Question 1
Match each of the numbered descriptions with the principle or assumption it best reflects. Enter the letter for the appropriate principle or assumption in the blank space next to each description.
1. A. General accounting principle
2. B. Cost principle
3. C. Business entity assumption
4. D .Revenue recognition principle
5. E. Specific accounting principle
6. F. Matching (expense recognition) principle
7. G. Going-concern assumption
8. H. Full disclosure principle
- 1. A company reports details behind financial statements that would impact users' decisions.
- 2. Financial statements reflect the assumption that the business continues operating.
- 3. A company records the expenses incurred to generate the revenues reported.
- 4. Derived from long-used and generally accepted accounting practices.
- 5. Every business is accounted for separately from its owner or owners.
- 6. Revenue is recorded only when the earnings process is complete.
- 7. Usually created by a pronouncement from an authoritative body.
- 8. Information is based on actual costs incurred in transactions.
Question 2
Karla Tanner opens a web consulting business called Linkworks and completes the following transactions in its first month of operations.
April 1 Tanner invests $80,000 cash along with office equipment valued at $26,000 in the company.
2 The company prepaid $9,000 cash for twelve months' rent for office space. (Hint: Debit Prepaid Rent for $9,000.)
3 The company made credit purchases for $8,000 in office equipment and $3,600 in office supplies. Payment is due within 10 days.
6 The company completed services for a client and immediately received $4,000 cash.
9 The company completed a $6,000 project for a client, who must pay within 30 days.
13 The company paid $11,600 cash to settle the account payable created on April 3.
19 The company paid $2,400 cash for the premium on a 12-month insurance policy. (Hint: Debit Prepaid Insurance for $2,400.)
22 The company received $4,400 cash as partial payment for the work completed on April 9.
25 The company completed work for another client for $2,890 on credit.
28 Tanner withdrew $5,500 cash from the company for personal use.
29 The company purchased $600 of additional office supplies on credit.
30 The company paid $435 cash for this month's utility bill.
Required
1. Prepare general journal entries to record these transactions (use account titles listed in part 2).
2. Open the following ledger accounts-their account numbers are in parentheses (use the balance column format): Cash (101); Accounts Receivable (106); Office Supplies (124); Prepaid Insurance (128); Prepaid Rent (131); Office Equipment (163); Accounts Payable (201); K. Tanner, Capital (301); K. Tanner, Withdrawals (302); Services Revenue (403); and Utilities Expense (690). Post journal entries from part 1 to the ledger accounts and enter the balance after each posting.
3. Prepare a trial balance as of April 30.
Question 3
Following is the unadjusted trial balance for Alonzo Institute as of December 31, 2015, which initially records prepaid expenses and unearned revenues in balance sheet accounts. The Institute provides one-on-one training to individuals who pay tuition directly to the business and offers extension training to groups in off-site locations. Shown after the trial balance are items a through h that require adjusting entries as of December 31, 2015.
Additional Information Items
a. An analysis of the Institute's insurance policies shows that $9,500 of coverage has expired.
b. An inventory count shows that teaching supplies costing $20,000 are available at year-end 2015.
c. Annual depreciation on the equipment is $5,000.
d. Annual depreciation on the professional library is $2,400.
e. On November 1, the Institute agreed to do a special five-month course (starting immediately) for a client. The contract calls for a $14,300 monthly fee, and the client paid the first two months' fees in advance. When the cash was received, the Unearned Training Fees account was credited. The last two months' fees will be recorded when collected in 2016.
f. On October 15, the Institute agreed to teach a four-month class (beginning immediately) to an individual for $2,300 tuition per month payable at the end of the class. The class started on October 15, but no payment has yet been received. (The Institute's accruals are applied to the nearest half-month; for example, October recognizes one-half month accrual.)
g. The Institute's only employee is paid weekly. As of the end of the year, three days' salaries have accrued at the rate of $150 per day.
h. The balance in the Prepaid Rent account represents rent for December.
Required
1. Prepare T-accounts (representing the ledger) with balances from the unadjusted trial balance.
2. Prepare the necessary adjusting journal entries for items a through h, and post them to the T-accounts. Assume that adjusting entries are made only at year-end.
3. Update balances in the T-accounts for the adjusting entries and prepare an adjusted trial balance.
4. Prepare the company's income statement and statement of owner's equity for the year 2015, and prepare its balance sheet as of December 31, 2015.
Alonzo Institute
Unadjusted Trial Balance
December 31, 2015
| Unadjusted Trial Balance |
|
|
| 31-Dec-15 |
|
|
|
Debit |
Credit |
| Cash |
$60,000 |
|
| Accounts receivable |
0 |
|
| Teaching supplies |
70,000 |
|
| Prepaid insurance |
19,000 |
|
| Prepaid rent |
3,800 |
|
| Professional library |
12,000 |
|
| Accumulated depreciation-Professional library |
|
2,500 |
| Equipment |
40,000 |
|
| Accumulated depreciation-Equipment |
|
20,000 |
| Accounts payable |
|
11,200 |
| Salaries payable |
|
0 |
| Unearned training fees |
|
28,600 |
| C. Alonzo, Capital |
|
71,500 |
| C. Alonzo, Withdrawals |
20,000 |
|
| Tuition fees earned |
|
129,200 |
| Training fees earned |
|
68,000 |
| Depreciation expense-Professional library |
0 |
|
| Depreciation expense-Equipment |
0 |
|
| Salaries expense |
44,200 |
|
| Insurance expense |
0 |
|
| Rent expense |
29,600 |
|
| Teaching supplies expense |
0 |
|
| Advertising expense |
19,000 |
|
| Utilities expense |
13,400 |
|
| Totals |
$331,000 |
$331,000 |