ACC 205 Week 2 Exercise Assignment Revenue and Expenses/ UOPHELP

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1. Recognition of concepts. Ron Carroll operates a small company that books entertainers
for theaters, parties, conventions, and so forth. The company’s fiscal year ends on June 30.
Consider the following items and classify each as either (1) prepaid expense, (2) unearned
revenue, (3) accrued expense, (4) accrued revenue, or (5) none of the foregoing.
a. Amounts paid on June 30 for a 1-year insurance policy
b. Professional fees earned but not billed as of June 30
c. Repairs to the firm’s copy machine, incurred and paid in June
d. An advance payment from a client for a performance next month at a convention
e. The payment in part (d) from the client’s point of view
f. Interest owed on the company’s bank loan, to be paid in early July
g. The bank loan payable in part (f)
h. Office supplies on hand at year-end
2. Analysis of prepaid account balance. The following information relates to Action Sign
Company for 20X2:
Insurance expense
$4,350
Prepaid insurance, December 31, 20X2
1,900

Cash outlays for insurance during 20X2
6,200
Compute the balance in the Prepaid Insurance account on January 1, 20X2.
3. Understanding the closing process. Examine the following list of accounts:
Interest Payable
Accumulated Depreciation: Equipment
Alex Kenzy, Drawing
Accounts Payable
Service Revenue
Cash
Accounts Receivable
Supplies Expense
Interest Expense
Which of the preceding accounts
a. appear on a post-closing trial balance?
b. are commonly known as temporary, or nominal, accounts?
c. generate a debit to Income Summary in the closing process?
d. are closed to the capital account in the closing process?
4. Adjusting entries and financial statements. The following information pertains to
Fixation Enterprises:
The company previously collected $1,500 as an advance payment for services to be rendered
in the future. By the end of December, one third of this amount had been earned.
Fixation provided $2,500 of services to Artech Corporation; no billing had been made by
December 31.

Salaries owed to employees at year-end amounted to $1,650.
The Supplies account revealed a balance of $8,800, yet only $3,300 of supplies were actually
on hand at the end of the period.
The company paid $18,000 on October 1 of the current year to Vantage Property
Management. The payment was for 6 months’ rent of Fixation’s headquarters, beginning on
November 1.
Fixation’s accounting year ends on December 31.
Instructions
Analyze the five preceding cases individually and determine the following:
a. The type of adjusting entry needed at year-end (Use the following codes: A, adjustment of
a prepaid expense; B, adjustment of an unearned revenue; C, adjustment to record an accrued
expense; or D, adjustment to record an accrued revenue.)
b. The year-end journal entry to adjust the accounts
c. The income statement impact of each adjustment (e.g., increases total revenues by $500)
5. Adjusting entries. You have been retained to examine the records of Kathy’s Day Care
Center as of December 31, 20X3, the close of the current reporting period. In the course of
your examination, you discover the following:
On January 1, 20X3, the Supplies account had a balance of $2,350. During the year, $5,520
worth of supplies was purchased, and a balance of $1,620 remained unused on December 31.
Unrecorded interest owed to the centertotaled $275 as of December 31.
All clients pay tuition in advance, and their payments are credited to the Unearned Tuition
Revenue account. The account was credited for $75,500 on August 31. With the exception of
$15,500 all amounts were for the current semester ending on December 31.
Depreciation on the school’s van was $3,000 for the year.
On August 1, the center began to pay rent in 6-month installments of $21,000. Kathy wrote a
check to the owner of the building and recorded the check in Prepaid Rent, a new account.
Two salaried employees earn $400 each for a 5-day week. The employees are paid every
Friday, and December 31 falls on a Thursday.
Kathy’s Day Care paid insurance premiums as follows, each time debiting Prepaid Insurance:
Date Paid
Policy No.
Length of Policy
Amount

Feb. 1, 20X2
1033MCM19
1 year
$540
Jan. 1, 20X3
7952789HP
1 year
912
Aug. 1, 20X3
XQ943675ST
2 years
840
Instructions
The center’s accounts were last adjusted on December 31, 20X2. Prepare the adjusting entries
necessary under the accrual basis of accounting.
6. Bank reconciliation and entries. The following information was taken from the
accounting records of Palmetto Company for the month of January:
Balance per bank
$6,150
Balance per company records
3,580
Bank service charge for January
20
Deposits in transit
940
Interest on note collected by bank
100
Note collected by bank
1,000

NSF check returned by the bank with the bank statement
650
Outstanding checks
3,080
Instructions:
a. Prepare Palmetto’s January bank reconciliation.
b. Prepare any necessary journal entries for Palmetto.
7. Direct write-off method. Harrisburg Company, which began business in early 20X7,
reported $40,000 of accounts receivable on the December 31, 20X7, balance sheet. Included
in this amount was $550 for a sale made to Tom Mattingly in July. On January 4, 20X8, the
company learned that Mattingly had filed for personal bankruptcy. Harrisburg uses the direct
write-off method to account for uncollectibles.
a. Prepare the journal entry needed to write off Mattingly’s account.
b. Comment on the ability of the direct write-off method to value receivables on the year-end
balance sheet.
8. Allowance method: estimation and balance sheet disclosure. The following pre-adjusted
information for the Maverick Company is available on December 31:
Accounts receivable $107,000
Allowance for uncollectible accounts 5,400 (credit balance)
Credit sales 250,000
a. Prepare the journal entries necessary to record Maverick’s uncollectible accounts expense
under each of the following assumptions:
(1) Uncollectible accounts are estimated to be 5% of Credit Sales.
(2) Uncollectible accounts are estimated to be 14% of Accounts Receivable.
b. How would Maverick’s Accounts Receivable appear on the December 31 balance sheet
under assumption (1) of part (a)?
c. How would Maverick’s Accounts Receivable appear on the December 31 balance sheet
under assumption (2) of part (a)?

9. Direct write-off and allowance methods: matching approach. The December 31, 20X2,
year-end trial balance of Targa Company revealed the following account information:
Debits
Credits
Accounts Receivable
$252,000
Allowance for Uncollectible Accounts
$ 3,000
Sales
855,000
Instructions
a. Determine the adjusting entry for bad debts under each of the following conditions:
(1) An aging schedule indicates that $12,420 of accounts receivable will be uncollectible.
(2) Uncollectible accounts are estimated at 2% of net sales.
b. On January 19, 20X3, Targa learned that House Company, a customer, had declared
bankruptcy. Present the proper entry to write off House’s $950 balance using the allowance
method.
c. Repeat the requirement in part (b), using the direct write-off method.
d. In light of the House bankruptcy, examine the allowance and direct write-off methods in
terms of their ability to properly match revenues and expenses.
10. Allowance method: analysis of receivables. At a January 20X2 meeting, the president of
Sonic Sound directed the sales staff “to move some product this year.” The president noted
that the credit evaluation department was being disbanded because it had restricted the
company’s growth. Credit decisions would now be made by the sales staff.
By the end of the year, Sonic had generated significant gains in sales, and the president was
very pleased. The following data were provided by the accounting department:
20X2
20X1

Sales
$23,987,000
$8,423,000
Accounts Receivable, 12/31
12,444,000
1,056,000
Allowance for Uncollectible Accounts, 12/31
?
23,000 cr.
The $12,444,000 receivables balance was aged as follows:
Age of Receivable
Amount
Percentage of Accounts Expected to Be Collected
Under 31 days
$5,321,000
99%
31260 days
3,890,000
90
61290 days
1,067,000
80
Over 90 days
2,166,000
60
Assume that no accounts were written off during 20X2.
Instructions

a. Estimate the amount of Uncollectible Accounts as of December 31, 20X2.
b. What is the company’s Uncollectible Accounts expense for 20X2?
c. Compute the net realizable value of Accounts Receivable at the end of 20X1 and 20X2.
d. Compute the net realizable value at the end of 20X1 and 20X2 as a percentage of
respective year-end receivables balances. Analyze your findings and comment on the
president’s decision to close the credit evaluation department.