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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

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

9. Prepaid insurance

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

(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.

Adjusting entries affect at least one balance sheet account and at least one income statement account.

For the entries below, identify the account to be debited and the account to be credited from the following

accounts: Cash; Accounts Receivable; Prepaid Insurance; Equipment; Accumulated

Depreciation; Wages Payable; Unearned Revenue; Revenue; Wages Expense; Insurance Expense;

Depreciation Expense. Indicate which of the accounts is the income statement account and which is

the balance sheet account.

a. Entry to record revenue earned that was previously received as cash in advance.

b. Entry to record wage expenses incurred but not yet paid (nor recorded).

c. Entry to record revenue earned but not yet billed (nor recorded).

d. Entry to record expiration of prepaid insurance.

e. Entry to record annual depreciation expense.

Review Apple’s balance sheet in Appendix A. Identify one asset account that requires adjustment before annual financial statements can be prepared. What would affect the income statement if this asset account were not adjusted? (Number not required, but comment on over-or understating of net income.)

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.
See all solutions

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