Dittman's Variety Store is completing the accounting process for the current year just ended, December 31. The transactions during year have been journalized and posted. The following data with respect to adjusting entries are available:

Dittman's Variety Store is completing the accounting process for the current year just ended, December 31. The transactions during year have been journalized and posted. The following data with respect to adjusting entries are available:

1. Wages earned by employees during December, unpaid and unrecorded at December 31, amounted to $2,800. The last payroll was December 28; the next payroll will be January 6.
2. Office supplies on hand at January 1 of the current year totaled $630. Office supplies purchased and debited to Office Supplies during the year amounted to $580. The year-end count showed $240 of supplies on hand.
3. One-fourth of the basement space is rented to Heald's Specialty Shop for $510 per month, payable monthly. At the end of the current year, the rent for November and December had not been collected or recorded. Collection is expected in January of the next year.
4. The store used delivery equipment all year that cost $63,500; $12,100 was the estimated annual depreciation.
5. On July 1 of the current year, a two-year insurance premium amounting to $2,160 was paid in cash and debited in full to Prepaid Insurance. Coverage began on July 1 of the current year.
6. The remaining basement of the store is rented for $1,800 per month to another merchant, M. Carlos, Inc. Carlos sells compatible, but not competitive, merchandise. On November 1 of the current year, the store collected six months' rent in the amount of $10,800 in advance from Carlos; it was credited in full to Unearned Rent Revenue when collected.
7. Dittman's Variety Store operates a repair shop to meet its own needs. The shop also does repairs for M. Carlos. At the end of the current year, Carlos had not paid $850 for completed repairs. This amount has not yet been recorded as Repair Shop Revenue. Collection is expected during January of next year.

Answer
Identify each of the above transactions as a deferred revenue, deferred expense, accrued revenue, or accrued expense.



Prepare the adjusting entries that should be recorded for Dittman's Variety Store at December 31 of the current year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

 

Explanation:

2.

b.	$630 + $580 − $240 = $970 used
c.	$510 × 2 months = $1,020 earned
e.	$2,160 × 6/24 = $540 used
f.	$10,800 × 2/6 = $3,600 earned

Elana's Traveling Veterinary Services, Inc., completed its first year of operations on December 31. All of the year's entries have been recorded except for the following:

Elana's Traveling Veterinary Services, Inc., completed its first year of operations on December 31. All of the year's entries have been recorded except for the following:

1. On March 1 of the current year, the company borrowed $62,040 at a 10 percent interest rate to be repaid in five years.
2. On the last day of the current year, the company received a $530 utility bill for utilities used in December. The bill will be paid in January of next year.

Required:

1. What is the annual reporting period for this company?

 

Explanation:

1.

The annual reporting period for this company is January 1 through December 31.

2.

Both transactions (a) and (b) are accruals because expenses have been incurred but no cash has yet been paid.

(a)

1.  Interest expense is incurred

2.  Cash will be paid in the next period to the bank for using the borrowed funds in the current period – an accrued expense needs to be recorded.

3.  Amount:  $62,040 principal  × .10 rate × 10 months/12 months = $5,170

(b)

1.  Utilities expense is incurred.

2.  Cash will be paid in the future – an accrued expense needs to be recorded.

3.  Amount:  $530 given

In each of the following transactions (a) through (c) for Romney's Marketing Company, use the three-step process illustrated in the chapter to record only the adjusting entry at the end of the current year. The process includes (1) determining if revenue was earned or an expense was incurred, (2) determining whether cash was received or paid in the past or will be received or paid in the future, and (3) computing the amount of the adjustment.

In each of the following transactions (a) through (c) for Romney's Marketing Company, use the three-step process illustrated in the chapter to record only the adjusting entry at the end of the current year. The process includes (1) determining if revenue was earned or an expense was incurred, (2) determining whether cash was received or paid in the past or will be received or paid in the future, and (3) computing the amount of the adjustment. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Collected $2,000 rent for the period December 1 of the current year to April 1 of next year, which was credited to Unearned Rent Revenue on December 1.
2. Purchased a machine for $46,000 cash on January 1. The company estimates annual depreciation at $3,700.
3. Paid $3,300 for a two-year insurance premium on July 1 of the current year; debited Prepaid Insurance for that amount.

Answer

a.

1. Rent revenue is now earned.

2. Cash was received in the past – a deferred revenue was recorded.

3. Amount: $2,000 ÷ 4 months = $500 earned.

b.

1. Depreciation Expense on the equipment is now incurred.

2. Cash was paid in the past when the equipment was purchased − a deferred expense was recorded. The net book value of the equipment is overstated. Accumulated Depreciation (the contra-account) needs to be increased for the amount used during the period.

3. Amount: $3,700 given.

c.

1. Insurance expense was incurred in the period.

2. Cash was paid for the insurance in the past − a deferred expense was recorded.

3. Amount: $3,300 × 6/24 = $825.

Match each definition with its related term by selecting the appropriate term from the dropdown provided.

Match each definition with its related term by selecting the appropriate term from the dropdown provided.