Preparing Adjusting Entries P 2.
On November 30, the end of the current fiscal
year, the following information is available to assist Caruso Corporationâ€™s
accountants in making adjusting entries:
Caruso Corporationâ€™s Supplies account shows a beginning balance
of $2,350. Purchases during the year were $4,218. The end-of-year inventory
reveals supplies on hand of $1,397.
b. The Prepaid Insurance account shows the
following on November 30:
Beginning balance $4,720
The beginning balance represents the unexpired
portion of a one-year policy purchased the previous year. The July 1 entry
represents a new one-year policy, and the October 1 entry represents additional
coverage in the form of a three-year policy.
c. The following table contains the cost and
annual depreciation for buildings and equipment, all of which Caruso
Corporation purchased before the cur-rent year:
d. On September 1, the company completed
negotiations with a client and accepted an advance payment of $18,600 for
services to be performed in the next year. The $18,600 was credited to the
Unearned Service Revenue account.
e. The company calculated that as of November
30, it had earned $7,000 on an $11,000 contract that would be completed and
billed in January.
f. Among the liabilities of the company is a
note payable in the amount of $300,000. On November 30, the accrued interest on
this note amounted to$18,000.
g. On Saturday, December 2, the company, which
is on a six-day workweek, will pay its regular salaried employees $15,000.
h. On November 29, the company completed
negotiations and signed a con-tract to provide services to a new client at an
annual rate of $17,500.
Management estimates income taxes for the year to be
1. Prepare adjusting entries in journal form
for each item listed above.
2. Explain how the conditions for revenue
recognition are applied to transactions e and
Melvin Patel bid for and won a concession to rent bicycles in the local
park during the summer. During the month of June, Patel completed the following
transactions for his bicycle rental business:
2 Began business
by placing $7,200 in a business checking accounting the name of the corporation
in exchange for 7,200 shares of $1 par value common stock.
supplies on account for $150.
4 Purchased 10
bicycles for $2,500, paying $1,200 down and agreeing to pay the rest in 30
5 Paid $2,900 in
cash for a small shed to store the bicycles and to use for other operations.
8 Paid $400 in
cash for shipping and installation costs (considered an addition to the cost of
the shed) to place the shed at the park entrance.
9 Hired a
part-time assistant to help out on weekends at $7 per hour.
10 Paid a
maintenance person $75 to clean the grounds.
13 Received $970
in cash for rentals.
17 Paid $150 for
the supplies purchased on June 3.
18 Paid a $55 repair
bill on bicycles.
23 Billed a
company $110 for bicycle rentals for an employee outing.
25 Paid the $100
fee for June to the Park District for the right to operate the bicycle
27 Received $960
in cash for rentals.
29 Paid the
assistant wages of $240.
30 Declared and
paid a dividend of $500.
entries to record these transactions in journal form.
2. Set up the
following T accounts and post all the journal entries: Cash; Accounts
Receivable; Supplies; Shed; Bicycles; Accounts Payable; Common Stock;
Dividends; Rental Revenue; Wages Expense; Maintenance Expense; Repair Expense;
and Concession Fee Expense.
3. Prepare a
trial balance for Patel Rentals, Inc., as of June 30, 2010.
4. Compare and
contrast how the issues of recognition, valuation, and classification are
settled in the transactions of June 3 and 10.