Ass 3

1.

Following are two income statements for Alexis Co. for the year ended December 31. The left column is prepared before any adjusting entries are recorded, and the right column includes the effects of adjusting entries. The company records cash receipts and payments related to unearned and prepaid items in balance sheet accounts.

ALEXIS CO. Income Statements For Year Ended December 31
	Unadjusted		Adjusted
Revenues
Fees earned	$	18,000	$	25,000
Commissions earned		36,500		36,500
Total revenues	$	54,500		61,500
Expenses
Depreciation expense—Computers		0		1,600
Depreciation expense—Office furniture		0		1,850
Salaries expense		13,500		15,750
Insurance expense		0		1,400
Rent expense		3,800		3,800
Office supplies expense		0		580
Advertising expense		2,500		2,500
Utilities expense		1,245		1,335
Total expenses		21,045		28,815
Net income	$	33,455	$	32,685

Analyze the statements and prepare the eight adjusting entries that likely were recorded. (Note: 30% of the $7,000 adjustment for Fees Earned has been earned but not billed, and the other 70% has been earned by performing services that were paid for in advance.)

Date	General Journal	Debit	Credit
Dec 31	Accounts receivable	2,100
	Fees earned		2,100
Dec 31	Unearned fees	4,900
	Fees earned		4,900
Dec 31	Depreciation expense—Computers	1,600
	Accumulated depreciation—Computers		1,600
Dec 31	Depreciation expense—Office furniture	1,850
	Accumulated depreciation—Office furniture		1,850
Dec 31	Salaries expense	2,250
	Salaries payable		2,250
Dec 31	Insurance expense	1,400
	Prepaid insurance		1,400
Dec 31	Office supplies expense	580
	Office supplies		580
Dec 31	Utilities expense	90
	Utilities payable		90

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2.

Use the following information to compute profit margin for each separate company a through e. (Round your answers to 1 decimal place.)

	Net Income Net Sales Profit Margin (%) a. $4,361 $44,500 9.8% b. 97,706 398,800 24.5% c. 111,281 257,000 43.3% d. 65,646 1,458,800 4.5% e. 80,132 435,500 18.4%

Which of the five companies is the most profitable according to the profit margin ratio?
Company c 

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3.

Following are Nintendo’s revenue and expense accounts for a recent calendar year.

Net sales	¥	1,014,345
Cost of sales		626,379
Advertising expense		96,359
Other expense, net		213,986

Prepare the company’s closing entries for its revenues and its expenses.

Date	General Journal	Debit	Credit
Dec 31	Net sales	1,014,345
	Income summary		1,014,345
Dec 31	Income summary	936,724
	Cost of sales		626,379
	Advertising expense		96,359
	Other expense, net		213,986

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4.

1.	Compute the current ratio in each of the separate cases. (Round your answers to 2 decimal places.)

	Current Assets Current Liabilities Current Ratio Case 1 $79,040 $32,000 2.47 Case 2 104,880 76,000 1.38 Case 3 45,080 49,000 0.92 Case 4 85,680 81,600 1.05 Case 5 61,000 100,000 0.61

2.	Identify the company case with the strongest liquidity position. (These cases represent competing companies in the same industry.) Case 1

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5.

Arnez Co. follows the practice of recording prepaid expenses and unearned revenues in balance sheet accounts. The company's annual accounting period ends on December 31, 2015. The following information concerns the adjusting entries to be recorded as of that date.

a.	The Office Supplies account started the year with a $4,000 balance. During 2015, the company purchased supplies for $13,400, which was added to the Office Supplies account. The inventory of supplies available at December 31, 2015, totaled $2,554.

b.	An analysis of the company's insurance policies provided the following facts.

Policy	Date of Purchase	Months of Coverage	Cost
A	April 1, 2013	24	$	14,400
B	April 1, 2014	36		12,960
C	August 1, 2015	12		2,400

The total premium for each policy was paid in full (for all months) at the purchase date, and the Prepaid Insurance account was debited for the full cost. (Year-end adjusting entries for Prepaid Insurance were properly recorded in all prior years.)

c.

The company has 15 employees, who earn a total of $1,960 in salaries each working day. They are paid each Monday for their work in the five-day workweek ending on the previous Friday. Assume that December 31, 2015, is a Tuesday, and all 15 employees worked the first two days of that week. Because New Year’s Day is a paid holiday, they will be paid salaries for five full days on Monday, January 6, 2016.

d.	The company purchased a building on January 1, 2015. It cost $960,000 and is expected to have a $45,000 salvage value at the end of its predicted 30-year life. Annual depreciation is $30,500.

e.

Since the company is not large enough to occupy the entire building it owns, it rented space to a tenant at $3,000 per month, starting on November 1, 2015. The rent was paid on time on November 1, and the amount received was credited to the Rent Earned account. However, the tenant has not paid the December rent. The company has worked out an agreement with the tenant, who has promised to pay both December and January rent in full on January 15. The tenant has agreed not to fall behind again.

f.	On November 1, the company rented space to another tenant for $2,800 per month. The tenant paid five months' rent in advance on that date. The payment was recorded with a credit to the Unearned Rent account.

Required:
1.	Use the information to prepare adjusting entries as of December 31, 2015.

Transaction	General Journal	Debit	Credit
a.	Office supplies expense	14,846
	Office supplies		14,846
b.	Insurance expense	7,120
	Prepaid insurance		7,120
c.	Salaries expense	3,920
	Salaries payable		3,920
d.	Depreciation expense—Building	30,500
	Accumulated depreciation—Building		30,500
e.	Rent receivable	3,000
	Rent earned		3,000
f.	Unearned rent	5,600
	Rent earned		5,600

2.	Prepare journal entries to record the first subsequent cash transaction in 2016 for parts c and e.

Date	General Journal	Debit	Credit
Jan 06	Salaries payable	3,920
	Salaries expense	5,880
	Cash		9,800
Jan 15	Cash	6,000
	Rent receivable		3,000
	Rent earned		3,000

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Questions 6-8
[The following information applies to the questions displayed below.]

Wells Technical Institute (WTI), a school owned by Tristana Wells, provides training to individuals who pay tuition directly to the school. WTI also offers training to groups in off-site locations. Its unadjusted trial balance as of December 31, 2015, follows. WTI initially records prepaid expenses and unearned revenues in balance sheet accounts. Descriptions of items a through h that require adjusting entries on December 31, 2015, follow.

Additional Information Items

a.	An analysis of WTI's insurance policies shows that $2,400 of coverage has expired.
b.	An inventory count shows that teaching supplies costing $2,800 are available at year-end 2015.
c.	Annual depreciation on the equipment is $13,200.
d.	Annual depreciation on the professional library is $7,200.
e.	On November 1, WTI agreed to do a special six-month course (starting immediately) for a client. The contract calls for a monthly fee of $2,500, and the client paid the first five months' fees in advance. When the cash was received, the Unearned Training Fees account was credited. The fee for the sixth month will be recorded when it is collected in 2016.
f.	On October 15, WTI agreed to teach a four-month class (beginning immediately) for an individual for $3,000 tuition per month payable at the end of the class. The class started on October 15, but no payment has yet been received. (WTI's accruals are applied to the nearest half-month; for example, October recognizes one-half month accrual.)
g.	WTI's two employees are paid weekly. As of the end of the year, two days' salaries have accrued at the rate of $100 per day for each employee.
h.	The balance in the Prepaid Rent account represents rent for December.

WELLS TECHNICAL INSTITUTE Unadjusted Trial Balance December 31, 2015
	Debit		Credit
Cash	$	34,000
Accounts receivable		0
Teaching supplies		8,000
Prepaid insurance		12,000
Prepaid rent		3,000
Professional library		35,000
Accumulated depreciation—Professional library			$	10,000
Equipment		80,000
Accumulated depreciation—Equipment				15,000
Accounts payable				26,000
Salaries payable				0
Unearned training fees				12,500
Common stock				10,000
Retained earnings				80,000
Dividends		50,000
Tuition fees earned				123,900
Training fees earned				40,000
Depreciation expense—Professional library		0
Depreciation expense—Equipment		0
Salaries expense		50,000
Insurance expense		0
Rent expense		33,000
Teaching supplies expense		0
Advertising expense		6,000
Utilities expense		6,400
Totals	$	317,400	$	317,400

6. 

Required:
1.	Prepare the necessary adjusting journal entries for items a through h. Assume that adjusting entries are made only at year-end.

Transaction	General Journal	Debit	Credit
a.	Insurance expense	2,400
	Prepaid insurance		2,400
b.	Teaching supplies expense	5,200
	Teaching supplies		5,200
c.	Depreciation expense—Equipment	13,200
	Accumulated depreciation—Equipment		13,200
d.	Depreciation expense—Professional library	7,200
	Accumulated depreciation—Professional library		7,200
e.	Unearned training fees	5,000
	Training fees earned		5,000
f.	Accounts receivable	7,500
	Tuition fees earned		7,500
g.	Salaries expense	400
	Salaries payable		400
h.	Rent expense	3,000
	Prepaid rent		3,000

7.

2.1	Post the balance from the unadjusted trial balance and the adjusting entries in to the T-accounts.

Cash Equipment Unadj. Bal. 34,000 Unadj. Bal. 80,000 Adj. Bal. 34,000 Adj. Bal. 80,000 Accounts Receivable Accumulated Depreciation—Equipment Unadj. Bal. 0 Unadj. Bal. 15,000 f 7,500 c 13,200 Adj. Bal. 7,500 Adj. Bal. 28,200 Teaching Supplies Accounts Payable Unadj. Bal. 8,000 0 Unadj. Bal. 26,000 0 b 5,200 0 0 0 0 Adj. Bal. 2,800 Adj. Bal. 26,000 Prepaid Insurance Salaries Payable Unadj. Bal. 12,000 Unadj. Bal. 0 a 2,400 g 400 Adj. Bal. 9,600 Adj. Bal. 400 Prepaid Rent Unearned Training Fees Unadj. Bal. 3,000 Unadj. Bal. 12,500 h 3,000 e 5,000 Adj. Bal. 0 Adj. Bal. 7,500 Professional Library Common Stock Unadj. Bal. 35,000 Unadj. Bal. 10,000 Adj. Bal. 35,000 Adj. Bal. 10,000 Accumulated Depreciation—Professional Library Dividends Unadj. Bal. 10,000 Unadj. Bal. 50,000 d 7,200 Adj. Bal. 17,200 Adj. Bal. 50,000 Tuition Fees Earned Insurance Expense Unadj. Bal. 123,900 Unadj. Bal. 0 f 7,500 a 2,400 Adj. Bal. 131,400 Adj. Bal. 2,400 Training Fees Earned Rent Expense Unadj. Bal. 0 40,000 Unadj. Bal. 33,000 0 e 5,000 h 3,000 Adj. Bal. 45,000 Adj. Bal. 36,000 Depreciation Expense—Professional Library Teaching Supplies Expense Unadj. Bal. 0 Unadj. Bal. 0 d 7,200 b 5,200 Adj. Bal. 7,200 Adj. Bal. 5,200 Depreciation Expense—Equipment Advertising Expense Unadj. Bal. 0 Unadj. Bal. 6,000 c 13,200 Adj. Bal. 13,200 Adj. Bal. 6,000 Salaries Expense Utilities Expense Unadj. Bal. 50,000 Unadj. Bal. 6,400 g 400 Adj. Bal. 50,400 Adj. Bal. 6,400 Retained Earnings Unadj. Bal. 80,000 Adj. Bal. 80,000

2.2	Prepare an adjusted trial balance.

WELLS TECHNICAL INSTITUTE Adjusted Trial Balance December 31, 2015 Debit Credit Cash $34,000 Accounts receivable 7,500 Teaching supplies 2,800 Prepaid insurance 9,600 Prepaid rent 0 Professional library 35,000 Accumulated depreciation—Professional library 17,200 Equipment 80,000 Accumulated depreciation—Equipment 28,200 Accounts payable 26,000 Salaries payable 400 Unearned training fees 7,500 Common stock 10,000 Retained earnings 80,000 Dividends 50,000 Tuition fees earned 131,400 Training fees earned 45,000 Depreciation expense—Professional library 7,200 Depreciation expense—Equipment 13,200 Salaries expense 50,400 Insurance expense 2,400 Rent expense 36,000 Teaching supplies expense 5,200 Advertising expense 6,000 Utilities expense 6,400 Totals $345,700 $345,700

8. 

3.1	Prepare Wells Technical Institute's income statement for the year 2015.

WELLS TECHNICAL INSTITUTE Income Statement For Year Ended December 31, 2015 Revenues Training fees earned $45,000 Tuition fees earned 131,400 Total revenues $176,400 Expenses Depreciation expense—Equipment 13,200 Salaries expense 50,400 Insurance expense 2,400 Rent expense 36,000 Teaching supplies expense 5,200 Utilities expense 6,400 Advertising expense 6,000 Depreciation expense—Professional library 7,200 Total expenses 126,800 Net income $49,600

3.2	Prepare Wells Technical Institute's statement of retained earnings for the year 2015.

	WELLS TECHNICAL INSTITUTE Statement of Retained Earnings For Year Ended December 31, 2015 Retained earnings, December 31, 2014 $80,000 Add: Net income 49,600 129,600 Less: Dividends 50,000 Retained earnings, December 31, 2015 $79,600

3.3	Prepare Wells Technical Institute's balance sheet as of December 31, 2015.

WELLS TECHNICAL INSTITUTE Balance Sheet December 31, 2015 Assets Cash $34,000 Accounts receivable 7,500 Teaching supplies 2,800 Prepaid insurance 9,600 Professional library $35,000 Accumulated depreciation—Professional library (17,200) 17,800 Equipment 80,000 Accumulated depreciation—Equipment (28,200) 51,800 Total assets $123,500 Liabilities Accounts payable $26,000 Salaries payable 400 Unearned training fees 7,500 Total liabilities 33,900 Equity Common stock 10,000 Retained earnings 79,600 Total equity 89,600 Total liabilities and equity $123,500

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9.

a.	Depreciation on the company’s equipment for 2015 is computed to be $18,000.
b.	The Prepaid Insurance account had a $6,000 debit balance at December 31, 2015, before adjusting for the costs of any expired coverage. An analysis of the company’s insurance policies showed that $1,100 of unexpired insurance coverage remains.
c.	The Office Supplies account had a $700 debit balance on December 31, 2014; and $3,480 of office supplies were purchased during the year. The December 31, 2015, physical count showed $300 of supplies available.
d.	Two-thirds of the work related to $15,000 of cash received in advance was performed this period.
e.	The Prepaid Insurance account had a $6,800 debit balance at December 31, 2015, before adjusting for the costs of any expired coverage. An analysis of insurance policies showed that $5,800 of coverage had expired.
f.	Wage expenses of $3,200 have been incurred but are not paid as of December 31, 2015.

Prepare adjusting journal entries for the year ended (date of) December 31, 2015, for each of these separate situations. Assume that prepaid expenses are initially recorded in asset accounts. Also assume that fees collected in advance of work are initially recorded as liabilities.

Transaction	General Journal	Debit	Credit
a.	Depreciation expense—Equipment	18,000
	Accumulated depreciation—Equipment		18,000
b.	Insurance expense	4,900
	Prepaid insurance		4,900
c.	Office supplies expense	3,880
	Office supplies		3,880
d.	Unearned fee revenue	10,000
	Fee revenue		10,000
e.	Insurance expense	5,800
	Prepaid insurance		5,800
f.	Wages expense	3,200
	Wages payable		3,200

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10.

The following is the adjusted trial balance of Wilson Trucking Company.

Account Title	Debit		Credit
Cash	$	8,000
Accounts receivable		17,500
Office supplies		3,000
Trucks		172,000
Accumulated depreciation—Trucks			$	36,000
Land		85,000
Accounts payable				12,000
Interest payable				4,000
Long-term notes payable				53,000
Common stock				20,000
Retained earnings				155,000
Dividends		20,000
Trucking fees earned				130,000
Depreciation expense—Trucks		23,500
Salaries expense		61,000
Office supplies expense		8,000
Repairs expense—Trucks		12,000
Totals	$	410,000	$	410,000

The Retained Earnings account balance is $155,000 at December 31, 2014. (1). Prepare the income statement for the year ended December 31, 2015.

	WILSON TRUCKING COMPANY Income Statement For Year Ended December 31, 2015 Revenues Trucking fees earned $130,000 Expenses Repairs expense—Trucks $12,000 Office supplies expense 8,000 Salaries expense 61,000 Depreciation expense—Trucks 23,500 Total expenses 104,500 Net income $25,500

(2).	Prepare the statement of retained earnings for the year ended December 31, 2015.

	WILSON TRUCKING COMPANY Statement of Retained Earnings For Year Ended December 31, 2015 Retained earnings, December 31, 2014 $155,000 Add: Net income 25,500 180,500 Less: Dividends 20,000 Retained earnings, December 31, 2015 $160,500