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Chapter 3: Q8Q (page 127)

Employees are paid every Saturday for the preceding work week. If a balance sheet is prepared on Wednesday, December 31, what does the amount of wages earned during the first three days of the week (12/29, 12/30, 12/31) represent? Explain.

Short Answer

Expert verified

It indicates a current liability and therefore, it must be listed in the term in which it has been incurred.

Step by step solution

01

Meaning of Balance Sheet

The balance sheet is defined as the statement that aims to determine the nature and amount of different assets and liabilities so that the financial position could clearly be known to all those concerned. Hence, the primary role of the balance sheet is to depict a fair picture of the business at a certain date.

02

Representation of the amount of the wages earned

The wages of the first three days of the week to be paid to employees on December 31 specify current liability. Expenses associated with it must be 'matched' to this period so as to properly indicate the expenses incurred.

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Most popular questions from this chapter

Is it necessary that a trial balance be taken periodically? What purpose does it serve?

The accounts listed below appeared in the December 31 trial balance of the Savard Theater.

Debit

Credit

Equipment

\(192,000

Accumulated Depreciation鈥擡quipment

\) 60,000

Notes Payable

90,000

Admissions Revenue

380,000

Advertising Expense

13,680

Salaries and Wages Expense

57,600

Interest Expense

1,400

Instructions

  1. From the account balances listed above and the information given below, prepare the annual adjusting entries necessary on December 31. (Omit explanations.)
    1. The equipment has an estimated life of 16 years and a salvage value of \(24,000 at the end of that time. (Use straightline method.)
    2. The note payable is a 90-day note given to the bank October 20 and bearing interest at 8%. (Use 360 days for denominator.)
    3. In December, 2,000 coupon admission books were sold at \)30 each and recorded as Admissions Revenue. They could be used for admission any time after January 1.
    4. Advertising expense paid in advance and included in Advertising Expense \(1,100.
    5. Salaries and wages accrued but unpaid \)4,700.
  2. What amounts should be shown for each of the following on the income statement for the year?
    1. Interest expense.
    2. Admissions revenue.
    3. Advertising expense.
    4. Salaries and wages expense.

BE3-10 (L03) At the end of its first year of operations, the trial balance of Alonzo Company shows Equipment \(30,000 and zero balances in Accumulated Depreciation鈥擡quipment and Depreciation Expense. Depreciation for the year is estimated to be \)2,000. Prepare the adjusting entry for depreciation at December 31, and indicate the balance sheet presentation for the equipment at December 31.

Jurassic Park Co. prepares monthly financial statements from a worksheet. Selected portions of the January worksheet showed the following data.

JURASSIC PARK CO.

Worksheet (PARTIAL)

For The Month Ended Jan. 31, 2017



Trial Balance
Adjustment
Adjusted
trial balance

Account Titles

Dr.

Cr.

Dr.

Cr.

Dr.

Cr.

Supplies

3,256

a) 1,500

1,756

Accumulated Depreciation鈥擡quipment

6,682

(b) 257

6,939

Interest Payable

(c) 50

150

Supplies Expense

(a) 1,500

1,500

Depreciation Expense

(b) 257

257

Interest Expense

(c) 50

50

During February, no events occurred that affected these accounts. But at the end of February, the following information was available.

  1. Supplies on hand \(715
  2. Monthly depreciation \)257
  3. Accrued interest $ 50

Instructions

Reproduce the data that would appear in the February worksheet, and indicate the amounts that would be shown in the February income statement.

Andrea Pafko, a fellow student, contends that the double-entry system means that each transaction must be recorded twice. Is Andrea correct? Explain.
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