Question 1 - Prepare the necessary adjusting entries at December 21, 2011, for the Microchip Company for each of the following situations. Assume that no financial statements were prepared during the year and no adjusting entries were recorded.
1. On October 1, 2011, Microchip lent $90,000 to another company. A note was signed with principal and 8% interest to be paid on September 20, 2012.
2. On November 1, 2011 the company paid its landlord $6,000 representing rent for the months of November through January. Prepaid rent was debited.
3. On August 1, 2011, collected $12,000 in advance rent from another company that is renting a portion of Microchip's factory. The $12,000 represents one year's rent and the entire amount was credited to rent revenue.
4. Depreciation on machinery is $4,500 for the year.
5. Vacation pay for the year that had been earned by employees but not paid to them or recorded is $8,000.
6. Microchip began the year with $2,000 in its asset account, supplies. During the year, $6,500 in supplies were purchased and debited to supplies costing $3,250 remain on hand.
Question 2 - Case
In 1934, Congress created the Securities and Exchange Commission (SEC) and gave the commission both the power and responsibility for setting accounting and reporting standards in the United States.
Required:
1) Explain the relationship between the SEC and various private sector standard-setting bodies that have, over time, been delegated the responsibility for setting accounting standards.
2) Can you think of any reasons why the SEC has delegated this responsibility rather than set standards directly?
Question 3 - Prepare an income statement for 2011 and a balance sheet as of December 31, 2011.
Selected balance sheet for the Wolf Company at November 30, and December 31, 2011, is presented below. The company uses the perpetual inventory system and all sales to customers are made on credit.