Expert answer:Typical Adjusting Entries

Expert answer:For this assessment, complete Problems 1 and 2. You may use Word or
Excel to complete the assessments throughout this course, but you will
find Excel to be most helpful for creating spreadsheets. Tutorials for
using Excel are provided in the Supplemental Resources in the left
navigation menu. If you use Excel, submit the assessment in one Excel
document, using separate tabs for each spreadsheet.
assessment_3.doc

cf_assessment_3_problem_1_template.xls

cf_assessment_3_problem_2_template.xls

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Typical Adjusting Entries
Complete two problems in which you prepare adjusting entries for transactions in a hypothetical
company and then analyze the effects of adjusting entries on the company’s financial statements.
Note: Some of the assessments in this course build upon each other, so you are strongly
encouraged to complete them in the order in which they are presented.
1. Assessment Instructions
• Note: Some of the assessments in this course build upon each other, so you are strongly
encouraged to complete them in the order in which they are presented.
For this assessment, complete Problems 1 and 2. You may use Word or Excel to complete the
assessments throughout this course, but you will find Excel to be most helpful for creating
spreadsheets. Tutorials for using Excel are provided in the Supplemental Resources in the left
navigation menu. If you use Excel, submit the assessment in one Excel document, using separate
tabs for each spreadsheet.
Templates for both problems are linked in the Suggested Resources under the Capella Resources
heading.
Problem 1: Adjusting the Books Using Adjusting Entries
Huntington Company’s annual accounting year ends on December 31. It is December 31, 2012,
and all of the 2012 entries except the following adjusting entries have been made:
• a. On September 1, 2012, Huntington collected six months of rent worth $9,000 on
storage space. At that date, cash was debited and unearned rent revenue was credited for
$9,000.
• b. On October 1, 2012, the company borrowed $30,000 from a local bank and signed a 12
percent note for that amount. The principal and interest are payable on the maturity date,
September 30, 2013.
• c. Depreciation of $5,000 must be recognized on a service truck purchased on July 1,
2012, at a cost of $30,000.
• d. Cash of $4,800 was collected on November 1, 2012, for services to be rendered evenly
over the next year beginning on November 1. Unearned service revenue was credited
when the cash was received.
• e. On November 1, 2012, Huntington paid a one-year premium for fire insurance of a
total of $12,000 for one year of coverage starting on that date. Cash was credited and
prepaid insurance was debited for this amount.
• f. The company earned service revenue of $6,000 on a special job that was completed
December 24, 2012. Collection will be made during January 2013. No entry has been
recorded.
• g. At December 31, 2012, wages earned by employees totaled $17,500. The employees
will be paid on the next payroll date, January 15, 2013.
• h. On December 31, 2012, the company estimated it owed $16,000 for 2012 property
taxes on land. The tax will be paid when the bill is received in January 2013.
Using the information above, prepare the adjusting entry required for each transaction at
December 31, 2012.
To complete this problem, you may choose to use the Assessment 3, Problem 1 Template,
which is linked in the Suggested Resources under the Capella Resources heading.
Problem 2: Analyzing the Effects of Adjusting Entries on the Accounting Model
To complete this problem, you will need to refer to Problem 1.
Indicate in a table format the effect of each adjusting entry in Problem 1 (a through h) and the
amount of the effect. Use + for increase, − for decrease, and NE for no effect.
This problem is built around the following formulas and concepts:
• Assets = Liabilities + Stockholders’ Equity.
• Revenues − Expenses = Net Income.
• Net Income accounts are closed to Retained Earnings, a part of Shareholders’ Equity.
It is recommended that you use the Assessment 3, Problem 2 Template linked in the Suggested
Resources under the Capella Resources heading.
Typical Adjusting Entries Scoring Guide
Criteria
Record adjusting entries for each
transaction at the end of an
annual accounting year using
appropriate financial data.
Analyze the impact of adjusting
entries on financial statements.
Proficient
Distinguished
Records adjusting entries for each
transaction at the end of an annual
accounting year using appropriate
financial data.
Records adjusting
entries for each
transaction at the
end of an annual
accounting year
using the correct
financial data and
computations.
Analyzes the impact of adjusting
entries on financial statements.
Evaluates adjusting
entries,
demonstrating
insight and
understanding of
their impact on
financial
statements.
Template for adjusting entries in a journal: Column A is the letter (a through h) for the transaction, column B
is for the type of adjustment, column B is for debits (DR), and column D is for credits (CR).
Learner:
Huntington Company
Adjusting Entries
31-Dec-11
DR
a. Unearned Rent Revenue
Rent Revenue
(4 months of 6 months of $9,000)
b. Interest Expense
Interest Payable
($30,000 × .12 × 3/12)
c. Depreciation Expense
Accumulated Depreciation – Truck
(amount of $5,000 is given)
d. Unearned Service Revenue
Service Revenue
($4,800/12 × 2 months)
e. Insurance Expense
Prepaid Insurance
($12,000/12 × 2 months)
f. Accrued Service Revenue
Service Revenues
(amount of $6,000 is given)
g. Wages Expense
Accrued Wages Payable
(amount of $17,500 is given)
h. Property Tax Expense
Accrued Taxes Payable
(amount of $16,000 is given)
End of worksheet
CR
Template for indicating the effect of each adjusting entry (a through h from Problem 1) on the balance sheet and income statement.
Compute the assets, liabilities, stockholders’ equity, revenues, expenses, and net income for all transactions. Huntington Company,
year ended December 31, 2012.
Learner:
BALANCE SHEET
TRANSACTION
Assets
a
NE
b
NE
Stockholders’
Equity
Liabilities
Revenues
Net
Income
Expenses
NE
NE
c
d
INCOME STATEMENT
900
NE
NE
e
-800
800
-2,000 NE
800 NE
-2,000 NE
800
2,000
-2,000
f
g
NE
h
NE
CR
NE
16,000
CR
-2,000
Change in Assets & Liabilities
Change In:
DR
Assets
Liabilities
Equity
Must Equal
End of worksheet
DR
15,200
CR
28,600
28,600
–
NE
CR
-17,500
-16,000
DR
-1,200
800
17,200 Revenue − Expense =
DR
2,900
-34,700
-2,100
…
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