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Chapter 3: Question 10BE (page 128)

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.

Short Answer

Expert verified

The net equipment value is $28,000.

Step by step solution

01

Meaning of Balance Sheet

A statement that includes the detail of assets owned and liabilities owed by business entities or individuals at any definite date is known as theBalance Sheet. Stakeholders use it to assess the financial position of entities.

02

Adjusting entry for depreciation at December

Date

Accounts and Explanation

Debit $

Credit $

December, 31

Depreciation expenses

$2,000

Accumulated depreciation-equipment

$2,000

03

Balance sheet presentation for Equipment 

Property Plant and Equipment

Amount $

Amount $

Equipment

$30,000

Less: Depreciation on equipment

$(2,000)

Equipment net of depreciation

$28,000

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Most popular questions from this chapter

E3-15 (L06) (Missing Amounts) Presented below is financial information for two different companies.

Alatorre Company Eduardo Company
Sales revenue \(90,000 (d)
Sales returns and allowances (a) \)5,000
Net sales 81,000 95,000
Cost of goods sold 56,000 (e)
Gross profit (b) 38,000
Operating expenses 15,000 23,000
Net income (c) 15,000

Instructions

Compute the missing amounts.

The trial balance of Bellemy Fashion Center contained the following accounts at November 30, the end of the company鈥檚 fiscal year.

BELLEMY FASHION CENTER

TRIAL BALANCE

NOVEMBER 30, 2017

Debit

Credit

Cash

\( 28,700

Accounts Receivable

33,700

Inventory

45,000

Supplies

5,500

Equipment

133,000

Accumulated Depreciation鈥擡quipment

\) 24,000

Notes Payable

51,000

Accounts Payable

48,500

Common Stock

90,000

Retained Earnings

8,000

Sales Revenue

757,200

Sales Returns and Allowances

4,200

Cost of Goods Sold

495,400

Salaries and Wages Expense

140,000

Advertising Expense

26,400

Utilities Expenses

14,000

Maintenance and Repairs Expense

12,100

Delivery Expense

16,700

Rent Expense

24,000

\(978,700

\)978,700

Adjustment data:

1. Supplies on hand total \(1,500.

2. Depreciation is \)15,000 on the equipment.

3. Interest of \(11,000 is accrued on notes payable at November 30.

Other data:

1. Salaries expense is 70% selling and 30% administrative.

2. Rent expense and utilities expenses are 80% selling and 20% administrative.

3. Notes payable worth \)30,000 are due for payment next year.

4. Maintenance and repairs expense is 100% administrative.

Instructions

(a) Journalize the adjusting entries.

(b) Prepare an adjusted trial balance.

(c) Prepare a multiple-step income statement and retained earnings statement for the year and a classified balance sheet as of November 30, 2017.

(d) Journalize the closing entries.

(e) Prepare a post-closing trial balance.

E3-17 (L02) (Transactions of a Corporation, Including Investment and Dividend) Scratch Miniature Golf and DrivingRange Inc. was opened on March 1 by Scott Verplank. The following selected events and transactions occurred during March.Mar. 1 Invested \(50,000 cash in the business in exchange for common stock.3 Purchased Michelle Wie鈥檚 Golf Land for \)38,000 cash. The price consists of land \(10,000, building \)22,000, and equipment\(6,000. (Make one compound entry.)5 Advertised the opening of the driving range and miniature golf course, paying advertising expenses of \)1,600.6 Paid cash \(1,480 for a one-year insurance policy.10 Purchased golf equipment for \)2,500 from Singh Company, payable in 30 days.18 Received golf fees of \(1,200 in cash.25 Declared and paid a \)500 cash dividend.30 Paid wages of \(900.30 Paid Singh Company in full.31 Received \)750 of fees in cash.Scratch uses the following accounts: Cash, Prepaid Insurance, Land, Buildings, Equipment, Accounts Payable, Common Stock,Dividends, Service Revenue, Advertising Expense, and Salaries and Wages Expense.InstructionsJournalize the March transactions. (Provide explanations for the journal entries.)

BE3-12 (L07) Kelly Company had cash receipts from customers in 2017 of \(142,000. Cash payments for operating expenses were \)97,000. Kelly has determined that at January 1, accounts receivable was \(13,000, and prepaid expenses were \)17,500. At December 31, accounts receivable was \(18,600, and prepaid expenses were \)23,200. Compute (a) service revenue and (b) operating expenses.

Question: The Amato Theater is nearing the end of the year and is preparing for a meeting with its bankers to discuss the renewal of a loan. The accounts listed below appeared in the December 31, 2017, trial balance.

Debit

Credit

Prepaid advertising

\(6,000

Equipment

192,000

Accumulated depreciation

\)60,000

Note payable

90,000

Unearned service revenue

17,500

Ticket revenue

360,000

Advertising expenses

18,680

Salaries and wages expenses

67,600

Interest expenses

1,400

Additional information is available as follows.

1. The equipment has an estimated useful life of 16 years and a salvage value of \(40,000 at the end of that time. Amato uses the straight-line method for depreciation.

2. The note payable is a one-year note given to the bank January 31 and bearing interest at 10%. Interest is calculated on a monthly basis.

3. Late in December 2017, the theater sold 350 coupon ticket books at \)50 each. Two hundred of these ticket books have been used by year-end. The cash received was recorded as Unearned Service Revenue.

4. Advertising paid in advance was \(6,000 and was debited to Prepaid Advertising. The company has used \)2,500 of the advertising as of December 31, 2017.

5. Salaries and wages accrued but unpaid at December 31, 2017, were $3,500.

Accounting

Prepare any adjusting journal entries necessary for the year ended December 31, 2017.

Analysis

Determine Amato鈥檚 income before and after recording the adjusting entries. Use your analysis to explain why Amato鈥檚 bankers should be willing to wait for Amato to complete its year-end adjustment process before making a decision on the loan renewal.

Principles

Although Amato鈥檚 bankers are willing to wait for the adjustment process to be completed before they receive financial information, they would like to receive financial reports more frequently than annually or even quarterly. What trade-offs, in terms of relevance and faithful representation, are inherent in preparing financial statements for shorter accounting time periods?
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