Adams Construction Co. and Bull's-eye Ranges

Extracted Content from Question Files:

Preparing Entries and Statements
Problem 4-5A
Preparing a work sheet, adjusting and closing entries, and financial statements

The following unadjusted trial balance is for Adams Construction Co. as of the end of its
2005 fiscal year. The June 30, 2004, credit balance of the owner’s capital account was
$52,660, and the owner invested $25,000 cash in the company during the 2005 fiscal year.

Required
1. Prepare a 10-column work sheet for fiscal year 2005, starting with the unadjusted trial
balance and including adjustments based on these additional facts:
a. The supplies available at the end of fiscal year 2005 had a cost of $3,200.
b. The cost of expired insurance for the fiscal year is $3,900.
c. Annual depreciation on equipment is $8,500.
d. The June utilities expense of $550 is not included in the unadjusted trial balance because the bill arrived
after the trial balance was prepared. The $550 amount owed needs to be recorded.
e. The company’s employees have earned $1,600 of accrued wages at fiscal year-end.
f. The rent expense incurred and not yet paid or recorded at fiscal year-end is $200.
g. Additional property taxes of $900 have been assessed for this fiscal year but have not been paid or recorded
in the accounts.
h. The long-term note payable bears interest at 1% per month. The unadjusted Interest Expense account
equals the amount paid for the first 11 months of the 2005 fiscal year. The $240 accrued interest for June has
not yet been paid or recorded. (Note that the company is required to make a $5,000 payment toward the note
payable during the 2006 fiscal year.)

2. Use the work sheet to enter the adjusting and closing entries; then journalize them.

3. Prepare the income statement and the statement of owner’s equity for the year ended
June 30 and the classified balance sheet at June 30, 2005.

Analysis Component

4. Analyze the following separate errors and describe how each would affect the 10-column
work sheet. Explain whether the error is likely to be discovered in completing the work
sheet and, if not, the effect of the error on the financial statements.
a. Assume that the adjustment for supplies used consisted of a credit to Supplies for $3,200 and a debit for
$3,200 to Supplies Expense.
b. When the adjusted trial balance in the work sheet is completed, the $17,500 Cash balance is incorrectly
entered in the Credit column.

Check (3) Total assets, $120,250; current liabilities, $14,290; Net income, $39,300

Problem 4-6A
Preparing adjusting, reversing, and next period entries

The following six-column table for Bull’s-eye Ranges includes the unadjusted trial balance
as of December 31, 2005.
Required
1. Complete the six-column table by entering adjustments that reflect the following
information:
a. As of December 31, 2005, employees had earned $900 of unpaid and unrecorded salaries.
The next payday is January 4, at which time $1,600 of salaries will be paid.
b. The cost of supplies still available at December 31, 2005, is $2,700.
c. The notes payable requires an interest payment to be made every three months. The
amount of unrecorded accrued interest at December 31, 2005, is $1,250. The next interest
payment, at an amount of $1,500, is due on January 15, 2006.
d. Analysis of the unearned member fees account shows $5,600 remaining unearned at
December 31, 2005.
e. In addition to the member fees included in the revenue account balance, the company
has earned another $9,100 in unrecorded fees that will be collected on January 31, 2006.
The company is also expected to collect $8,000 on that same day for new fees earned in
January 2006.
f. Depreciation expense for the year is $12,500.

2. Prepare journal entries for the adjustments entered in the six-column table for part 1.

3. Prepare journal entries to reverse the effects of the adjusting entries that involve
accruals.

4. Prepare journal entries to record the cash payments and cash collections described for
January.

Check (1) Adjusted trial balance totals, $224,000