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Chapter 3: Q5SE (page 158)

Question :A select list of transactions for Anuradha鈥檚 Goals follows:

April 1 Paid six months of rent, \(4,800.

10 Received \)1,200 from customer for six-month service contract that

began April 1.

15 Purchased a computer for \(1,000.

18 Purchased \)300 of office supplies on account.

30 Work performed but not yet billed to customer, \(500.

30 Employees earned \)600 in salaries that will be paid May 2

For each transaction, identify what type of adjusting entry would be needed. Select from the following four types of adjusting entries: deferred expense, deferred revenue, accrued expense, and accrued revenue.

Short Answer

Expert verified

Answer

Transaction Date

Adjusting Entries Type

April 1

Deferred expense

April 10

Deferred revenue

April 15

Deferred expense

April 18

Deferred expense

April 30

Accrued revenue

April 30

Accrued expense

Step by step solution

01

Explanation of Deferred Expense

Deferred expenses refer to the prepaid expenses, in which payment is made in advance for the expenses of the future. Transaction on April 1 includes payment made for future rent expenses. Transaction on April 15 will include recording of depreciation expense on computer. Transaction on April 18 will include recording of supplies expense

02

Explanation of Deferred Revenue

Deferred revenue refers to the advance amount received by the business for future sale transactions. Transaction on April 10 includes receiving advance for the future service contract.

03

Explanation of Accrued Revenue

Accrued revenue refers to the revenue earned but not collected in cash by the business. Transaction on April 30 includes work performed, but cash has not been received from the customer.

04

Explanation of Accrued Expense

Accrued expenses are the expenses that are incurred by the business but remain unpaid. Transaction on April 30 includes incurred salaries expenses that are unpaid.

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Most popular questions from this chapter

Question :Griffin Fishing Charters has collected the following data for the December 31 adjusting entries: a. The company received its electric bill on December 31 for \(375 but will not pay it until January 5. (Use the Utilities Payable account.) b. Griffin purchased a three-month boat insurance policy on November 1 for \)1,200. Griffin recorded a debit to Prepaid Insurance. c. As of December 31, Griffin had earned \(3,000 of charter revenue that has not been recorded or received. d. Griffin鈥檚 fishing boat was purchased on January 1 at a cost of \)33,500. Griffin expects to use the boat for 10 years and that it will have a residual value of \(3,500. Determine annual depreciation assuming the straight-line depreciation method is used. e. On October 1, Griffin received \)9,000 prepayment for a deep-sea fishing charter to take place in December. As of December 31, Griffin has completed the charter. Requirements 1. Journalize the adjusting entries needed on December 31 for Griffin Fishing Charters. Assume Griffin records adjusting entries only at the end of the year. 2. If Griffin had not recorded the adjusting entries, indicate which specific category of accounts on the financial statements would be misstated and if the misstatement is overstated or understated. Use the following table as a guide

The net income of Steinbach & Sons, a landscaping company, decreased sharply during 2018. Mort Steinbach, owner and manager of the company, anticipates the need for a bank loan in 2019. Late in 2018, Steinbach instructs the company鈥檚 accountant to record \(2,000 service revenue for landscape services for the Steinbach family, even though the services will not be performed until January 2019. Steinbach also tells the accountant notto make the following December 31, 2018, adjusting entries:

Salaries owed to employees \) 900

Prepaid insurance that has expired 400

Requirements

1. Compute the overall effects of these transactions on the company鈥檚 reported net income for 2018.

2. Why is Steinbach taking this action? Is his action ethical? Give your reason, identifying the parties helped and the parties harmed by Steinbach鈥檚 action.

3. As a personal friend, what advice would you give the accountant?

Protection Home provides house-sitting for people while they are away on vacation. Some of its customers pay immediately after the job is finished. Some customers ask that the business send them a bill. As of the end of the year, Protection Home has collected \(900 from cash-paying customers. Protection Home鈥檚 remaining customers owe the business \)1,300. How much service revenue would Protection Home have for the year under the a. cash basis? b. accrual basis?

Identify the impact on the income statement and balance sheet if adjusting entries for the following situations were not recorded. a. Office Supplies used, \(800. b. Accrued service revenue, \)4,000. c. Depreciation on building, \(3,500. d. Prepaid Insurance expired, \)650. e. Accrued salaries expense, \(2,750. f. Service revenue that was collected in advance has now been earned, \)130

If an accrued expense is not recorded at the end of the year, what is the impact on the financial statements?
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