Expert answer:Determine that amount at which each of the followi
Answer & Explanation:I need help with accountingChap 4 & 5 problems.docx
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Chapter Exercise 4.5
The problems to be solved are:- Exercise 4.5, Problem 4.5A, Case 4.2 and Chapter 5, Exercise 5.3,
problem 5.6A. Please Note: All chapter 4 must be answered seperately and all Chapter 5 separate
LO4-1 through LO4-7
EXERCISE 4.5
Preparing Adjusting Entries to
Accrue Revenue and Expenses
for Which No Cash Has Been
Received
The geological consulting firm of Gilbert, Marsh, & Kester
prepares adjusting entries on a monthly basis. Among the items
requiring adjustment on December 31, 2015, are the following:
1. The company has outstanding a $50,000, 9 percent, twoyear note payable issued on July 1, 2014. Payment of the
$50,000 note, plus all accrued interest for the two-year
loan period, is due in full on June 30, 2016.
2. The firm is providing consulting services to Texas Oil
Company at an agreed-upon rate of $1,000 per day. At
December 31, 10 days of unbilled consulting services
have been provided.
a.Prepare the two adjusting entries required on December 31
to record the accrued interest expense and the accrued
consulting revenue earned.
b.Assume that the $50,000 note payable plus all accrued
interest are paid in full on June 30, 2016. What portion of the
total interest expense associated with this note will be
reported in the firm’s 2016 income statement?
c.Assume that on January 30, 2016, Gilbert, Marsh, & Kester
receive $25,000 from Texas Oil Company in full payment of
the consulting services provided in December and January.
What portion of this amount constitutes revenue earned in
January?
Problem 4.5A
LO4-1
Terrific Temps fills temporary employment positions for local businesses. Some
through LO4- businesses pay in advance for services; others are billed after services have been
7, LO4-9
performed. Advanced payments are credited to an account entitled Unearned
Fees. Adjusting entries are performed on a monthly basis. An unadjusted trial
balance dated December 31, 2015, follows. (Bear in mind that adjusting entries
PROBLEM
have already been made for the first 11 months of 2015, but not for December.)
4.5A
Preparing
Adjusting
Entries and
Determining
Account
Balances
d
Page 178
Other Data
1. Accrued but unrecorded fees earned as of December 31, 2015, amount to
$1,500.
2. Records show that $2,500 of cash receipts originally recorded as
unearned fees had been earned as of December 31.
3. The company purchased a six-month insurance policy on September 1,
2015, for $1,800.
4. On December 1, 2015, the company paid its rent through February 28,
2016.
5. Office supplies on hand at December 31 amount to $400.
6. All equipment was purchased when the business first formed. The
estimated life of the equipment at that time was 10 years (or 120
months).
7. On August 1, 2015, the company borrowed $12,000 by signing a six-
month, 8 percent note payable. The entire note, plus six months’ accrued
interest, is due on February 1, 2016.
8. Accrued but unrecorded salaries at December 31 amount to $2,700.
9. Estimated income taxes expense for the entire year totals $15,000. Taxes
are due in the first quarter of 2016.
Instructions
a.For each of the numbered paragraphs, prepare the necessary adjusting entry
(including an explanation).
b.Determine that amount at which each of the following accounts will be
reported in the company’s 2015 income statement:
1. Fees Earned
2. Travel Expense
3. Insurance Expense
4. Rent Expense
5. Office Supplies Expense
6. Utilities Expense
7. Depreciation Expense: Equipment
8. Interest Expense
9. Salaries Expense
10. Income Taxes Expense
c.The unadjusted trial balance reports dividends of $3,000. As of December
31, 2015, have these dividends been paid? Explain.
LO4-8
The concept of materiality is one of the most basic principles underlying financial
accounting.
CASE 4.2
a.Answer the following questions:
The Concept
of Materiality
1. Why is the materiality of a transaction or an event a matter of
professional judgment?
2. What criteria should accountants consider in determining whether a
transaction or an event is material?
3. Does the concept of materiality mean that financial statements are
not precise, down to the last dollar? Does this concept make
financial statements less useful to most users?
b.Avis Rent-a-Car purchases a large number of cars each year for its rental
fleet. The cost of any individual automobile is immaterial to Avis, which is a
very large corporation. Would it be acceptable for Avis to charge the purchase
of automobiles for its rental fleet directly to expense, rather than to an asset
account? Explain.
Chapter 5 Exercise 5.3
LO5-1,
LO5-2,
LO5-6
Wilderness Guide Services, Inc., performs adjusting entries every month, but
closes its accounts only at year-end. The company’s year-end adjusted trial
balance dated December 31, 2015, follows:
EXERCISE
5.3
Financial
Statement
Preparation
d
a.Prepare an income statement and statement of retained earnings for the year
ended December 31, 2015. Also prepare the company’s balance sheet dated
December 31, 2015. (Hint: Unprofitable companies have no income taxes
expense.)
b.Does the company appear to be liquid? Defend your answer.
c.Has the company been profitable in the past? Explain.
Problem 5.6A
LO5-1 through
LO5-4, LO5-6
PROBLEM 5.6A
Short
Brushstroke Art Studio, Inc., provides quality instruction to aspiring artists.
The business adjusts its accounts monthly, but performs closing entries
annually on December 31. This is the studio’s unadjusted trial balance dated
December 31, 2015.
Comprehensive
Problem Including
Both Adjusting
and Closing
Entries
d
Other Data
1. Supplies on hand at December 31, 2015, total $1,000.
2. The studio pays rent quarterly (every three months). The last
payment was made November 1, 2015. The next payment will be
made early in February 2016.
3. Studio equipment is being depreciated over 120 months (10 years).
4. On October 1, 2015, the studio borrowed $24,000 by signing a 12month, 12 percent note payable. The entire amount, plus interest, is
due on September 30, 2016.
Page 233
5. At December 31, 2015, $3,000 of previously unearned client fees had
been earned.
6. Accrued, but unrecorded and uncollected client fees earned total
$690 at December 31, 2015.
7. Accrued, but unrecorded and unpaid salary expense totals $750 at
December 31, 2015.
8. Accrued income taxes expense for the entire year ending December
31, 2015, total $7,000. The full amount is due early in 2016.
Instructions
a.Prepare the necessary adjusting journal entries on December 31, 2015.
Prepare also an adjusted trial balance dated December 31, 2015.
b.From the adjusted trial balance prepared in part a, prepare an income
statement and statement of retained earnings for the year ended
December 31, 2015. Also prepare the company’s balance sheet dated
December 31, 2015.
c.Prepare the necessary year-end closing entries.
d.Prepare an after-closing trial balance.
e.Has the studio’s monthly rent remained the same throughout the year?
If not, has it gone up or down? Explain.
…
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