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Chapter 3: Q13E_c (page 148)

Costanza Company experienced the following events and transactions during July. The company has the
following partial chart of accounts: Cash; Accounts Receivable; Unearned Fees; Fees Earned.
July 1 Received \(3,000 cash in advance of performing work for Vivian Solana.
6 Received \)7,500 cash in advance of performing work for Iris Haru.
12 Completed the job for Solana.
18 Received $8,500 cash in advance of performing work for Amina Jordan.
27 Completed the job for Haru.
31 None of the work for Jordan has been performed.
A a. Prepare journal entries (including any adjusting entries as of the end of the month) to record these
events using the procedure of initially crediting the Unearned Fees account when payment is received
from a customer in advance of performing services.
b. Prepare journal entries (including any adjusting entries as of the end of the month) to record these
events using the procedure of initially crediting the Fees Earned account when payment is received
from a customer in advance of performing services.
c. Under each method, determine the amount of earned fees reported on the income statement for July
and the amount of unearned fees reported on the balance sheet as of July 31.

Short Answer

Expert verified

Answer:

Earned fees are $10,500

Step by step solution

01

Definition of unearned fees

The amount received in advance is known as unearned fees.

02

Necessary journal entries by initially crediting earned fees

The amount of fees reported in the income statement is $10,500, and unearned fees reported in the balance sheet are $8,500.

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Most popular questions from this chapter

Prepare adjusting journal entries for the year ended (date of) December 31, 2017, for each of these separate situations.

(Entries can draw from the following partial chart of accounts: Cash; Accounts Receivable; Supplies;

Prepaid Insurance; Equipment; Accumulated Depreciation—Equipment; Wages Payable; Unearned Revenue;

Revenue; Wages Expense; Supplies Expense; Insurance Expense; Depreciation Expense—Equipment.)

a. Depreciation on the company’s equipment for 2017 is computed to be \(18,000.

b. The Prepaid Insurance account had a \)6,000 debit balance at December 31, 2017, 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, 2016; and \(3,480 of office

supplies were purchased during the year. The December 31, 2017, 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, 2017, 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, 2017.

Question: Following are two income statements for Alexis Co. for the year ended December 31. The left number

column is prepared before any adjusting entries are recorded, and the right column includes the effects of

adjusting entries. The middle column shows a blank space for each income statement effect of the eight

adjusting entriesathrough g(the balance sheet part of the entries is not shown here). Analyze the statements

and prepare the eight adjusting entries athrough gthat likely were recorded. Note:Answer for ahas

two entries (i) of the \(7,000 adjustment for Fees Earned, 30% (or \)2,100) has been earned but not billed,

and (ii) the other 70% (or \(4,900) has been earned by performing services that were paid for in advance.

ALEXISUnadjusted Adjustments Adjusted

Revenues

Fees earned . \)18,000 a. \(25,000

Commissions earned . 36,500 36,500

Total revenues 54,500 61,500

Expenses

Depreciation expense—Computers 0 b. 1,600

Depreciation expense—Office furniture . 0 c.1,850

Salaries expense 13,500 d. 15,750

Insurance expense . 0 e.1,400

Rent expense 3,800 3,800

Office supplies expense 0 f. 580

Advertising expense 2,500 2,500

Utilities expense . 1,245 g. 1,335

Total expenses . 21,045 28,815

Net income \)33,455 $32,685

In making adjusting entries at the end of its accounting period, Chao Consulting mistakenly forgot to record:

∙ \(3,200 of insurance coverage that had expired (this \)3,200 cost had been initially debited to the Prepaid

Insurance account).

∙ \(2,000 of accrued salaries expense.

As a result of these oversights, the financial statements for the reporting period will [choose one] (1) understate

assets by \)3,200; (2) understate expenses by \(5,200; (3) understate net income by \)2,000; or

(4) overstate liabilities by $2,000.

In the blank space beside each numbered balance sheet item, enter the letter of its balance sheet classification. If the item should not appear on the balance sheet, enter a Z in the blank.

A. Current assets

B. Long-term investments

C. Plant assets

D. Intangible assets

E. Current liabilities

F. Long-term liabilities

G. Equity

17. Land (used in operations)

In the blank space beside each numbered balance sheet item, enter the letter of its balance sheet classification. If the item should not appear on the balance sheet, enter a Z in the blank.

A. Current assets

B. Long-term investments

C. Plant assets

D. Intangible assets

E. Current liabilities

F. Long-term liabilities

G. Equity

16. Office equipment

See all solutions

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