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1) Central Appliance Service Co., Inc. has achieved fast growth in the St. Louis area by selling service contracts on large appliances, such as washers, dryers, and refrigerators. For a fee, Central Appliance agrees to provide all parts and labor on an appliance after the regular warranty runs out. For example, by paying a fee of $200, a person who buys a dishwasher can add two years (Years 2 and 3) to the regular one-year (Year 1) warranty on the appliance. In 1991, the company sold service contracts in the amount of $1.8 million, all of which applied to future years. Management wanted all the sales recorded as revenues in 1991, contending that the amount of the contracts could be determined and the cash had been received. Do you agree with this logic? How would you record these cash receipts? What assumptions do you think should be made?
2) The Lyric Opera of Chicago is one of the largest and best managed opera companies in the United States. Managing opera productions requires advance planning, including the development of scenery, costumes, and stage properties; the sale of tickets; and the collection of contributions. To measure how well the company is operating in any given year, accrual accounting must be applied to these and other transactions. At year's end, February 28, 1990, Lyric Opera of Chicago's balance sheet showed Deferred Production and Other Costs of $412,858, Deferred Revenue from Sales of Tickets of $3,127,237, and Deferred Revenue from Contributions of $2,314,626. What accounting policies and adjusting entries are applicable to these accounts? Why are they important to Lyric Opera's management? 3) Lifestyle Company of Toledo, Ohio publishes a monthly magazine featuring local restaurant reviews and upcoming social, cultural, and sporting events. Subscribers pay for subscriptions either one year or two years in advance. Cash received from subscribers is credited to an account called Magazine Subscriptions Received in Advance. On December 31, 19x3, the end of the company's fiscal year, the balance of this account was $1,000,000. Expiration of subscriptions was as follows:
During 19x3 $200000
During 19x4 500000
During 19x5 300000
Prepare the adjusting journal entry for December 31, 19x3.
4) An examination of the Prepaid Insurance account shows a balance of $4,112 at the end of an accounting period before adjustment. Prepare journal entries to record the insurance expense for the period under each of the following independent assumptions: 1. An examination of the insurance policies shows unexpired insurance that cost $1,974 at the end of the period.
2. An examination of the insurance policies shows insurance that cost $694 has expired during the period.
5) Each column below represents a supplies account:
A B C D
Supplies on hand October 1 $396 $651 $294?
Supplies purchased during the month 78? 261 2892
Supplies consumed during the month 291 1458? 2448
Supplies on hand October 31? 654 84 1782 1. Determine the amounts indicated by the question marks in the columns.
2. Make the adjusting entry for Column a, assuming supplies purchased are debited to
an asset account.
6) Tru Vent has a five-day workweek and pays salaries of $70,000 each Friday. 1. Make the adjusting entry required on July 31, assuming that August 1 falls on a Wednesday.
2..Make the entry to pay the salaries on August 3.
7) Orlando Company produces computer software that is sold by Bond Systems Company. Orlando receives a royalty of 15 percent of sales. Royalties are paid by Bond Systems and received by Orlando semiannually on May 1 for sales made July through December of the previous year and on November 1 for sales made January through June of the current year. Royalty expense for Bond Systems and royalty income for Orlando in the amount of $12,000 were accrued on December 31, 19x2. Cash in the amounts of $12,000 and $20,000 was paid and received on May 1 and November 1, 19x3, respectively. Software sales during the July to December, 19x3, period totaled $300,000. 1. Calculate the amount of royalty expense for Bond Systems and royalty income for Orlando during 19x3.
2. Record the appropriate adjusting entries made by each of the companies on December 31, 19x3.
8) Prepare year-end adjusting entries for each of the following:
1. Office Supplies had a balance of $168 on January 1. Purchases debited to Office Supplies during the year amount to $830. A year-end inventory reveals supplies of $570 on hand.
2. Depreciation of office equipment is estimated to be $4,260 for the year.
3. Property taxes for six months, estimated at $1,750, have accrued but have not been recorded.
4. Unrecorded interest receivable on U.S. government bonds is $1,700.
5. Unearned Revenue has a balance of $1,800. Services for $600 received in advance have now been performed.
6. Services totaling $400 have been performed; the customer has not yet been billed.
9) After adjusting entries had been made, the 19x3 and 19x4 balance sheets of Hampton Company showed the following asset and liability amounts at the end of each year:
19x3 19x4
Prepaid Insurance 1450 1200
Wages Payable 1100 600
Unearned Fees 950 2100
From the accounting records, the following amounts of cash disbursements and cash receipts for 19x4 were determined:
Cash disbursed to pay insurance premiums $1900
Cash disbursed to pay wages 9750
Cash received for fees 4450
Calculate the amount of insurance expense, wages expense, and fees earned that should be reported on the 19x4 income statement.
10) The income statement for Jar vis Company included the following expenses for 19xx:
Rent Expense $5200
Interest Expense 7800
Salaries Expense 83000
Listed below are the related balance sheet account balances at year end for last year and this year:
Last Year This Year
Prepaid Rent - $900
Interest Payable $1200 -
Salaries Payable 5000 9600
1. Compute the cash paid for rent during the year.
2. Compute the cash paid for interest during the year.
3. Compute the cash paid for salaries during the year.
11) Antonia Soria, a lawyer, was paid $72,000 on April 1 to represent a client in certain real estate negotiations over the next twelve months.
1. Record the entries required in Soria's records on April 1 and at the end of the year, December 31.
2. How would this transaction be reflected in the income statement and balance sheet on December 31?
12) Northwest Refrigeration Company has the following liabilities at year end:
Notes Payable $30,000
Accounts Payable 20,000
Contract Revenue Received in Advance 18,000
Wages Payable 4,900
Interest Payable 1,400
Income Taxes Payable 2,500
1. Which of these accounts probably was created at the end of the fiscal year as a result of an accrual? Which probably was adjusted at year end?
2.Which adjustments probably reduced net income? Which probably increased net income?
13) The following amounts are taken from the balance sheets of Green Bay Company: December 19x1 19x2
Prepaid Expenses $ 45,000 $56000
Accrued Liabilities 103,000 88000
During 19x2, $114,000 was expended in cash and charged to Prepaid Expenses, and $212,000 was expended in cash for amounts related to the accrued liabilities. Determine the amount of expense related to Prepaid Expenses and to Accrued Liabilities for 19x2.
14) Horowitz Newspaper Agency delivers morning, evening, and Sunday city newspapers to subscribers who live in the suburbs. Customers can pay a yearly subscription fee in advance (at a savings) or pay monthly after delivery of their newspapers. The data at the top of page 116 are available for the Subscriptions Receivable and Unearned Subscriptions accounts at the beginning and end of October 19xx:
October 1 October 31
Subscriptions receivable $7600 $9200
Unearned subscriptions 22800 19600
The income statement shows subscriptions revenue for October of $44,800. Determine the amount of cash received from customers for subscriptions during October.
15) A number of errors in journalizing and posting transactions are described below. Prepare the journal entries to correct the errors.
1. The rent payment of $900 for the current month was recorded as a debit to Prepaid Rent and a credit to Cash.
2. A payment of $890 to a creditor was recorded in the amount of $980 as a debit to Accounts Payable and a credit to Cash.
3. A $760 cash payment for equipment repair expense was recorded as a debit to Equipment.
4. Payment of the gas and oil bill of $180 for the owner's personal car was recorded as a debit to Delivery Truck Expense and a credit to Cash.
5. A cash receipt of $300 for services yet to be performed was debited to Cash and credited to Service Revenue.
16) On May 31, the end of the current fiscal year, the following information was available to help Costa Company's accountants make adjusting entries: a. The Supplies account showed a beginning balance of $4,348. Purchases during the year were $9,052. The end-of-year inventory revealed supplies on hand that cost $2,794.
b. The Prepaid Insurance account showed the following on May 31:
Beginning Balance $7160
February 1 8400
April 1 14544
The beginning balance represents the portion of a one-year policy that remained un-expired at the beginning of the current fiscal year. The February 1 entry represents a new one-year policy, and the April 1 entry represents additional coverage in the form of a three-year policy.
| c. The table below contains the cost and annual depreciation for buildings and equipment, all of which were purchased before the current year. Account | Cost | Annual Depreciation |
| Buildings | $572,000 | $29,000 |
| Equipment | 748,000- | 70,800 |
d. On March 1, the company completed negotiations with a client and accepted payment of $33,600, which represented one year's services paid in advance. The $33,600 was credited to Unearned Services Revenue.
e. The company calculated that as of May 31, it had earned $8,000 on a $22,000 contract that would be completed and billed in September.
f.. Among the liabilities of the company is a note payable in the amount of $600,000. On May 31, the accrued interest on this note amounted to $30,000.
g. On Saturday, June 2, the company, which is on a six-day workweek, will pay its regular salaried employees $24,600.
h. On May 29, the company completed negotiations and signed a contract to provide services to a new client at an annual rate of $35,000.
Prepare adjusting entries for each item listed above.
17) Prepare the monthly income statement, statement of owner's equity, and balance sheet for Rogers Custodial Services from the data provided in this adjusted trial balance:
| ACCOUNTS | DEBIT | CREDIT |
| Cash | ||
| Accounts Receivable | ||
| Prepaid Insurance | ||
| Prepaid Rent | ||
| Cleaning Supplies | ||
| Cleaning Equipment | ||
| Accumulated Depreciation, Cleaning Equipment | ||
| Truck | ||
| Accumulated Depreciation, Truck | ||
| Accounts Payable | ||
| Wages Payable | ||
| Unearned Janitorial Revenues | ||
| Chuck Rogers, Capital | ||
| Chuck Rogers, Withdrawals | ||
| Janitorial revenues | ||
| Wages Expense | ||
| Rent Expense | ||
| Gas, Oil and Other Truck Expenses | ||
| Insurance Expense | ||
| Supplies Expense | ||
| Depreciation Expense, Cleaning Equipment | ||
| Depreciation Expense, Truck | ||
| TOTAL |
18) Here is the trial balance for Crown Advisory Services on July 31
| Cash | $ 8,250 | |
| Accounts Receivable | 4,125 | |
| Office Supplies | 1,331 | |
| Prepaid Rent | ||
| Office Equipment | 4,620 | |
| Accumulated Depreciation, Office Equipment | $ 770 | |
| Accounts Payable | 2,970 | |
| Notes Payable | 5,500 | |
| Unearned Fees | 1,485 | |
| Molly Sklar, Capital | 12,001 | |
| Molly Sklar, Withdrawals | 11,000 | |
| Fees Revenue | 36,300 | |
| Salaries Expense | 24,700 | |
| Rent Expense | 2,200 | |
| Utility Expense | 2,140 | |
| $59,026 | $59,026 | |
The following information is also available: a. Ending inventory of office supplies, $132.
b. Prepaid rent expired, $220.
c..Depreciation of office equipment for the period, $330.
d. Accrued interest expense at the end of the period, $275.
e. Accrued salaries at the end of the month, $165.
f. Fees still unearned at the end of the period, $583.
g. Fees earned but unrecorded, $1,100.
1. Open T accounts for the accounts in the trial balance plus the following: Fees Receivable; Interest Payable; Salaries Payable; Office Supplies Expense; Depreciation Expense, Office Equipment; and Interest Expense. Enter the balances.
2. Determine the adjusting entries and post them directly to the T accounts.
3. Prepare an adjusted trial balance.
19) The Foremost Janitorial Service -is owned by Ron Hudson. After six months of operation, the September 30, 19xx trial balance for the company was prepared.
| Cash | $ 1,524 | |
| Accounts Receivable | 1,828 | |
| Prepaid Insurance | ||
| Prepaid Rent | 1,400 | |
| Cleaning Supplies | 2,792 | |
| Cleaning Equipment | 3,480 | |
| Truck | 7,200 | |
| Accounts Payable | $ 340 | |
| Unearned Janitorial Fees | ||
| Ron Hudson, Capital | 14,190 | |
| Ron Hudson, Withdrawals | 6,000 | |
| Janitorial Fees | 14,974 | |
| Wages Expense | 4,800 | |
| Gas, Oil, and Other Truck Expenses | ||
| $30,464 | $30,464 |
The balance of the Capital account reflects investments made by Ron Hudson. The following information is also available:
a. Cleaning supplies of $234 are on hand.
b. Prepaid Insurance represents the cost of a one-year policy purchased on April 1.
c. Prepaid Rent represents a $200 payment made on April 1 toward the last month's rent of a three-year lease plus $200 rent per month for each of the past six months.
d. The cleaning equipment and trucks are depreciated at the rate of 20 percent per year (10 percent for each six-month period).
e. The unearned revenue represents a six-month payment in advance made by a customer on August 1.
f. During the last week of September, Ron completed the first stage of work on a contract that will not be billed until the contract is completed. The price of this stage is $800.
g. On Saturday, October 3, Ron will owe his employees $1,080 for one week's work (six-day workweek).
1. Open T accounts for the accounts in the trial balance plus the following: Fees Receivable; Accumulated Depreciation, Cleaning Equipment; Accumulated Depreciation, Truck; Wages Payable; Rent Expense; Insurance Expense; Cleaning Supplies Expense;
Depreciation Expense, Cleaning Equipment; and Depreciation Expense, Truck.
2. Determine the adjusting entries and post them directly to the T accounts.
3. Prepare an adjusted trial balance, an income statement, a statement of owner's equity, and a balance sheet.
20) At the end of the first three months of operations, this was the trial balance of the A-l Answering Service:
| Cash (111) | $ 5,524 | |
| Accounts Receivable (112) | 8,472 | |
| Office Supplies (115) | 1,806 | |
| Prepaid Rent (116) | 1,600 | |
| Prepaid Insurance (117) | 1,440 | |
| Office Equipment (141) | 4,600 | |
| Communications Equipment (143) | 4,800 | |
| Accounts Payable (211) | $ 5,346 | |
| Unearned Answering Service Revenue (213) | 1,776 | |
| Terry Mei, Capital (311) | 11,866 | |
| Terry Mei, Withdrawals (312) | 4,260 | |
| Answering Service Revenue (411) | 18,004 | |
| Wages Expense (511) | 3,800 | |
| Office Cleaning Expense (513) | ||
| $36,992 | $36,992 |
Terry Mei, the owner of the answering service company, hired an accountant to prepare financial statements in order to determine how well the company was doing after three months. On examining the accounting records, the accountant found the following items of interest:
a. An inventory of office supplies reveals supplies on hand of $266.
b. The Prepaid Rent account includes the rent for the first three months plus a deposit for the last month's rent.
c. Prepaid Insurance reflects a one-year policy purchased on August 4.
d. Depreciation is estimated at $204 on the office equipment and $212 on the communications equipment for the first three months.
e. The balance of the Unearned Answering Service Revenue account represents a twelve-month service contract paid in advance on September 1.
f. On October 31, accrued wages totaled $160.
The balance of the Capital account represents investments by Terry Mei.
1. Record the adjusting entries in the general journal (Pages 12 and 13).
2. Open ledger accounts for the accounts in the trial balance plus the following: Accumulated Depreciation, Office Equipment (142); Accumulated Depreciation, Communications Equipment (144); Wages Payable (212); Rent Expense (512); Insurance Expense (514); Office Supplies Expense (515); Depreciation Expense, Office Equipment(516); and Depreciation Expense, Communications Equipment (517). Record the balances shown in the trial balance.
3. Post the adjusting entries from the general journal to the ledger accounts, showing
the correct references.
4. Prepare an adjusted trial balance.
5. Prepare an income statement, a statement of owner's equity, and a balance sheet.
6. Give examples to show how the techniques of accrual accounting affect A-l's income statement.
21) Here is the trial balance for Century Dance School at the end of its current fiscal year.
| Cash (111) | $ 3,084 | |
| Accounts Receivable (112) | 1,551 | |
| Supplies (115) | ||
| Prepaid Rent (116) | 1,200 | |
| Prepaid Insurance (117) | 1,080 | |
| Equipment (141) | 12,300 | |
| Accumulated Depreciation, Equipment (142) | $ 1,200 | |
| Accounts Payable (211) | 1,140 | |
| Unearned Dance Fees (213) | 2,700 | |
| Loretta Harper, Capital (311) | 7,500 | |
| Loretta Harper, Withdrawals (312) | 36,000 | |
| Dance Fees (411) | 62,985 | |
| Wages Expense (511) | 9,600 | |
| Rent Expense (512) | 6,600 | |
| Utility Expense (515) | 3,600 | |
| $75,525 | $75,525 |
Loretta Harper, the owner, made no investments in the business during the year. The following information is available to help in the preparation of adjusting entries:
a. An inventory of supplies reveals $276 still on hand.
b. Prepaid Rent reflects the rent for July plus the rent for the last month of the lease.
c. Prepaid Insurance consists of a two-year policy purchased on February 1, 19x4.
d. Depreciation on equipment is estimated at $2,400.
e. Accrued wages are $195 on July 31.
f. Two-thirds of the unearned dance fees had been earned by July 31.
1. Record the adjusting entries in the general journal (Page 53).
2. Open ledger accounts for the accounts in the trial balance plus the following: Wages Payable (212); Supplies Expense (513); Insurance Expense (514); and Depreciation Expense, Equipment (516). Record the balances shown in the trial balance.
3. Post the adjusting entries from the general journal to the ledger accounts, showing the correct references.
4. Prepare an adjusted trial balance, an income statement, a statement of owner's equity, and a balance sheet.
22) On June 30, the end of the current fiscal year, the following information was available to aid the Sterling Company accountants in making adjusting entries:
a. Among the liabilities of the company is a mortgage payable in the amount of $240,000. On June 30, the accrued interest on this
mortgage amounted to $12,000.
b. On Friday, July 2, the company, which is on a five-day workweek and pays employees weekly, will pay its regular salaried employees $19,200.
c. On June 29, the company completed negotiations and signed a contract to provide services to a new client at an annual rate of $3,600.
d. The Supplies account showed a beginning balance of $1,615 and purchases during the year of $3,766. The end-of-year inventory revealed supplies on hand that cost $1,186.
e. The Prepaid Insurance account showed the following entries on June 30:
| Beginning Balance | $1,530 |
| January 1 | 2,900 |
| May 1 | 3,366 |
The beginning balance represents the portion of a one-year policy that remained un-expired at the beginning of the current fiscal year. The January 1 entry represents a new one-year policy, and the May 1 entry represents additional coverage in the form of a three-year policy.
f. The table below contains" the cost and annual depreciation for buildings and equipment, all of which were purchased before the current year:
| Account | Cost | Annual Depreciation |
| Buildings | $185,000 | $ 7,300 |
| Equipment | 218,000 | 21,800 |
g. On June 1, the company completed negotiations with another client and accepted a payment of $21,000, representing one year's services paid in advance. The $21,000 was credited to Services Collected in Advance.
h. The company calculated that as of June 30 it had earned $3,500 on a $7,500 contract that would be completed and billed in August. Prepare adjusting entries for each item listed above.
23) This is the trial balance for the Executive Advisory Company on March 31, 19x3:
| Cash | $ 25,572 | |
| Accounts Receivable | 49,680 | |
| Office Supplies | 1,982 | |
| Prepaid Rent | 2,800 | |
| Office Equipment | 13,400 | |
| Accumulated Depreciation, Office Equipment | $ 3,200 | |
| Accounts Payable | 3,640 | |
| Notes Payable | 20,000 | |
| Unearned Fees | 5,720 | |
| Barbara Podolski, Capital | 58,774 | |
| Barbara Podolski, Withdrawals | 30,000 | |
| Fees Revenue | 117,000 | |
| Salaries Expense | 66,000 | |
| Utility Expense | 3,500 | |
| Rent Expense | 15,400 | |
| $208,334 | $208,334 |
The following information is also available:
a. Ending inventory of office supplies, $172.
b. Prepaid rent expired, $1,400.
c. Depreciation of office equipment for the period, $1,200.
d. Interest accrued on the note payable, $1,200.
e. Salaries accrued at the end of the period, $400.
f. Fees still unearned at the end of the period, $2,820.
g. Fees earned but not billed $1,200.
1. Open T accounts for the accounts in the trial balance plus the following: Fees Receivable; Interest Payable; Salaries Payable; Office Supplies Expense; Depreciation Expense, Office Equipment; and Interest Expense. Enter the balances.
2. Determine the adjusting entries and post them directly to the T accounts.
3. Prepare an adjusted trial balance.
24) Having graduated from college with a degree in accounting, Joyce Ozaki opened a small tax preparation service. At the end of its second year of operation, the Ozaki Tax Service has the following trial balance:
| Cash | $ 2,268 | |
| Accounts Receivable | 1,031 | |
| Prepaid Insurance | ||
| Office Supplies | ||
| Office Equipment | 4,100 | |
| Accumulated Depreciation, Office Equipment | $ 410 | |
| Copier | 3,000 | |
| Accumulated Depreciation, Copier | ||
| Accounts Payable | ||
| Unearned Tax Fees | ||
| Joyce Ozaki, Capital | 5,439 | |
| Joyce Ozaki, Withdrawals | 6,000 | |
| Fees Revenue | 21,926 | |
| Office Salaries Expense | 8,300 | |
| Advertising Expense | ||
| Rent Expense | 2,400 | |
| Telephone Expense | ||
| $28,989 | $28,989 |
Joyce Ozaki made no investments in her business during the year. The following information was also available:
a. Supplies on hand, December 31, 19xx, were $227.
b. Insurance still unexpired amounted to $120.
c. Estimated depreciation of office equipment was $410.
d. Estimated depreciation of the copier was $360.
e. The telephone expense for December was $19. This bill has been received but not recorded.
f. The services for all unearned tax fees had been performed by the end of the year.
1. Open T accounts for the accounts in the trial balance plus the following: Insurance Expense; Office Supplies Expense; Depreciation Expense, Office Equipment; Depreciation Expense, Copier. Record the balances as shown in the trial balance.
2. Determine the adjusting entries and post them directly to the T accounts.
3. Prepare an adjusted trial balance, an income statement, a statement of owner's equity, and a balance sheet.
25) At the end of its fiscal year, the trial balance for North Star Dry Cleaners appears as shown at the top of page 124. Jason Graves, the owner, made no investments during the year. The following information is also available:
a. A study of insurance policies shows that $1,020 is unexpired at the end of the year.
b. An inventory of cleaning supplies shows $1,866 on hand.
c. Estimated depreciation for the year is $12,900 on the building and $6,300 on the delivery trucks.
d. Accrued interest on the mortgage payable amounts to $1,500.
e. On May 1, the company signed a contract effective immediately with Kane County Hospital to dry-clean, for a fixed monthly charge of $600, the uniforms used by doctors in surgery. The hospital paid for four months' service in advance.
f. Unrecorded plant wages total $2,946.
g. Sales and delivery wages are paid on Saturday. The weekly payroll is $1,440. June 30 falls on a Thursday, and the company has a six-day workweek.
| Cash (111) | $ 17,682 | |
| Accounts Receivable (112) | 39,741 | |
| Prepaid Insurance (115) | 5,100 | |
| Cleaning Supplies (116) | 11,061 | |
| Land (141) | 27,000 | |
| Building (142) | 243,000 | |
| Accumulated Depreciation, Building (143) | $ 60,600 | |
| Delivery Trucks (144) | 34,500 | |
| Accumulated Depreciation, Delivery Trucks (145) | 7,800 | |
| Accounts Payable (212) | 30,600 | |
| Unearned Dry Cleaning Revenue (215) | 2,400 | |
| Mortgage Payable (221) | 180,000 | |
| Jason Graves, Capital (311) | 84,840 | |
| Jason Graves, Withdrawals (312) | 30,000 | |
| Dry Cleaning Revenue (411) | 180,501 | |
| Laundry Revenue (412) | 55,950 | |
| Plant Wages Expense (511) | 97,680 | |
| Sales and Delivery Wages Expense (512) | 54,315 | |
| Cleaning Equipment Rent Expense (513) | 9,000 | |
| Delivery Trucks Expense (514) | 6,561 | |
| Interest Expense (519) | 16,500 | |
| Other Expenses (520) | 10,551 | |
| $602,691 | $602,691 |
1. Determine adjusting entries and enter them in the general journal
2. Open ledger accounts for each account in the trial balance plus the following: Plant Wages Payable (213); Interest Payable (214); Insurance Expense (515); Cleaning Supplies Expense (516); Depreciation Expense, Building (517); and Depreciation Expense, Delivery Trucks (518). Record the balances shown in the trial balance.
3. Post the adjusting entries to the ledger accounts, showing the correct references.
4. Prepare an adjusted trial balance.
5. Prepare an income statement, a statement of owner's equity, and a balance sheet for the year ended June 30, 19x3.
6. Give examples of how the techniques of accrual accounting affect the income statement.
26) The Westland Limo Service was organized on January 1,19x2 to provide limousine service between the airport and various suburban locations. It has just completed its second year of business. Its trial balance appears on page 125. John Cummings, the owner, made no investments during the year. The following information is also available:
a. To obtain space at the airport, Westland paid two years' rent in advance when it began business.
b. An examination of the firm's insurance policies reveals that $5,600 expired during the year.
c. To provide regular maintenance for the vehicles, a deposit of $24,000 was made with a local garage. An examination of maintenance invoices reveals that there are $21,888 in charges against the deposit.
d. An inventory of spare parts shows $3,804 on hand.
e. All of the Westland Limo Service's limousines are depreciated at the rate of 12.5 percent a year. No limousines were purchased during the year.
f. A payment of $21,000 for one year's interest on notes payable is now due.
g. Unearned Passenger Service Revenue on December 31 includes $35,630 in tickets that were purchased by employers for use by their executives and that have not been redeemed.
| Cash (111) | $ 19,624 | |
| Accounts Receivable (112) | 28,454 | |
| Prepaid Rent (117) | 24,000 | |
| Prepaid Insurance (118) | 9,800 | |
| Prepaid Maintenance (119) | 24,000 | |
| Spare Parts (141) | 22,620 | |
| Limousines (142) | 400,000 | |
| Accumulated Depreciation, Limousines (143) | $ 50,000 | |
| Notes Payable (211) | 90,000 | |
| Unearned Passenger Service Revenue (212) | 60,000 | |
| John Cummings, Capital (311) | 156,422 | |
| John Cummings, Withdrawals (312) | 40,000 | |
| Passenger Service Revenue (411) | 856,996 | |
| Gas and Oil Expense (511) | 178,600 | |
| Salaries Expense (512) | 412,720 | |
| Advertising Expense (513) | 53,600 | |
| $1,213,418 | $1,213,418 |
1. Record the adjusting entries in the general journal (Pages 14
2. Open ledger accounts for the accounts in the trial balance plus the following: Interest Payable (213); Rent Expense (514); Insurance Expense (515); Spare Parts Expense (516); Depreciation Expense, Limousines (517); Maintenance Expense (518); and Interest Expense (519). Record the balances shown in the trial balance.
3. Post the adjusting entries from the general journal to the ledger accounts, showing the correct references.
4. Prepare an adjusted trial balance, an income statement, a statement of owner's equity, and a balance sheet.
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