ACCT 1220 Chapter Notes - Chapter 4: Deferral, Accrual, Revenue Recognition
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Chandler, Inc. is owned by Roscoe Chandler and providesappraisal services to individuals and companies wishing to purchaseand sell fine art. Chandler, Inc. began business on January 1,2016, and is just completing its first year of business. Roscoeasks for your help in completing the accounting cycle for thecompany by assisting with the closing process.
Before the closing entries are made, you begin with an adjustedtrial balance. The closing entries are essentially the link fromthe adjusted trial balance to the post-closing trial balance.
Chandler, Inc.
ADJUSTED TRIAL BALANCE
December 31, 2016
ACCOUNTTITLE | DEBIT | CREDIT | |
---|---|---|---|
1 | Cash | 76,000.00 | |
2 | Accounts Receivable | 29,000.00 | |
3 | Prepaid Insurance | 16,000.00 | |
4 | Equipment | 60,000.00 | |
5 | Accumulated Depreciation-Equipment | 40,000.00 | |
6 | Accounts Payable | 6,000.00 | |
7 | Salaries Payable | 8,000.00 | |
8 | Income Taxes Payable | 4,000.00 | |
9 | Common Stock | 2,000.00 | |
10 | Retained Earnings | 18,000.00 | |
11 | Dividends | 5,000.00 | |
12 | Income Summary | ||
13 | Fees Earned | 175,600.00 | |
14 | Rent Revenue | 92,000.00 | |
15 | Interest Revenue | 17,200.00 | |
16 | Salaries Expense | 71,000.00 | |
17 | Selling Expense | 25,600.00 | |
18 | Income Taxes Expense | 15,000.00 | |
19 | Depreciation Expense-Equipment | 47,200.00 | |
20 | Insurance Expense | 17,000.00 | |
21 | Miscellaneous Expense | 1,000.00 | |
22 | Totals | 362,800.00 | 362,800.00 |
The final step of the accounting cycle is the closing process.The main goal of this stage of the cycle is to ensure that thebalance of each temporary account is returned to zero and that netincome is transferred to the retained earnings account. The firststep in successfully undertaking the closing process is tounderstand the difference between a temporary account and apermanent account. Roscoe has some questions about the process.
Answer questions (1) - (3) below.
1. If a temporary account has an ending balance of $57,000, whatis its beginning balance for the following accounting period?
2. If a permanent account has an ending balance of $57,000, whatis its beginning balance for the following accounting period?
3. Roscoe will be preparing his yearly financial statementsafter completing Chandler, Inc.âs closing process, and is asomewhat confused about the characteristics of the accounts on hisChart of Accounts. He has started by creating the chart below, andasks for your help in completing it. For each account or type ofaccount listed, choose all descriptions that apply.
Temporary Account | Permanent Account | Closed to Income SummaryAccount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Yes | No | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asset accounts | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retained Earnings account | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Liability accounts | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends account | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Roscoe has attempted to prepare the closing entries forChandler, Inc. on this panel. Heâs not sure if heâs entered thejournal entries correctly, and asks you to review them. You findthat two of the entries are correct, but two are incorrect. Determine which entries are incorrect, and enter all four of theclosing entries for Chandler, Inc. as of Dec. 31 on the Journalpanel. PAGE 25 JOURNAL
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Susanâs Consulting experienced the following transactions for2014, its first year of operations, and 2015. Assume that alltransactions involve the receipt or payment of cash.
Transactions for2014 |
1. | Acquired $65,000by issuing common stock. |
2. | Received$115,000 cash for providing services to customers. |
3. | Borrowed $18,000cash from creditors. |
4. | Paid expensesamounting to $57,000. |
5. | Purchased landfor $40,000 cash. |
Transactions for2015 |
Beginningaccount balances for 2015 are: |
Cash | $ | 101,000 | |
Land | 40,000 | ||
Notes payable | 18,000 | ||
Common stock | 65,000 | ||
Retained earnings | 58,000 | ||
1. | Acquired anadditional $23,000 from the issue of common stock. |
2. | Received$133,000 for providing services. |
3. | Paid $13,000 tocreditors to reduce loan. |
4. | Paid expensesamounting to $72,000. |
5. | Paid a $13,500dividend to the stockholders. |
6. | Determined thatthe market value of the land is $50,000. |
Required | |
a. | Record the effects of each accounting event under theappropriate headings for each year. Record the amounts of revenue,expense, and dividends in the Retained Earnings column. Provideappropriate titles for these accounts in the last column of thetable. (Enter any decreases to account balances with aminus sign. Select "NA" if there is no effect on the "AccountTitles for Retained Earnings".) |
b-1. | Prepare an income statement for each year accounting period. |
b-2. | Prepare a statement of changes instockholdersâ equity for each year accounting period. |
b-3. | Prepare a year-end balance sheet for eachyear accounting period. |
b-4. | Prepare a statement of cash flows for eachyear accounting period. (Amounts to be deducted should beindicated with a minus sign.) |
c. | Determine theamount of cash that is in the retained earnings account at the endof 2014 and 2015. |
e. | Determine the balance in the Retained Earnings accountimmediately after Event 2 in 2014 and in 2015 are recorded. |
Below are the account balances for Cowboy Law Firm at the end of December.
Accounts | Balances | ||
Cash | $ | 3,700 | |
Salaries expense | 1,350 | ||
Accounts payable | 1,700 | ||
Retained earnings | 4,550 | ||
Utilities expense | 1,000 | ||
Supplies | 12,100 | ||
Service revenue | 7,600 | ||
Common stock | 4,300 | ||
Required:
Use only the appropriate accounts to prepare an Income Statement.