Connect Financial Accounting Chapter 3

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Connect Financial Accounting Chapter 3

Q1. Pablo Management has two part-time employees, each of whom earns $110 per day. They are paid on Fridays for work completed Monday through Friday of the same week. Near year-end, the two employees worked Monday, December 31, and Wednesday through Friday, January 2, 3, and 4. New Year’s Day. (January 1) was an unpaid holiday.

  • Prepare the year-end adjusting entry for wages expenses.
  • Prepare the journal entry to record payment of the employees’ wages on Friday, January 4.

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Q2. Exercise 3-3 Preparing adjusting entries LO P1

  • Depreciation on the company’s equipment for 2017 is computed to be $11,000.
  • The Prepaid Insurance account had a $7,000 debit balance at December 31, 2017, before adjusting for the costs of any expired coverage. An analysis of the company’s insurance policies showed that $1,220 of unexpired insurance coverage remains.
  • The Office Supplies account had a $550 debit balance on December 31, 2016; and $2,680 of office supplies were purchased during the year. The December 31, 2017, physical count showed $649 of supplies available.
  • One-third of the work related to $15,000 of cash received in advance was performed this period.
  • The Prepaid Insurance account had a $5,600 debit balance at December 31, 2017, before adjusting for the costs of any expired coverage. An analysis of insurance policies showed that $4,380 of coverage had expired.
  • Wage expenses of $1,000 have been incurred but are not paid as of December 31, 2017.

Prepare adjusting journal entries for the year ended (date of) December 31, 2017, for each of these separate situations.

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Q3. Following are two income statements for Alexis Co. for the year ended December 31. The left number column is prepared before any adjusting entries are recorded, and the right column includes the effects of adjusting entries. The company records cash receipts and payments related to unearned and prepaid items in balance sheet accounts. The middle column shows a blank space for each income statement effect of the eight adjusting entries a through g (the balance sheet part of the entries is not shown here).

ALEXIS CO.
Income Statements
For Year Ended December 31
Unadjusted Adjustments Adjusted
Revenues
Fees earned $24,000 a. $30,000
Commissions earned 42,500 42,500
Total revenues $66,500 72,500
Expenses
Depreciation expense—Computers 0 b. 1,500
Depreciation expense—Office furniture 0 c. 1,750
Salaries expense 12,500 d. 14,950
Insurance expense 0 e. 1,300
Rent expense 4,500 4,500
Office supplies expense 0 f. 480
Advertising expense 3,000 3,000
Utilities expense 1,250 g. 1,320
Total expenses 21,250 28,800
Net income $45,250 $43,700

Analyze the statements and prepare the eight adjusting entries a through g that likely were recorded. Note: Answer for a has two entries 30% of (i) the $6,000 adjustment for Fees Earned has been earned but not billed, and (ii) the other 70% has been earned by performing services that were paid for in advance.

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Q4. The following is the adjusted trial balance of Wilson Trucking Company.

Account Title Debit Credit
Cash $8,800
Accounts receivable 16,500
Office supplies 2,000
Trucks 163,000
Accumulated depreciation—Trucks $33,578
Land 75,000
Accounts payable 12,800
Interest payable 3,000
Long-term notes payable 52,000
Common stock 20,000
Retained earnings 130,280
Dividends 19,000
Trucking fees earned 140,000
Depreciation expense—Trucks 21,658
Salaries expense 65,660
Office supplies expense 8,000
Repairs expense—Trucks 12,040
Totals $391,658 $391,658

The Retained Earnings account balance is $130,280 at December 31, 2016.

Prepare the income statement for the year ended December 31, 2017.

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Prepare the statement of retained earnings for the year ended December 31, 2017.

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Q5. Following are Nintendo’s revenue and expense accounts for a recent March 31 fiscal year-end (yen in millions). (Enter answers in millions.)

Net sales ¥1,908,622
Cost of sales 1,114,981
Advertising expense 117,808
Other expense, net 397,644

Prepare the company’s closing entries for its revenues and its expenses.

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Q6. Use the following information to compute profit margin for each separate company a through e. (Round your answers to 1 decimal place.)

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Which of the five companies is the most profitable according to the profit margin ratio? Company C

Connect Financial Accounting Chapter 3 Quiz

Q1. Accumulated Depreciation and Service Fees Earned would be sorted to which respective columns in completing a work sheet?

  • Balance Sheet and Statement of Retained Earnings-Credit and Income Statement-Credit.
  • Balance Sheet and Statement of Retained Earnings-Debit and Income Statement-Debit.
  • Income Statement-Debit and Income Statement-Credit.
  • Balance Sheet and Statement of Retained Earnings-Debit and Balance Sheet and Statement of Retained Earnings-Credit.
  • Balance Sheet and Statement of Retained Earnings-Debit; and Income Statement-Credit.

Q2. On April 1, Santa Fe, Inc. paid Griffith Publishing Company $1,548 for 36-month subscriptions to several different magazines. Santa Fe debited the prepayment to a Prepaid Subscriptions account, and the subscriptions started immediately. What amount should appear in the Prepaid Subscription account for Santa Fe, Inc. after adjustments on December 31 of the first year assuming the company is using a calendar-year reporting period and no previous adjustment has been made?

  • $1,548
  • $387
  • $516
  • $1,161
  • $0

Q3. A company had no office supplies available at the beginning of the year. During the year, the company purchased $250 worth of office supplies. On December 31, $75 worth of office supplies remained. How much should the company report as office supplies expense for the year?

  • $75
  • $125
  • $175
  • $250
  • $325

Q4. Fragmental Co. leased a portion of its store to another company for eight months beginning on October 1, at a monthly rate of $800. Fragmental collected the entire $6,400 cash on October 1 and recorded it as unearned revenue. Assuming adjusting entries are only made at year-end, the adjusting entry made by Fragmental Co. on December 31 would be:

  • A debit to Rent Revenue and a credit to Cash for $2,400.
  • A debit to Rent Revenue and a credit to Unearned Rent for $2,400.
  • A debit to Cash and a credit to Rent Revenue for $6,400.
  • A debit to Unearned Rent and a credit to Rent Revenue for $2,400.
  • A debit to Unearned Rent and a credit to Rent Revenue for $4,000.

Q5. On July 1, a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the first year ended December 31?

  • $1,200
  • $2,400
  • $1,000
  • $400
  • $1,400

Q6. Assuming prepaid expenses are originally recorded in balance sheet accounts, the adjusting entry to record use of a prepaid expense is:

  • Increase an expense; increase a liability.
  • Increase an asset; increase revenue.
  • Decrease a liability; increase revenue.
  • Increase an expense; decrease an asset.
  • Increase an expense; decrease a liability.

Q7. On December 1, Casualty Insurance Company borrowed $50,000 at a 6.0% interest rate from One Mutual Bank. The note payable plus interest will not be paid until April 1 of the following year. The company’s annual accounting period ends on December 31 and adjustments are only made at year-end. The adjusting entry needed on December 31 is:

  • No entry required.
  • Debit Interest Expense, $250; credit Interest Payable, $250.
  • Debit Interest Expense, $250; credit Note Payable, $250.
  • Debit Interest Payable, $1,000; credit Interest Expense, $1,000.
  • Debit Interest Expense, $1,000; credit Interest Payable, $1,000.

Q8. The adjusting entry to record an accrued expense is:

  • Increase an expense; increase a liability.
  • Increase an asset; increase revenue.
  • Decrease a liability; increase revenue.
  • Increase an expense; decrease an asset.
  • Increase an expense; decrease a liability.

Q9. A company purchased new furniture at a cost of $16,000 on January 1. The furniture is estimated to have a useful life of 6 years and a $1,000 salvage value. The company uses the straight-line method of depreciation. What is the book value of the furniture on December 31 of the first year?

  • $16,000
  • $15,000
  • $2,500
  • $13,500
  • $13,333

Q10. The Retained earnings account has a credit balance of $37,000 before closing entries are made. Total revenues for the period are $55,200, total expenses are $39,800, and dividends are $9,000. What is the correct closing entry for the revenue accounts?

  • Debit Income Summary $55,200; credit Revenue accounts $55,200.
  • Debit Revenue accounts $37,000; credit Retained earnings $37,000.
  • Debit Revenue accounts $55,200; credit Retained earnings $37,000.
  • Debit Revenue accounts $55,200; credit Income Summary $55,200.
  • Debit Income Summary $37,000; credit Retained earnings $37,000.

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