23 428000 428000 24 172 2 0 0 00 172 2 0 0 00 25 16 3 0 8 00 16 3 0 8 00 26 27 138 0 0 0 00 148 0 0 0 00 138 0 0 0 00 148 0 0 0 00 28 864000 864000 29 952000 952000 30 576000 576000 31 144000 144000 32 308000 308000 33 1,351 7 4 8 00 1,351 7 4 8 00 1,009 0 2 8 00 1,196 7 0 2 00 342 7 2 0 00 155 0 4 6 00 34 450 Chapter 12 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 12.4B (continued) Fun Depot Worksheet (Continued) Year Ended December 31, 2013 TRIAL BALANCE ADJUSTMENTS ACCOUNT NAME DEBIT CREDIT DEBIT CREDIT 1 Totals Brought Forward 1,184 3 6 0 00 1,184 36000 31754800 31754800 2 Totals 1,184 3 6 0 00 1,184 36000 31754800 31754800 3 4 5 Net Income Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 12 451
PROBLEM 12.4B (continued) ADJUSTED TRIAL BALANCE INCOME STATEMENT BALANCE SHEET DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT 1,351 7 4 8 00 1,351 7 4 8 00 1,009 0 2 8 00 1,196 7 0 2 00 342 7 2 0 00 155 0 4 6 00 1 187 6 7 4 00 187 6 7 4 00 2 1,196 7 0 2 00 1,196 7 0 2 00 342 7 2 0 00 342 7 2 0 00 3 4 5 Analyze: The resulting net income without the advertising adjustment would have been $191,194. 452 Chapter 12 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.