BTC Accruals Deferrals and Other Adjustments Worksheet

ADJUSTING ENTRIESHOMEWORK EXERCISES AND PROBLEMS
A. EXERCISES
Section 1 −WHY WE USE ACCRUALS, DEFERRALS AND OTHER ADJUSTMENTS
1. On October 1, 20X0, Espree Co. takes out a $10,000 loan and agrees to pay interest
twice each year for the life of the loan: $300 on April 1 and $300 on October 1. How
much interest expense will Espree report on its income statement for the year ended
December 31, 20X0, if:
a. it is on a cash basis?
b. it is on the accrual basis?
2. Near the end of 20X0, JNT Enterprises completes services for a customer and sends an
invoice for $500. As of JNT’s year end, no payment has been received. If JNT reports 20X0
revenue of $500, it must be using ____________ basis accounting.
3. On December 2, 20X1, P&T pays $1,000 to an exterminator for work that will start in
January. If P&T reports on its income statement $1,000 for exterminating expense for
20X1, it must be using __________ basis accounting.
4. For each of the following unrelated scenarios, show how much revenue is reported on
the income statement for 20X0 under the cash basis v. accrual basis.
Cash basis
Accrual basis
On November 1, 20X0, Alexi Inc. receives
$1,800 in rental payments for November,
December, and January ($600 per month).
MNM caters six lunches in December 20X0.
Each of the six customers is invoiced $100, but
as of December 31, 20X0, only one has paid.
A musician accepts $200 for 8 upcoming
weddings. As of December 31, 20X0, the
musician has performed at 2 of the 8.
5. For each of the following unrelated scenarios, show total expenses reported on the
income statement for 20X0 under the cash basis v. accrual basis.
Cash basis
In December 20X0, ByCo runs ads costing
$30,000. ByCo receives the invoice but does
not pay it until January 20X1.
On December 1, 20X0, KPT pays $2,400 for
the next 12 months’ property insurance.
In December 20X0, Andre’s pays $400 to Pest
Control for 4 months’ service. The first
treatment will be in January 20X1.
© American Institute of Professional Bookkeepers, 2010
Accrual basis
Section 2 −ACCRUED REVENUE
1. Select the term on the right that best completes the statement on the left. Terms may be
used once, more than once, or not at all.
Failing to make the entry to accrue revenue _____ net income.
The entry to record accrued revenue ____ assets.
Accrued revenue is revenue that is ____ but not collected
Failing to make the entry to accrue revenue _____ assets.
The entry to record accrued revenue _____ net income.
a. increases
b. decreases
c. overstates
d. understates
e. earned
f. unearned
2. Kurtz Rentals rents equipment to Ditka on February 1. Lease terms require Ditka to
make payments to Kurtz of $2,000 each quarter: April 30, July 31, October 31, and
January 31. Kurtz receives payments for April, July, and October.
a. What journal entry should Kurtz record on December 31?
b. If this entry is not recorded, how will it affect Kurtz’s financial statements?
3. Intell licenses technologies to a manufacturer. The agreement calls for Intell to receive
$3 for each unit manufactured with licensing fees remitted quarterly. As of December 31,
Intell has received the following payments:
Period
1/1 to 3/31
4/1 to 6/30
7/1 to 9/30
10/1 to 12/31
Units manufactured
475
350
525
600
Licensing fees
$1,425
$1,050
$1,575
$1,800
Intell has received checks for the first two quarters, but not the third; the fourthquarter check is not due until January.
a. If Intell is on the accrual basis, what adjusting entry should it record at year end to
recognize revenue earned from this manufacturer?
b. If this entry is not recorded, how will it affect Intell’s financial statements?
4. Your firm holds a $15,000, 8% note receivable issued on August 1, 20X0. Interest is paid
once a year on July 31. On July 31, 20X6, you receive the normal interest payment.
a. What adjusting entry must you record December 31, 20X6?
b. If this entry is not recorded, how will it affect your company’s financial statements?
5. Your company, which has a fiscal year ending October 31, sells scented bars of soap for
a 12% commission. As of October 31, total sales are $400,000. Your company has
received $30,000, which you credited to Revenue.
a. How much additional revenue must you record for the fiscal year?
b. What is the journal entry to record the additional revenue?
Section 3 −ACCRUED EXPENSES (ACCRUED LIABILITIES)
1. DillCo borrows $200,000 on September 1, 20X0, from First Bancorp. Monthly interest is
$1,200. The loan agreement requires DillCo to pay the interest every 6 months. The first
interest payment is due February 28, 20X1.
a. What adjusting entry must DillCo make on December 31, 20X0, to recognize the
accrued interest?
b. Explain the impact on the financial statements if this entry is not recorded.
2. Salary expense at QuickDinner Inc. is $7,500 per week for a Monday–Friday workweek.
Employees are paid each Friday.
a. If the company’s year ends on a Wednesday, what adjusting entry must it record?
b. Explain the impact on the financial statements if this entry is not recorded.
3. Salary expense at SlowCooker is $6,000 per week for a Tuesday–Sunday workweek.
Employees are paid on Sunday.
a. If the company’s year ends on a Tuesday, what adjusting entry must it make?
b. Explain the impact on the financial statements if this entry is not recorded.
4. Rojo Equipment, which has an October 31 fiscal year, reports income of $200,000 for the
year ended 10/31/20X7. On October 31, Rojo discovers the following:
•
A $2,000 utility bill booked on October 30, 20X7, was not paid.
•
Rojo has a $10,000 note payable with a 12% annual interest rate. Payments are
due every six months. The last interest payment was made on June 30, 20X7.
•
Rojo’s has 4 salaried employees, each paid $800 a week for a Monday–Friday
workweek. Paychecks are distributed on Fridays. October 31 is a Thursday.
a. Prepare the adjusting entries required for the year ended October 31, 20X7.
b. What is Rojo’s net income for 20X7?
Section 4 − REVENUE COLLECTED IN ADVANCE (UNEARNED REVENUE)
1. At year end, Bijou records an adjusting entry for unearned revenue.
a. If the adjusting entry increases liabilities, what journal entry was recorded when the
cash was received?
b. If the adjusting entry increases revenues, show the journal entry that was recorded
when the cash was received.
2. WyCo’s fiscal year ends September 30. On September 10, it collects $30,000 for a painting
job and credits Unearned Painting Revenue. As of September 30, 60% of the work has
been done. What adjusting entry must WyCo record on September 30?
3. On August 1, InsureCo writes a 2-year policy for a total of $12,000 and receives the entire
payment in advance. If InsureCo credits Revenue, what adjusting entry must it record on
December 31?
4. On November 1 ATD enters a 1-year contract to provide security for CorpCo’s warehouses
for $12,000 a year and receives the first 3 months’ payment at signing.
a. If ATD books the payment as revenue, what adjusting entry must it record at year
end? How will its financial statements be misstated if the entry is not recorded?
b. If ATD books the payment as a liability, what adjusting entry must it record at year
end? How will its financial statements be misstated if the entry is not recorded?
5. The following table shows subscription revenue for three unrelated companies:
Beginning balance in Unearned Subscription Revenue
Payments received during the year
Ending balance in Unearned Subscription Revenue
Subscription revenue earned during the year
I
$ 2,400
Company
II
III
$ 3,000 $ 4,500
40,000
25,000
?
4,000
39,000
?
?
2,000
25,000
a. Fill in the missing amounts.
b. Ignoring dollar amounts, what journal entries may have recorded the payments?
6. On February 1, Alta’s collects $60,000 for a job and credits Revenue. As of April 30, Alta’s
year end, 45% of the work is completed. What adjusting entry does Alta record on April 30?