Cash to Accrual Adjusting Entries and Income Statement
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Transcript of Cash to Accrual Adjusting Entries and Income Statement
2-1
Cash to AccrualAdjusting Entries and
Income Statement
Chapter 2Illustrated Solution: Problem 2-30Illustrated Solution: Problem 2-30
2-2
Gee Enterprises records all transactions on the cash basis.
You have been asked to prepare an income statement on the accrual basis.
Prepare adjusting entries to convert the books from a cash to an accrual basis.
Part 1Part 1
2-3
SituationAmounts due from customers at year-end were $28,000. Of this amount, $3,000 will probably not be collected.
Part 1 (a)Part 1 (a)
2-4
SituationAmounts due from customers at year-end were $28,000. Of this amount, $3,000 will probably not be collected.
Part 1 (a)Part 1 (a)
Solution
Accounts Receivable…………………………… 28,000
Sales………………………………………… 28,000
Doubtful Accounts Expense…………………… 3,000
Allowance for Doubtful Accounts ………… 3,000
2-5
SituationSalaries of $11,000 for December 2002 were paid on January 5, 2003. Ignore payroll taxes.
Part 1 (b)Part 1 (b)
2-6
SituationSalaries of $11,000 for December 2002 were paid on January 5, 2003. Ignore payroll taxes.
Part 1 (b)Part 1 (b)
Solution
Salaries Expense ……………………………… 11,000
Salaries Payable…………………………… 11,000
2-7
SituationGee rents its building for $3,000 a month, payable quarterly in advance. The contract was signed on January 1, 2002.
Part 1 (c)Part 1 (c)
2-8
SituationGee rents its building for $3,000 a month, payable quarterly in advance. The contract was signed on January 1, 2002.
Part 1 (c)Part 1 (c)
Solution
Prepaid Rent……………………………………… 9,000
Rent Expense………………………………… 9,000
2-9
SituationThe bill for December’s utility costs of $2,700 was paid January 10, 2003.
Part 1 (d)Part 1 (d)
2-10
SituationThe bill for December’s utility costs of $2,700 was paid January 10, 2003.
Part 1 (d)Part 1 (d)
Solution
Utilities Expense…………………………………. 2,700
Accrued Liabilities…………………………… 2,700
2-11
SituationEquipment of $30,000 was purchased on January 1, 2002. The expected life is 5 years, no salvage value. Assume straight-line depreciation.
Part 1 (e)Part 1 (e)
2-12
SituationEquipment of $30,000 was purchased on January 1, 2002. The expected life is 5 years, no salvage value. Assume straight-line depreciation.
Part 1 (e)Part 1 (e)
Solution
Depreciation Expense…………………………… 6,000
Accumulated Depreciation—Equipment ….. 6,000
$30,000/5 years.
2-13
SituationCommissions of 15% of sales are paid on the same day cash is received from customers.
Part 1 (f)Part 1 (f)
2-14
SituationCommissions of 15% of sales are paid on the same day cash is received from customers.
Part 1 (f)Part 1 (f)
Solution
Commission Expense……………………………. 3,750
Commission Payable………………………… 3,750$25,000 x 15%. No commission onuncollectible accounts.
2-15
SituationA 1-year insurance policy was issued on company assets on July 1, 2002. Premiums are paid annually in advance.
Part 1 (g)Part 1 (g)
2-16
SituationA 1-year insurance policy was issued on company assets on July 1, 2002. Premiums are paid annually in advance.
Part 1 (g)Part 1 (g)
Solution
Prepaid Insurance………………………………. 3,000
Insurance Expense…………………………. 3,000$6,000 x 6/12.
2-17
SituationGee borrowed $50,000 for one year on May 1, 2002. Interest payments based on an annual rate of 12% are made quarterly, beginning with the first payment on August 1, 2002. (Quarterly payments will also be made on November 1, 2002, February 1, 2003 and May 1, 2003.)
Part 1 (h)Part 1 (h)
2-18
SituationGee borrowed $50,000 for one year on May 1, 2002. Interest payments based on an annual rate of 12% are made quarterly, beginning with the first payment on August 1, 2002. (Quarterly payments will also be made on November 1, 2002, February 1, 2003 and May 1, 2003.)
Part 1 (h)Part 1 (h)
Solution
Interest Expense………………………………… 1,000
Interest Payable ……………………………. 1,000$50,000 x 12% x 2/12.
2-19
SituationThe income tax rate is 40%. No prepayments of income taxes were made during 2002.
Part 1 (i)Part 1 (i)
2-20
SituationThe income tax rate is 40%. No prepayments of income taxes were made during 2002.
Part 1 (i)Part 1 (i)
Solution
Income Tax Expense….………………………… 26,300
Income Taxes Payable..……………………. 26,300$65,750 x .4; see Part 2.
2-21
Prepare the income statement for the year ended December 31, 2002, based on the entries in Part 1.
Part 2Part 2
2-22
Prepare the income statement for the year ended December 31, 2002, based on the entries in Part 1.
Part 2Part 2
2-23
End of ProblemEnd of Problem