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Accounting Accrual Methods

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#1. Here are five different transactions for March that may be revenue or expenses on the income statement. Please review the scenario and identify whether it will be a revenue or expense item during the current period and the amount. You should format the answer as follows: "Yes, $1 revenue or expense" or "NO".

a. Wages were paid for $1,000 during March. $600 of that was for wages incurred in March, and $400 was to pay off the wages payable account for February.
b. A telephone book advertising bill was received in March for $3000 that covered March 1 through June 30, 2009. It will not be paid until April 1.
c. Rent for April was paid on March 20 with a check for $1500.
d. Insurance was paid for in March for $2000 that will be put into effect on April 1.
e. Office supplies that were paid for in February were used up in March for $750.
f. Sales of $8000 were performed but the client wont pay for these services until April.

#2. On December 31, 2008 Tie One On reported net income for the year of $265,000 and the following account balances:

Cash $175,000
Accounts receivable $21,000
Prepaid rent $6,000
Equipment and furnishing $230,000
Accumulated Depreciation-Equipment and furnishings $(43,000)
Accounts payable $39,000
Wages payable $13,000
Owners' equity (including net income of $265,000) $337,000

After this information was prepared the bookkeeper discovered that they failed to prepare two adjusting entries. These were not reflected in the balances shown. Here is the information on these two entries:

1. The prepaid rent account was paid on April 1, 2008 for one year for $6,000. The account has not been adjusted since.
2.A bill received in January 2009 for utilities incurred in December 2008 for $1400 was mistakenly not entered into the system.

Please calculate the year-end corrected balances for the following three accounts: assets, liabilities, and equity. You can enter the answer in the following format for each category:

Assets = $X (show work in Parenthesis, numbers only, no titles necessary)
Liabilities = $X (show work in parenthesis, numbers only, no titles necessary)
Equity (retained earnings) = $X (show work in parenthesis, numbers only, no titles necessary)

#3. On December 31, 2008 Kings Bait and Tackle had the following ending balances after all adjusting entries were completed:

Cash $35,000
Inventory $29,000
Supplies $8,500
Prepaid rent $7,000
Equipment $83,900
Accumulated depreciation ($17,400)
Accounts payable $41,220
Wages payable $10,500
Owners' equity $50,000
Sales revenue $99,000
Cost of goods sold $21,000
Wages expense $15,000
Utilies expense $1,020
Depreciation expense $3,200
Insurance expense $1,000
Supplies expense $1,500
Rent expense $12,000

a. Please post both closing entries that will be done at the end of the year.
b. What is the ending owners' equity balance?

Please use the following format when recording your closing entries:

Debit account name $X
Credit account name $X

#4. Connection Station, an internet cafe', had the following operating activities during the month of May:

1. Bought $800 in jump drives and disks, which are available for resale from Office Depot on credit
2. Paid $900 in utilities for the month of May
3. Paid $2000 rent for the month of May
4. Sold jump drives and other inventory to customers for $4,000 on credit which cost the company $500
5. Collected $2,500 of the $4000 that was sold on credit
6. Paid cash for $2,200 for goods for resale from Staples Inc.
7. Paid employees for their work in May for $2,000
8. Collected internet usage fees from customers in cash totaling $12,500 for the month
9. Paid $5,000 for a one-year insurance policy beginning June 1
10. Employees earned an additional $1000 of wages but would not be paid until June 1

Please prepare an accrual basis income statement and enter it as the answer.

Solution Preview

Dear student,
#1. Here are five different transactions for March that may be revenue or expenses on the income statement. Please review the scenario and identify whether it will be a revenue or expense item during the current period and the amount. You should format the answer ...

Solution Summary

The solution attaches an Excel spreadsheet that looks at the revenue vs. expense items divide, then displays accrual accounting methods to answer 4 practice problems.

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