Question 1: Identifying accounting adjustments
Question 2: Classify the following adjusting entries as involving prepaid expenses (PE), unearned revenues (UR), accrued expenses (AE), or accrued revenues (AR).
a. To record revenue earned that was previously received as cash in advance.
b. To record annual depreciation expense.
c. To record wages expense incurred but not yet paid (nor recorded).
d. To record revenue earned but not yet billed (nor recorded).
e. To record expiration of prepaid insurance.
Question 3: Computing accrual and cash income
In its first year of operations, Harden Co. earned $39,000 in revenues and received $33,000 cash from these customers. The company incurred expenses of $22,500 but had not paid $2,250 of them at year-end.
Harden also prepaid $3,750 cash for expenses that would be incurred the next year. Calculate the first year’s net income under both the cash basis and the accrual basis of accounting.
In the blank space beside each adjusting entry, enter the letter of the explanation A through F that most closely describes the entry:
A. To record this period’s depreciation expense.
B. To record accrued salaries expense.
C. To record this period’s use of a prepaid expense.
Question 4: Classifying adjusting entries
D. To record accrued interest revenue.
E. To record accrued interest expense.
F. To record the earning of previously un-earned income.
1. Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,280
Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,280
2. Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,208
Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,208
3. Insurance Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,180
Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,180
4. Unearned Professional Fees . . . . . . . . . . . . . . . . . . . . . 19,250
Professional Fees Earned . . . . . . . . . . . . . . . . . . . . . . 19,250
5. Interest Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,300
Interest Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,300
6. Depreciation Expense . . . . . . . . . . . . . . . . . . . . . . . . . . 38,217
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . 38,217
Determining assets and expenses for accrual and cash accounting
Question 5: On March 1, 2003, a company paid a $16,200 premium on a 36-month insurance policy for cover-age beginning on that date. Refer to that policy and fill in the blanks in the following table:
Check 2005 insurance expense: Accrual, $5,400; Cash, $0. Dec. 31, 2005, asset: Accrual, $900; Cash, $0.
Balance sheet Insurance asset using Insurance Expense using
Acccural Basis Cash Basis Accrulal Basis Cash Basis
Dec.31, 2003 $__________ $_______ 2003$_______ $________
Dec. 31,2004$__________ $_______ 2004$_______ $________
Dec 31, 2005 $__________ $_______ 2005$_______ $________
Dec 31,2006 $__________ $_______ 2006$_______ $________
Total $__________________$_________