Exercises, Exercises: Set B, and Challenge Exercises E4-1 Identify point of revenue recognition.(LO 1), CThe following independent situations require professional judgment for determining when to recognize revenue from the transactions. (a) Southwest Airlines sells you an advance-purchase airline ticket in September for your flight home at Christmas. (b) Ultimate Electronics sells you a home theater on a “no money down and full payment in three months” promotional deal. (c) The Toronto Blue Jays sell season tickets online to games in the Skydome. Fans can purchase the tickets at any time, although the season doesn’t officially begin until April. The major league baseball season runs from April through October. (d) You borrow money in August from RBC Financial Group. The loan and the interest are repayable in full in November. (e) In August, you order a sweater from Sears using its online catalog. The sweater arrives in September, which you charged to your Sears credit card. You receive and pay the Sears bill in October. InstructionsIdentify when revenue should be recognized in each of the above situations. E4-2 Identify accounting assumptions, principles, and constraint.(LO 1), KThese accounting concepts were discussed in this and previous chapters. 1. Economic entity assumption. 2. Expense recognition principle. 3. Monetary unit assumption. 4. Periodicity assumption. 5. Historical cost principle. 6. Materiality. 7. Full disclosure principle. 8. Going concern assumption. 9. Revenue recognition principle. 10. Cost constraint. InstructionsIdentify by number the accounting concept that describes each situation below. Do not use a number more than once.________ 1. Is the rationale for why plant assets are not reported at liquidation value. (Do not use the historical cost principle.) ________ 2. Indicates that personal and business record-keeping should be separately maintained. ________ 3. Ensures that all relevant financial information is reported. ________ 4. Assumes that the dollar is the “measuring stick” used to report on financial performance. ________ 5. Requires that accounting standards be followed for all items of significant size. ________ 6. Separates financial information into time periods for reporting purposes. ________ 7. Requires recognition of expenses in the same period as related revenues. ________ 8. Indicates that fair value changes subsequent to purchase are not recorded in the accounts. E4-3 Identify the violated assumption, principle, or constraint.(LO 1), CHere are some accounting reporting situations. (a) Bonilla Company recognizes revenue at the end of the production cycle but before sale. The price of the product, as well as the amount that can be sold, is not certain. (b) Barto Company is in its fifth year of operation and has yet to issue financial statements. (Do not use the full disclosure principle.) (c) Lopez, Inc. is carrying inventory at its original cost of $100,000. Inventory has a fair value of $110,000. (d) Ryno Hospital Supply Corporation reports only current assets and current liabilities on its balance sheet. Equipment and bonds payable are reported as current assets and current liabilities, respectively. Liquidation of the company is unlikely. (e) Liu Company has inventory on hand that cost $400,000. Liu reports inventory on its balance sheet at its current fair value of $425,000. (f) Sara Toney, president of Classic Music Company, bought a computer for her personal use. She paid for the computer by using company funds and debited the “Computers” account. Instructions For each situation, list the assumption, principle, or constraint that has been violated, if any. (Some were presented in earlier chapters.) List only one answer for each situation. E4-4 Convert earnings from cash to accrual basis.(LO 2, 4, 5, 9), APYour examination of the records of a company that follows the cash basis of accounting tells you that the company’s reported cash-basis earnings in 2014 are $33,640. If this firm had followed accrual-basis accounting practices, it would have reported the following year-end balances. 2014 2013 Accounts receivable $3,400 $2,800 Supplies on hand 1,300 1,460 Unpaid wages owed 2,000 2,400 Other unpaid expenses 1,400 1,100 InstructionsDetermine the company’s net earnings on an accrual basis for 2014. Show all your calculations in an orderly fashion. E4-5 Determine cash-basis and accrual-basis earnings.(LO 2, 9), APIn its first year of operations, Ramirez Company recognized $28,000 in service revenue, $6,000 of which was on account and still outstanding at year-end. The remaining $22,000 was received in cash from customers.The company incurred operating expenses of $15,800. Of these expenses, $12,000 were paid in cash; $3,800 was still owed on account at year-end. In addition, Ramirez prepaid $2,400 for insurance coverage that would not be used until the second year of operations.Instructions1. Calculate the first year’s net earnings under the cash basis of accounting, and calculate the first year’s net earnings under the accrual basis of accounting. 2. Which basis of accounting (cash or accrual) provides more useful information for decision-makers? E4-6 Convert earnings from cash to accrual basis; prepare accrual-based financial statements.(LO 2, 4, 5, 9), APKaffen Company, a ski tuning and repair shop, opened on November 1, 2013. The company carefully kept track of all its cash receipts and cash payments. The following information is available at the end of the ski season, April 30, 2014. Cash Receipts Cash Payments Issuance of common shares $20,000 Payment to purchase repair shop equipment $ 9,200 Rent payments 1,225 Newspaper advertising payment 375 Utility bill payments 970 Part-time helper’s wage payments 2,600 Income tax payment 10,000 Cash receipts from ski and snowboard repair services 32,150 Subtotals 52,150 24,370 Cash balance 27,780 Totals $52,150 $52,150 The repair shop equipment was purchased on November 1 and has an estimated useful life of 4 years. The company rents space at a cost of $175 per month on a one-year lease. The lease contract requires payment of the first and last months’rent in advance, which was done. The part-time helper is owed $420 at April 30, 2014, for unpaid wages. At April 30, 2014, customers owe Kaffen Company $540 for services they have received but have not yet paid for.Instructions1. Prepare an accrual-basis income statement for the 6 months ended April 30, 2014. 2. Prepare the April 30, 2014, classified balance sheet. E4-7 Identify differences between cash and accrual accounting.(LO 2, 3, 9), CVidGam, a consulting firm, has just completed its first year of operations. The company’s sales growth was explosive. To encourage clients to hire its services, VidGam offered 180-day financing—meaning its largest customers do not pay for nearly 6 months. Because VidGam is a new company, its equipment suppliers insist on being paid cash on delivery. Also, it had to pay up front for 2 years of insurance. At the end of the year, VidGam owed employees for one full month of salaries, but due to a cash shortfall, it promised to pay them the first week of next year.Instructions 1. Explain how cash and accrual accounting would differ for each of the events listed above and describe the proper accrual accounting. 2. Assume that at the end of the year, VidGam reported a favorable net income, yet the company’s management is concerned because the company is very short of cash. Explain how VidGam could have positive net income and yet run out of cash. E4-8 Identify types of adjustments and accounts before adjustment.(LO 3, 4, 5), ANKwun Company accumulates the following adjustment data at December 31. (a) Services performed but unbilled totals $600. (b) Store supplies of $160 are on hand. The supplies account shows a $1,900 balance. (c) Utility expenses of $275 are unpaid. (d) Services performed of $490 collected in advance. (e) Salaries of $620 are unpaid. (f) Prepaid insurance totaling $400 has expired. Instructions For each item, indicate (1) the type of adjustment (prepaid expense, unearned revenue, accrued revenue, or accrued expense) and (2) the status of the accounts before adjustment (overstated or understated). E4-9 Prepare adjusting entries from selected account data.(LO 4, 5), APThe ledger of Beckett Rental Agency on March 31 of the current year includes the selected accounts below before adjusting entries have been prepared. Debit Credit Supplies $ 3,000 Prepaid Insurance 3,600 Equipment 25,000 Accumulated Depreciation—Equipment $ 8,400 Notes Payable 20,000 Unearned Rent Revenue 12,400 Rent Revenue 60,000 Interest Expense 0 Salaries and Wages Expense 14,000 An analysis of the accounts shows the following. 1. The equipment depreciates $280 per month. 2. Half of the unearned rent revenue was earned during the quarter. 3. Interest of $400 is accrued on the notes payable. 4. Supplies on hand total $850. 5. Insurance expires at the rate of $400 per month. InstructionsPrepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly. Additional accounts are Depreciation Expense, Insurance Expense, Interest Payable, and Supplies Expense. E4-10 Prepare adjusting entries.(LO 4, 5), APJim Haught, D.D.S., opened an incorporated dental practice on January 1, 2014. During the first month of operations, the following transactions occurred. 1. Performed services for patients who had dental plan insurance. At January 31, $760 of such services was completed but not yet billed to the insurance companies. 2. Utility expenses incurred but not paid prior to January 31 totaled $450. 3. Purchased dental equipment on January 1 for $80,000, paying $20,000 in cash and signing a $60,000, 3-year note payable (interest is paid each December 31). The equipment depreciates $400 per month. Interest is $500 per month. 4. Purchased a 1-year malpractice insurance policy on January 1 for $24,000. 5. Purchased $1,750 of dental supplies (recorded as increase to Supplies). On January 31, determined that $550 of supplies were on hand. InstructionsPrepare the adjusting entries on January 31. Account titles are Accumulated Depreciation—Equipment, Depreciation Expense, Service Revenue, Accounts Receivable, Insurance Expense, Interest Expense, Interest Payable, Prepaid Insurance, Supplies, Supplies Expense, Utilities Expense, and Accounts Payable. E4-11 Prepare adjusting entries.(LO 4, 5), APThe unadjusted trial balance for Sierra Corp. is shown in Illustration 4-4 . Instead of the adjusting entries shown in the text at October 31, assume the following adjustment data. 1. Supplies on hand at October 31 total $500. 2. Expired insurance for the month is $100. 3. Depreciation for the month is $75. 4. As of October 31, services worth $800 related to the previously recorded unearned revenue had been performed. 5. Services performed but unbilled (and no receivable has been recorded) at October 31 are $280. 6. Interest expense accrued at October 31 is $70. 7. Accrued salaries at October 31 are $1,400. InstructionsPrepare the adjusting entries for the items above. E4-12 Prepare a correct income statement.(LO 1, 4, 5, 6), APThe income statement of Garska Co. for the month of July shows net income of $2,000 based on Service Revenue $5,500; Salaries and Wages Expense $2,100; Supplies Expense $900; and Utilities Expense $500. In reviewing the statement, you discover the following: 1. Insurance expired during July of $350 was omitted. 2. Supplies expense includes $200 of supplies that are still on hand at July 31. 3. Depreciation on equipment of $150 was omitted. 4. Accrued but unpaid wages at July 31 of $360 were not included. 5. Services performed but unrecorded totaled $700. InstructionsPrepare a correct income statement for July 2014. E4-13 Analyze adjusted data.(LO 1, 4, 5, 6), ANThis is a partial adjusted trial balance of Barone Company.BARONE COMPANYAdjusted Trial BalanceJanuary 31, 2014 Debit Supplies $  700 Prepaid Insurance 1,560 Salaries and Wages Payable Unearned Service Revenue Supplies Expense 950 Insurance Expense 520 Salaries and Wages Expense 1,800 Service Revenue InstructionsAnswer these questions, assuming the year begins January 1.1. If the amount in Supplies Expense is the January 31 adjusting entry, and $300 of supplies was purchased in January, what was the balance in Supplies on January 1? 2. If the amount in Insurance Expense is the January 31 adjusting entry, and the original insurance premium was for 1 year, what was the total premium and when was the policy purchased? 3. If $2,500 of salaries was paid in January, what was the balance in Salaries and Wages Payable at December 31, 2013? 4. If $1,800 was received in January for services performed in January, what was the balance in Unearned Service Revenue at December 31, 2013? E4-14 Prepare closing entries.(LO 7), APA partial adjusted trial balance for Barone Company is given in E4-13.InstructionsPrepare the closing entries at January 31, 2014. E4-15 Journalize basic transactions and adjusting entries.(LO 4, 5, 6), ANSelected accounts of Castle Company are shown here.Supplies Expense Salaries and Wages Payable July 31 750 July 31 Salaries and Wages Expense Accounts Receivable July 15 1,000 July 31 500 31 1,000 Service Revenue Unearned Service Revenue July 14 3,800 July 31 900 July 1 31 900 20 31 500 Supplies July 1 Bal. 1,100 July 31 750 10 200 InstructionsAfter analyzing the accounts, journalize (a) the July transactions and (b) the adjusting entries that were made on July 31.(Hint: July transactions were for cash.) E4-16 Prepare adjusting entries from analysis of trial balance.(LO 4, 5, 6), APThe trial balances shown below are before and after adjustment for Bere Company at the end of its fiscal year.BERE COMPANYTrial BalanceAugust 31, 2014 Before Adjustment After Adjustment Dr. Cr. Dr. Cash $10,900 $10,900 Accounts Receivable 8,800 9,400 Supplies 2,500 500 Prepaid Insurance 4,000 2,500 Equipment 16,000 16,000 Accumulated Depreciation—Equipment $ 3,600 Accounts Payable 5,800 Salaries and Wages Payable 0 Unearned Rent Revenue 1,800 Common Stock 10,000 Retained Earnings 5,500 Dividends 2,800 2,800 Service Revenue 34,000 Rent Revenue 12,100 Salaries and Wages Expense 17,000 18,100 Supplies Expense 0 2,000 Rent Expense 10,800 10,800 Insurance Expense 0 1,500 Depreciation Expense 0 1,200 $72,800 $72,800 $75,700 InstructionsPrepare the adjusting entries that were made. E4-17 Prepare financial statements from adjusted trial balance.(LO 6), APThe adjusted trial balance for Bere Company is given in E4-16.InstructionsPrepare the income and retained earnings statements for the year and the classified balance sheet at August 31. E4-18 Prepare closing entries.(LO 7), APThe adjusted trial balance for Bere Company is given in E4-16.InstructionsPrepare the closing entries for the temporary accounts at August 31. Exercises: Set B and Challenge ExercisesVisit the book’s companion website, at www.wiley.com/college/kimmel, and choose the Student Companion site to access Exercise Set B and Challenge Exercises.Problems: Set A, Problems: Set B, and Problems: Set C Problems: Set AP4-1A Record transactions on accrual basis; convert revenue to cash receipts.(LO 2, 4, 9), APThe following selected data are taken from the comparative financial statements of American Curling Club. The club prepares its financial statements using the accrual basis of accounting.September 30 2014 2013 Accounts receivable for member dues $ 15,000 $ 19,000 Unearned sales revenue 20,000 23,000 Service revenue (from member dues) 151,000 135,000 Dues are billed to members based upon their use of the club’s facilities. Unearned sales revenues arise from the sale of tickets to events, such as the Skins Game.Instructions(Hint: You will find it helpful to use T-accounts to analyze the following data. You must analyze these data sequentially, as missing information must first be deduced before moving on. Post your journal entries as you progress, rather than waiting until the end.)1. Prepare journal entries for each of the following events that took place during 2014. 1. Dues receivable from members from 2013 were all collected during 2014. 2. During 2014, goods were provided for all of the unearned sales revenue at the end of 2013. 3. Additional tickets were sold for $44,000 cash during 2014; a portion of these were used by the purchasers during the year. The entire balance remaining in Unearned Sales Revenue relates to the upcoming Skins Game in 2014. 4. Dues for the 2013-2014 fiscal year were billed to members. 5. Dues receivable for 2014 (i.e., those billed in item (4) above) were partially collected. 2. Determine the amount of cash received by American from the above transactions during the year ended September 30, 2014.(b) Cash received $199,000 P4-2A Prepare adjusting entries, post to ledger accounts, and prepare adjusted trial balance.(LO 4, 5, 6), APKen Lumas started his own consulting firm, Lumas Consulting, on June 1, 2014. The trial balance at June 30 is as follows.LUMAS CONSULTINGTrial BalanceJune 30, 2014 Debit Cash $ 6,850 Accounts Receivable 7,000 Supplies 2,000 Prepaid Insurance 2,880 Equipment 15,000 Accounts Payable Unearned Service Revenue Common Stock Service Revenue Salaries and Wages Expense 4,000 Rent Expense 2,000 $39,730 In addition to those accounts listed on the trial balance, the chart of accounts for Lumas also contains the following accounts: Accumulated Depreciation—Equipment, Salaries and Wages Payable, Depreciation Expense, Insurance Expense, Utilities Expense, and Supplies Expense.Other data: 1. Supplies on hand at June 30 total $720. 2. A utility bill for $180 has not been recorded and will not be paid until next month. 3. The insurance policy is for a year. 4. Services were performed for $4,100 of unearned service revenue by the end of the month. 5. Salaries of $1,250 are accrued at June 30. 6. The equipment has a 5-year life with no salvage value and is being depreciated at $250 per month for 60 months. 7. Invoices representing $3,900 of services performed during the month have not been recorded as of June 30. Instructions1. Prepare the adjusting entries for the month of June. 2. Post the adjusting entries to the ledger accounts. Enter the totals from the trial balance as beginning account balances. (Use T-accounts.)(b) Service rev. $16,300 3. Prepare an adjusted trial balance at June 30, 2014.(c) Tot. trial balance $45,310 P4-3A Prepare adjusting entries, adjusted trial balance, and financial statements.(LO 4, 5, 6, 7), APThe Solo Hotel opened for business on May 1, 2014. Here is its trial balance before adjustment on May 31.SOLO HOTELTrial BalanceMay 31, 2014 Debit Cash $  2,500 Supplies 2,600 Prepaid Insurance 1,800 Land 15,000 Buildings 70,000 Equipment 16,800 Accounts Payable Unearned Rent Revenue Mortgage Payable Common Stock Rent Revenue Salaries and Wages Expense 3,000 Utilities Expense 800 Advertising Expense 500 $113,000 Other data: 1. Insurance expires at the rate of $450 per month. 2. A count of supplies shows $1,050 of unused supplies on May 31. 3. Annual depreciation is $3,600 on the building and $3,000 on equipment. 4. The mortgage interest rate is 6%. (The mortgage was taken out on May 1.) 5. Unearned rent of $2,500 has been earned. 6. Salaries of $900 are accrued and unpaid at May 31. Instructions1. Journalize the adjusting entries on May 31. 2. Prepare a ledger using T-accounts. Enter the trial balance amounts and post the adjusting entries. 3. Prepare an adjusted trial balance on May 31.(c) Rent revenue $11,500 Tot. adj. trial balance $114,630 4. Prepare an income statement and a retained earnings statement for the month of May and a classified balance sheet at May 31.(d) Net income $3,570 5. Identify which accounts should be closed on May 31. P4-4A Prepare adjusting entries and financial statements; identify accounts to be closed.(LO 4, 5, 6, 7), APWolf Creek Golf Inc. was organized on July 1, 2014. Quarterly financial statements are prepared. The trial balance and adjusted trial balance on September 30 are shown here.WOLF CREEK GOLF INC.Trial BalanceSeptember 30, 2014 Unadjusted Adjusted Dr. Cr. Dr. Cash $ 6,700 $ 6,700 Accounts Receivable 400 1,000 Supplies 1,200 180 Prepaid Rent 1,800 900 Equipment 15,000 15,000 Accumulated Depreciation—Equipment Notes Payable $ 5,000 Accounts Payable 1,070 Salaries and Wages Payable Interest Payable Unearned Rent Revenue 1,000 Common Stock 14,000 Retained Earnings 0 Dividends 600 600 Service Revenue 14,100 Rent Revenue 700 Salaries and Wages Expense 8,800 9,400 Rent Expense 900 1,800 Depreciation Expense 350 Supplies Expense 1,020 Utilities Expense 470 470 Interest Expense 50 $35,870 $35,870 $37,470 Instructions1. Journalize the adjusting entries that were made. 2. Prepare an income statement and a retained earnings statement for the 3 months ending September 30 and a classified balance sheet at September 30.(b) Net income $2,510 Tot. assets $23,430 3. Identify which accounts should be closed on September 30. 4. If the note bears interest at 12%, how many months has it been outstanding? P4-5A Prepare adjusting entries.(LO 4, 5), APA review of the ledger of Dempsey Company at December 31, 2014, produces these data pertaining to the preparation of annual adjusting entries. 1. Prepaid Insurance $15,200. The company has separate insurance policies on its buildings and its motor vehicles. Policy B4564 on the building was purchased on July 1, 2013, for $9,600. The policy has a term of 3 years. Policy A2958 on the vehicles was purchased on January 1, 2014, for $7,200. This policy has a term of 18 months. 2. 2. Rent revenue $84,000 Unearned Rent Revenue $429,000. The company began subleasing office space in its new building on November 1. At December 31, the company had the following rental contracts that are paid in full for the entire term of the lease.Date Term (in months) Monthly Rent Number of Leases Nov. 1 9 $5,000 5 Dec. 1 6 $8,500 4 3. Notes Payable $40,000. This balance consists of a note for 6 months at an annual interest rate of 7%, dated October 1. 4. Salaries and Wages Payable $0. There are eight salaried employees. Salaries are paid every Friday for the current week. Five employees receive a salary of $600 each per week, and three employees earn $700 each per week. Assume December 31 is a Wednesday. Employees do not work weekends. All employees worked the last 3 days of December. InstructionsPrepare the adjusting entries at December 31, 2014. P4-6A Prepare adjusting entries and a corrected income statement.(LO 4, 5), ANAstromech Travel Court was organized on July 1, 2013, by Jessica Browning. Jessica is a good manager but a poor accountant. From the trial balance prepared by a part-time bookkeeper, Jessica prepared the following income statement for her fourth quarter, which ended June 30, 2014.ASTROMECH TRAVEL COURTIncome StatementFor the Quarter Ended June 30, 2014 Revenues Rent revenue Operating expense Advertising expense $ 3,800 Salaries and wages expense 80,500 Utilities expense 900 Depreciation expense 2,700 Maintenance and repairs expense 4,300 Total operating expenses Net income Jessica suspected that something was wrong with the statement because net income had never exceeded $30,000 in any one quarter. Knowing that you are an experienced accountant, she asks you to review the income statement and other data.You first look at the trial balance. In addition to the account balances reported above in the income statement, the trial balance contains the following additional selected balances at June 30, 2014.Supplies $ 8,200 Prepaid Insurance 14,400 Notes Payable 14,000 You then make inquiries and discover the following. 1. Travel court rental revenues include advanced rental payments received for summer occupancy, in the amount of $57,000. 2. There were $1,800 of supplies on hand at June 30. 3. Prepaid insurance resulted from the payment of a one-year policy on April 1, 2014. 4. The mail in July 2014 brought the following bills: advertising for the week of June 24, $110; repairs made June 18, $4,450; and utilities for the month of June, $215. 5. There are three employees who receive wages that total $300 per day. At June 30, four days’wages have been incurred but not paid. 6. The note payable is a 6% note dated May 1, 2014, and due on July 31, 2014. 7. Income tax of $13,400 for the quarter is due in July but has not yet been recorded. Instructions1. Prepare any adjusting journal entries required at June 30, 2014. 2. Prepare a correct income statement for the quarter ended June 30, 2014.(b) Net income $33,285 3. Explain to Jessica the generally accepted accounting principles that she did not recognize in preparing her income statement and their effect on her results. P4-7A Journalize transactions and follow through accounting cycle to preparation of financial statements.(LO 4, 5, 6), APOn November 1, 2014, the following were the account balances of Rijo Equipment Repair. Debit Credit Cash $ 2,790 Accumulated Depreciation—Equipment $   500 Accounts Receivable 2,910 Accounts Payable 2,300 Supplies 1,120 Unearned Service Revenue 400 Equipment 10,000 Salaries and Wages Payable 620 Common Stock 10,000 Retained Earnings 3,000 $16,820 $16,820 During November, the following summary transactions were completed.Nov.  8 Paid $1,220 for salaries due employees, of which $600 is for November and $620 is for October salaries payable. 10 Received $1,800 cash from customers in payment of account. 12 Received $3,700 cash for services performed in November. 15 Purchased store equipment on account $3,600. 17 Purchased supplies on account $1,300. 20 Paid creditors $2,500 of accounts payable due. 22 Paid November rent $480. 25 Paid salaries $1,000. 27 Performed services on account worth $900 and billed customers. 29 Received $750 from customers for services to be provided in the future. Adjustment data: 1. Supplies on hand are valued at $1,100. 2. Accrued salaries payable are $480. 3. Depreciation for the month is $250. 4. Services were performed to satisfy $500 of unearned service revenue. Instructions1. Enter the November 1 balances in the ledger accounts. (Use T-accounts.) 2. Journalize the November transactions. 3. Post to the ledger accounts. Use Service Revenue, Depreciation Expense, Supplies Expense, Salaries and Wages Expense, and Rent Expense. 4. Prepare a trial balance at November 30. 5. Journalize and post adjusting entries. 6. Prepare an adjusted trial balance.(f) Cash $3,840 Tot. adj. trial balance $24,680 7. Prepare an income statement and a retained earnings statement for November and a classified balance sheet at November 30.(g) Net income $970 P4-8A Complete all steps in accounting cycle.(LO 4, 5, 6, 7, 8), APMike Greenberg opened Clean Window Washing Inc. on July 1, 2014. During July, the following transactions were completed.July 1 Issued 12,000 shares of common stock for $12,000 cash. 1 Purchased used truck for $8,000, paying $2,000 cash and the balance on account. 3 Purchased cleaning supplies for $900 on account. 5 Paid $1,800 cash on a 1-year insurance policy effective July 1. 12 Billed customers $3,700 for cleaning services. 18 Paid $1,000 cash on amount owed on truck and $500 on amount owed on cleaning supplies. 20 Paid $2,000 cash for employee salaries. 21 Collected $1,600 cash from customers billed on July 12. 25 Billed customers $2,500 for cleaning services. 31 Paid $290 for maintenance of the truck during month. 31 Declared and paid $600 cash dividend. The chart of accounts for Clean Window Washing contains the following accounts: Cash, Accounts Receivable, Supplies, Prepaid Insurance, Equipment, Accumulated Depreciation—Equipment, Accounts Payable, Salaries and Wages Payable, Common Stock, Retained Earnings, Dividends, Income Summary, Service Revenue, Maintenance and Repairs Expense, Supplies Expense, Depreciation Expense, Insurance Expense, Salaries and Wages Expense.Instructions1. Journalize the July transactions. 2. Post to the ledger accounts. (Use T-accounts.) 3. Prepare a trial balance at July 31. 4. Journalize the following adjustments. 1. Services performed but unbilled and uncollected at July 31 were $1,700. 2. Depreciation on equipment for the month was $180. 3. One-twelfth of the insurance expired. 4. An inventory count shows $320 of cleaning supplies on hand at July 31. 5. Accrued but unpaid employee salaries were $400. 5. Post adjusting entries to the T-accounts. 6. Prepare an adjusted trial balance.(f) Cash $5,410 7. Prepare the income statement and a retained earnings statement for July and a classified balance sheet at July 31.(g) Tot. assets $21,500 8. Journalize and post closing entries and complete the closing process. 9. Prepare a post-closing trial balance at July 31. Problems: Set BP4-1B Record transactions on accrual basis; convert revenue to cash receipts.(LO 2, 4, 9), APThe following data are taken from the comparative balance sheets of Golfview Inn, which prepares its financial statements using the accrual basis of accounting.December 31 2014 2013 Accounts receivable for member fees $18,000 $20,000 Unearned service revenue 17,000 10,000 Fees are billed to members based upon their use of the club’s facilities. Unearned service revenues arise from the sale of gift certificates, which members can apply to their future use of club facilities. The 2014 income statement for the club showed that service revenue of $190,000 was recognized during the year.Instructions(Hint: You will find it helpful to use T-accounts to analyze these data.)1. Prepare journal entries for each of the following events that took place during 2014. 1. Fees receivable from 2013 were all collected during 2014. 2. Gift certificates outstanding at the end of 2013 were all redeemed during 2014. 3. An additional $40,000 worth of gift certificates were sold during 2014; a portion of these were used by the recipients during the year; the remainder were still outstanding at the end of 2014. 4. Fees for 2014 were billed to members. 5. Fees receivable for 2014 (i.e., those billed in item (4) above) were partially collected. 2. Determine the amount of cash received by the club with respect to fees during 2014.(b) Cash received $199,000 P4-2B Prepare adjusting entries, post to ledger accounts, and prepare an adjusted trial balance.(LO 4, 5, 6), APPat Okendo started her own consulting firm, Okendo Consulting, on May 1, 2014. The trial balance at May 31 is as shown on the next page.OKENDO CONSULTINGTrial BalanceMay 31, 2014 Debit Cash $ 7,500 Accounts Receivable 3,000 Supplies 2,500 Prepaid Insurance 3,600 Equipment 12,000 Accounts Payable Unearned Service Revenue Common Stock Service Revenue Salaries and Wages Expense 4,000 Rent Expense 1,500 $34,100 In addition to those accounts listed on the trial balance, the chart of accounts for Okendo Consulting also contains the following accounts: Accumulated Depreciation—Equipment, Salaries and Wages Payable, Depreciation Expense, Insurance Expense, Utilities Expense, and Supplies Expense.Other data: 1. $1,000 of supplies have been used during the month. 2. Utility costs incurred but not paid are $300. 3. The insurance policy is for 3 years. 4. $1,500 of the balance in the Unearned Service Revenue account remains unearned at the end of the month. 5. Assume May 31 is a Tuesday and employees are paid on Fridays. Okendo Consulting has two employees that are paid $600 each for a 5-day work week. 6. The equipment has a 5-year life with no salvage value and is being depreciated at $200 per month for 60 months. 7. Invoices representing $1,500 of services performed during the month have not been recorded as of May 31. Instructions1. Prepare the adjusting entries for the month of May. 2. Post the adjusting entries to the ledger accounts. Enter the totals from the trial balance as beginning account balances. (Use T-accounts.) 3. Prepare an adjusted trial balance at May 31, 2014.(c) Tot. trial balance $36,580 P4-3B Prepare adjusting entries, adjusted trial balance, and financial statements.(LO 4, 5, 6, 7), APDeath Valley Resort opened for business on June 1 with eight air-conditioned units. Its trial balance before adjustment on August 31 is presented here.DEATH VALLEY RESORTTrial BalanceAugust 31, 2014 Debit Cash $ 24,600 Supplies 4,300 Prepaid Insurance 5,400 Land 40,000 Buildings 132,000 Equipment 36,000 Accounts Payable Unearned Rent Revenue Mortgage Payable Common Stock Dividends 5,000 Rent Revenue Salaries and Wages Expense 53,000 Utilities Expense 9,400 Maintenance and Repairs Expense 3,600 $313,300 Other data: 1. Insurance expires at the rate of $500 per month. 2. A count of supplies on August 31 shows $900 of supplies on hand. 3. Annual depreciation is $6,600 on buildings and $4,000 on equipment. 4. Unearned rent of $4,000 was earned prior to August 31. 5. Salaries of $600 were unpaid at August 31. 6. Rentals of $1,600 were due from tenants at August 31. (Use Accounts Receivable.) 7. The mortgage interest rate is 6% per year. (The mortgage was taken out August 1.) Instructions1. Journalize the adjusting entries on August 31 for the 3-month period June 1-August 31. 2. Prepare a ledger using T-accounts. Enter the trial balance amounts and post the adjusting entries. 3. Prepare an adjusted trial balance on August 31.(c) Tot. adj. trial balance $318,750 4. Prepare an income statement and a retained earnings statement for the 3 months ended August 31 and a classified balance sheet as of August 31.(d) Net income $ 10,850 5. Identify which accounts should be closed on August 31. P4-4B Prepare adjusting entries and financial statements; identify accounts to be closed.(LO 4, 5, 6, 7), APAbDulla Advertising Agency was founded by Miriam AbDulla in January 2009. Presented here are both the adjusted and unadjusted trial balances as of December 31, 2014.ABDULLA ADVERTISING AGENCYTrial BalanceDecember 31, 2014 Unadjusted Adjusted Dr. Cr. Dr. Cash $ 11,000 $ 11,000 Accounts Receivable 16,000 19,000 Supplies 9,400 7,000 Prepaid Insurance 3,350 1,790 Equipment 60,000 60,000 Accumulated Depreciation—Equipment $ 25,000 Notes Payable 8,000 Accounts Payable 2,000 Interest Payable 0 Unearned Service Revenue 5,000 Salaries and Wages Payable 0 Common Stock 20,000 Retained Earnings 5,500 Dividends 10,000 10,000 Service Revenue 57,600 Salaries and Wages Expense 9,000 9,820 Insurance Expense 1,560 Interest Expense 560 Depreciation Expense 5,000 Supplies Expense 2,400 Rent Expense 4,350 4,350 $123,100 $123,100 $132,480 Instructions1. Journalize the annual adjusting entries that were made. 2. Prepare an income statement and a retained earnings statement for the year ended December 31, and a classified balance sheet at December 31.(b) Net income $38,810 Tot. assets $68,790 3. Identify which accounts should be closed on December 31. 4. If the note has been outstanding 10 months, what is the annual interest rate on that note? 5. If the company paid $10,000 in salaries in 2014, what was the balance in Salaries and Wages Payable on December 31, 2013? P4-5B Prepare adjusting entries.(LO 4, 5) APA review of the ledger of Garner Company at December 31, 2014, produces these data pertaining to the preparation of annual adjusting entries. 1. Prepaid Insurance $16,400. The company has separate insurance policies on its buildings and its motor vehicles. Policy B4564 on the building was purchased on January 1, 2013, for $11,400. The policy has a term of 3 years. Policy A2958 on the vehicles was purchased on July 1, 2014, for $8,800. This policy has a term of 2 years. 2. 2. Rent revenue $90,000 Unearned Rent Revenue $450,000. The company began subleasing office space in its new building on November 1. At December 31, the company had the following rental contracts that are paid in full for the entire term of the lease.Date Term (in months) Monthly Rent Number of Leases Nov. 1 9 $6,000 5 Dec. 1 6 $7,500 4 3. Notes Payable $20,000. This balance consists of a note for 8 months at an annual interest rate of 9%, dated August 1. 4. Salaries and Wages Payable $0. There are six salaried employees. Salaries are paid every Friday for the current week. Four employees receive a salary of $480 each per week, and two employees earn $600 each per week. December 31 is a Thursday. Employees do not work weekends. All employees worked the last 4 days of December. InstructionsPrepare the adjusting entries at December 31, 2014. P4-6B Prepare adjusting entries and a corrected income statement.(LO 4, 5) ANTutors-Plus Test Prep was organized on May 1, 2013, by Jan Cooper. Jan is a good manager but a poor accountant. From the trial balance prepared by a part-time bookkeeper, Jan prepared the following income statement for her fourth quarter, which ended April 30, 2014.TUTORS-PLUS TEST PREPIncome StatementFor the Quarter Ended April 30, 2014 Revenues Service revenue Operating expenses Advertising expense $ 6,400 Salaries and wages expense 92,000 Utilities expense 1,300 Depreciation expense 2,400 Maintenance and repairs expense 1,700 Total operating expenses Net income Jan suspected that something was wrong with the statement because net income had never exceeded $40,000 in any one quarter. Knowing that you are an experienced accountant, she asks you to review the income statement and other data.You first look at the trial balance. In addition to the account balances reported above in the income statement, the ledger contains the following additional selected balances at April 30, 2014.Supplies $ 9,800 Prepaid Insurance 12,000 Notes Payable 15,000 You then make inquiries and discover the following. 1. Service revenue includes advance payments received for summer classes, in the amount of $75,000. 2. There were $2,600 of supplies on hand at April 30. 3. Prepaid insurance resulted from the payment of a one-year policy on February 1, 2014. 4. The mail in May 2014 brought the following bills: advertising for the week of April 24, $80; repairs made April 18, $2,560; and utilities for the month of April, $530. 5. There are six employees who receive wages that total $1,380 per day. At April 30, three days’wages have been incurred but not paid. 6. The note payable is a 8% note dated February 1, 2014, and due on May 31, 2014. 7. Income tax of $15,200 for the quarter is due in May but has not yet been recorded. Instructions1. Prepare any adjusting journal entries required as at April 30, 2014. 2. Prepare a correct income statement for the quarter ended April 30, 2014.(b) Net income $28,190 3. Explain to Jan the generally accepted accounting principles that she did not recognize in preparing her income statement and their effect on her results. P4-7B Journalize transactions and follow through accounting cycle to preparation of financial statements.(LO 4, 5, 6)On August 1, 2014, the following were the account balances of D&D Repair Services. Debit Credit Cash $ 6,040 Accumulated Depreciation—Equipment $   600 Accounts Receivable 2,910 Accounts Payable 2,300 Supplies 1,030 Unearned Service Revenue 1,260 Equipment 10,000 Salaries and Wages Payable 1,420 Common Stock 10,000 Retained Earnings 4,400 $19,980 $19,980 During August, the following summary transactions were completed.Aug. 5 Received $1,200 cash from customers in payment of account. 10 Paid $3,120 for salaries due employees, of which $1,700 is for August and $1,420 is for July salaries payable. 12 Received $2,800 cash for services performed in August. 15 Purchased store equipment on account $2,000. 17 Purchased supplies on account $860. 20 Paid creditors $2,000 of accounts payable due. 22 Paid August rent $380. 25 Paid salaries $2,900. 27 Performed services worth $3,130 on account and billed customers. 29 Received $780 from customers for services to be provided in the future. Adjustment data: 1. Supplies on hand are valued at $960. 2. Accrued salaries payable are $1,540. 3. Depreciation for the month is $320. 4. Services were performed to satisfy $800 of unearned service revenue. Instructions1. Enter the August 1 balances in the ledger accounts. (Use T-accounts.) 2. Journalize the August transactions. 3. Post to the ledger accounts. Use Service Revenue, Depreciation Expense, Supplies Expense, Salaries and Wages Expense, and Rent Expense. 4. Prepare a trial balance at August 31. 5. Journalize and post adjusting entries. 6. Prepare an adjusted trial balance.(f) Cash $2,420 Tot. adj. trial balance $27,990 7. Prepare an income statement and a retained earnings statement for August and a classified balance sheet at August 31.(g) Net loss $1,040 P4-8B Complete all steps in accounting cycle.(LO 4, 5, 6, 7, 8), APGeog Lav opened Geog Cleaners on March 1, 2014. During March, the following transactions were completed.Mar.  1 Issued 10,000 shares of common stock for $15,000 cash. 1 Purchased used truck for $8,000, paying $3,000 cash and the balance on account. 3 Purchased cleaning supplies for $2,000 on account. 5 Paid $2,400 cash on a 6-month insurance policy effective March 1. 14 Billed customers $3,700 for cleaning services. 18 Paid $1,500 cash on amount owed on truck and $500 on amount owed on cleaning supplies. 20 Paid $1,750 cash for employee salaries. 21 Collected $1,600 cash from customers billed on March 14. 28 Billed customers $4,200 for cleaning services. 31 Paid $350 for gas and oil used in truck during month (use Maintenance and Repairs Expense). 31 Declared and paid a $900 cash dividend. The chart of accounts for Geog Cleaners contains the following accounts: Cash, Accounts Receivable, Supplies, Prepaid Insurance, Equipment, Accumulated Depreciation—Equipment, Accounts Payable, Salaries and Wages Payable, Common Stock, Retained Earnings, Dividends, Income Summary, Service Revenue, Maintenance and Repairs Expense, Supplies Expense, Depreciation Expense, Insurance Expense, Salaries and Wages Expense.Instructions1. Journalize the March transactions. 2. Post to the ledger accounts. (Use T-accounts.) 3. Prepare a trial balance at March 31. 4. Journalize the following adjustments. 1. Services performed but unbilled at March 31 was $200. 2. Depreciation on equipment for the month was $250. 3. One-sixth of the insurance expired. 4. An inventory count shows $280 of cleaning supplies on hand at March 31. 5. Accrued but unpaid employee salaries were $1,080. 5. Post adjusting entries to the T-accounts. 6. Prepare an adjusted trial balance.(f) Tot. adj. trial balance $29,430 7. Prepare the income statement and a retained earnings statement for March and a classified balance sheet at March 31.(g) Tot. assets $22,730 8. Journalize and post closing entries and complete the closing process. 9. Prepare a post-closing trial balance at March 31.