ACCTG 101 Lecture Notes - Lecture 11: Matching Principle, Accrued Interest, Contingent Liability

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brownherring985

23 Oct 2020

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Expenses that have been incurred during the period but not yet paid in cash. Unpaid advertising expenses; unpaid utilities expense; unpaid taxes expense; unpaid salaries expense. Since most companies pay employees bi- weekly, before the end of the year, the employees worked but have not been paid. Work was done in december, when not recorded in. December, there will be a liability account that is understated. Period one is the adjusting account because no transaction actually occurred; period two is not an adjusting entry because it is an actual transaction. When the obligation is (1) probable, and the amount is (2) estimable, the obligation is recognized (recorded to bs & is) If only one of the criteria is met, the contingent liability is disclosed in the footnotes. E. g. guarantees on the debt of another entity; lawsuits; product warranties and recalls; environmental disasters and remediation. Gaap requires companies to record expected warranty expenses based on an estimated percentage of defective units.

Related Questions

The following unadjusted trial balance is for ACE CONSTRUCTIONCO. as of the end of its 2015 fiscal year. The June 30, 2014,credit balance of the ownerâs capital account was $51,200, and theowner invested $29,000 cash in the company during the 2015 fiscalyear.

ACE CONSTRUCTION CO. Unadjusted Trial Balance June 30, 2015
No.	Account Title	Debit		Credit
101	Cash	$	19,000
126	Supplies		8,000
128	Prepaid insurance		5,500
167	Equipment		145,570
168	Accumulated depreciationâEquipment				$ 23,000
201	Accounts payable				5,000
203	Interest payable				0
208	Rent payable				0
210	Wages payable				0
213	Property taxes payable				0
251	Long-term notes payable				23,000
301	V. Ace, Capital				80,200
302	V. Ace, Withdrawals		31,000
401	Construction fees earned				150,000
612	Depreciation expenseâEquipment		0
623	Wages expense		43,000
633	Interest expense		2,530
637	Insurance expense		0
640	Rent expense		15,000
652	Supplies expense		0
683	Property taxes expense		5,000
684	Repairs expense		2,700
690	Utilities expense		3,900

	Totals	$	281,200	$	281,200

Adjustments:

a.	The supplies available at the end of fiscal year 2015 had a costof $2,880.
b.	The cost of expired insurance for the fiscal year is $3,465.
c.	Annual depreciation on equipment is $8,900.
d.	The June utilities expense of $520 is not included in theunadjusted trial balance because the bill arrived after the trialbalance was prepared. The $520 amount owed needs to berecorded.
e.	The companyâs employees have earned $1,500 of accrued wages atfiscal year-end.
f.	The rent expense incurred and not yet paid or recorded at fiscalyear-end is $200.
g.	Additional property taxes of $1,000 have been assessed for thisfiscal year but have not been paid or recorded in the accounts.
h.	The long-term note payable bears interest at 12% per year. Theunadjusted Interest Expense account equals the amount paid for thefirst 11 months of the 2015 fiscal year. The $230 accrued interestfor June has not yet been paid or recorded. (The company isrequired to make a $4,000 payment toward the note payable duringthe 2016 fiscal year.)

1.Prepare a 10-column work sheet for fiscalyear 2015, starting with the unadjusted trial balance and includingadjustments based on the additional facts.

2. Prepare the statement of owner's equity for the year endedJune 30

3.Prepare the classified balance sheet at June 30, 2015.

greyspider32

C(a)	The beginning balance of the supplies account was $245. During the month the company bought additional supplies in the amount of $735. At the end of the month a physical inventory showed $343 of unused supplies.
(b)	The company has a 12% note payable in the amount of $17,000 due in 6 months. The interest expense of $170 for the month has not been recorded.
(c)	The company has two employees. The manager is paid on the 15th of every month for work performed during the first half of the month and on the 1st of the following month for the work performed during the second half of the month. His monthly salary is $5,500. The other employee is paid $650 for each 5-day work week (Monday - Friday). The last day of the month fell on Thursday.
(d)	The unearned fees account shows a balance of $46,000. According to the manager 60% of that amount has been earned.
(e)	At the end of the month $5,700 of services had been performed but not yet billed.

	Required:
	Prepare adjusting entries for the above transactions. Refer to the Chart of Accounts for exact wording of account titles. The journal should have 10 rows.*

Chart of accounts.

CHART OF ACCOUNTS.

General Ledger

	ASSETS
11	Cash
12	Accounts Receivable
13	Supplies
14	Prepaid Rent
16	Office Equipment
17	Accumulated Depreciation

	LIABILITIES
21	Accounts Payable
22	Notes Payable
23	Unearned Fees
24	Wages and Salary Payable
25	Interest Payable

	EQUITY
31	Common Stock
32	Retained Earnings
33	Dividends

	REVENUE
41	Fees Earned

	EXPENSES
51	Advertising Expense
52	Insurance Expense
53	Interest Expense
54	Wages and Salary Expense
55	Supplies Expense
56	Utilities Expense
57	Depreciation Expense
58	Rent Expense
59	Miscellaneous Expense

yellowllama738

Question 16

Corresponds to CLO 3(d) Hemmingway Corporation paid salaries of$5,000 and advertising expense of $2,000. Which of the followingjournal entries correctly records these expenses?

		Debit: Cash $7,000 Credit: Salaries/Wages Expense$5,000 Credit: Advertising Expense $2,000
		Debit: Salaries/Wages Expense$5,000 Debit: Advertising Expense $2,000 Credit: Cash$7,000
		Debit: Salaries/Wages Expense$5,000 Debit: Advertising Expense $2,000 Credit: Salaries/Wages Payable$5,000 Credit: Accounts Payable$2,000
		Debit: Salaries/Wages Expense$5,000 Debit: Advertising Expense $2,000 Credit: Cash$8,000

3 points

Question 17

Corresponds to CLO 4(a) Which of the following statements iscorrect regarding accrued revenues and unearned revenues, beforeadjusting entries have been made?

		Accrued revenues have not been earned and unearned revenues havebeen earned.
		Accrued revenues have been paid and unearned revenues havenot.
		Accrued revenues have not been recorded and unearned revenueshave been recorded.
		Accrued revenues have been recorded and unearned revenues havebeen recorded.

3 points

Question 18

Corresponds to CLO 4(b) Hudson Law Corporation received $5,500cash for legal services to be rendered in the future. The fullamount was credited to the liability account Unearned ServiceRevenue. At the end of the period, Hudson determines that $3,000 ofthe legal services have been rendered. The appropriate adjustingjournal entry to be made at the end of the period is:

		debit Unearned Service Revenue, $3,000; credit Cash, $3,000.
		debit Unearned Service Revenue, $3,000; credit Service Revenue,$3,000.
		debit Unearned Service Revenue, $2,500; credit Service Revenue,$2,500.
		debit Service Revenue, $2,500; credit Unearned Service Revenue,$2,500.

3 points

Question 19

Corresponds to CLO 4(c) Ace Corporation purchased officesupplies costing $13,000 and debited Office Supplies for the fullamount. At the end of the accounting period, a physical count ofoffice supplies revealed $2,700 still on hand. The appropriateadjusting journal entry to be made at the end of the period is:

		debit Office Supplies Expense, $10,300; credit Office Supplies,$10,300.
		debit Office Supplies, $10,300; credit Office Supplies Expense,$10,300.
		debit Office Supplies Expense, $2,700; credit Office Supplies,$2,700.
		debit Office Supplies, $2,700; credit Office Supplies Expense,$2,700.

3 points

Question 20

Corresponds to CLO 4(d) On September 1, Northgate paid $18,000to Evans Management Company for 12 months of rent beginning onSeptember 1. The appropriate journal entry was made to record thistransaction. If financial statements are prepared for the 9 monthsended September 30, the adjusting entry to be made by Northgateis:

		debit Rent Expense, $13,500; credit Prepaid Rent, $13,500.
		debit Prepaid Rent, $1,500; credit Rent Revenue, $1,500.
		debit Prepaid Rent, $1,500; credit Rent Expense, $1,500.
		debit Rent Expense, $1,500; credit Prepaid Rent, $1,500.

3 points

Question 21

Corresponds to CLO 5(a) Lennox Corporation purchased a newdelivery truck for 35,000. The sales taxes are $2,700. The logo ispainted on the side of the truck for $800. The truck's annuallicense is $200. Annual insurance on the truck is $1,300. Whatshould Lennox record as the cost of the new truck?

		$40,000
		$38,500
		$37,700
		$35,000

3 points

Question 22

Corresponds to CLO 5(b) On April 1, 2013, Ballard Corporationpurchased equipment for $65,000. It is estimated that the equipmentwill have a $5,000 salvage value at the end of its 5 year usefullife. If Ballard uses the straight-line method of depreciation,what is the accumulated depreciation at December 31, 2013?

		$13,000
		$12,000
		$9,750
		$9,000

3 points

Question 23

Corresponds to CLO 5(c) Tyree Company purchased equipment with acost of $90,000 and an estimated salvage value of $18,000. Theequipment is expected to produce 150,000 units over its estimateduseful life of 10 years. If Tyree uses the units-of-activitymethod, what is the depreciation cost per unit to be used incalculating depreciation?

		$1.67
		$0.48
		$2.08
		$0.60

3 points

Question 24

Corresponds to CLO 5(d) Kerns Company purchased equipment with acost of $200,000 and an estimated salvage value of $10,000. Theequipment has an estimated useful life of 10 years. If Kerns usesthe double-declining balance method, what is the annualdepreciation rate to be used in calculating depreciation?

		5%
		10%
		20%
		40%

3 points

Question 25

Corresponds to CLO 6(a) Marshall Machinery made a sale for$150,000 on March 31. The customer is sent a statement on April 6and payment is received on April 15. Marshall prepares March'smonthly internal financial statements on April 20. Marshall followsGAAP and applies the revenue recognition principle. When is the$150,000 considered to be earned?

		March 31
		April 6
		April 15
		April 20

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ACCTG 101 Lecture Notes - Lecture 11: Matching Principle, Accrued Interest, Contingent Liability

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