1.
CheckPoint: Adjustments and
Accrual and Cash Basis Accounting
·
Resource: Fundamental Accounting Principles, pp. 116–118 &
120
·
Complete Quick Study
questions 3-1 & 3-9 on pp. 116 & 117 and Exercises 3-1 & 3-7 on pp.
118 & 120.
·
Post your
answers as an attachment.
QS 3-1
Identifying accounting adjustments
C3
Classify the following adjusting entries as involving prepaid
expenses (PE), unearned revenues (UR), accrued expenses (AE), or accrued
revenues (AR).
a. To record revenue earned that
was previously received as cash in advance.
b. To record annual depreciation
expense.
c. To record wages expense
incurred but not yet paid (nor recorded).
d. To record revenue earned but
not yet billed (nor recorded).
e. To record expiration of
prepaid insurance.
QS 3-9
Computing accrual and cash income
C1 C2
In
its first year of operations, Harden Co. earned $39,000 in revenues and
received $33,000 cash from these customers. The company incurred expenses of
$22,500 but had not paid $2,250 of them at yearend. Harden also prepaid $3,750
cash for expenses that would be incurred the next year. Calculate the first
year’s net income under both the cash basis and the accrual basis of
accounting.
EXERCISES
Exercise 3-1
Classifying adjusting entries
C3
In
the blank space beside each adjusting entry, enter the letter of the
explanation A through F that most closely describes the entry:Exercise 3-1
Classifying adjusting entries
A. To
record this period’s depreciation expense.
B. To
record accrued salaries expense.
C. To
record this period’s use of a prepaid expense.
D. To
record accrued interest revenue.
E. To
record accrued interest expense.
F. To
record the earning of previously unearned income.
______
1. Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . 13,280
Salaries
Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,280
______
2. Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . 2,208
Interest
Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,208
______
3. Insurance Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
. . 3,180
Prepaid
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,180
______
4. Unearned Professional Fees . . . . . . . . . . . . . . . . . . . . .
19,250
Professional
Fees Earned . . . . . . . . . . . . . . . . . . . . . . 19,250
______
5. Interest Receivable . . . . . . . . . . . . . . . . . . . . . . . . .
. . . 3,300
Interest
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,300
______
6. Depreciation Expense . . . . . . . . . . . . . . . . . . . . . . . .
. . 38,217
Accumulated
Depreciation . . . . . . . . . . . . . . . . . . . . 38,217
Exercise 3-7
Determining assets and expenses for accrual and cash accounting
C2
On
March 1, 2003, a company paid a $16,200 premium on a 36-month insurance policy
for coverage beginning on that date. Refer to that policy and fill in the
blanks in the following table:
Balance Sheet Insurance Asset Using Insurance Expense Using
Accrual Cash Accrual Cash
Basis Basis Basis Basis
Dec. 31, 2003 $_______ $_______
2003 $_______ $_______
Dec. 31, 2004 _______ _______
2004 _______ _______
Dec. 31, 2005 _______ _______
2005 _______ _______
Dec. 31, 2006 _______ _______ 2006 _______ _______
Total
$_______ $_______
