Chapter 3: Q3-4DQ (page 139)
Question: What is a prepaid expense, and where is it reported in the financial statements?
Expenses which are paid in advance are prepaid expense. Prepaid expenses are reported as an asset in the balance sheet.
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Question:Prepare year-end adjusting journal entries for M&R Company as of December 31, 2017, for each of the
following separate cases. (Entries can draw from the following partial chart of accounts: Cash; Accounts
Receivable; Interest Receivable; Equipment; Wages Payable; Salary Payable; Interest Payable; Lawn
Services Payable; Unearned Revenue; Revenue; Interest Revenue; Wages Expense; Salary Expense;
Supplies Expense; Lawn Services Expense; Interest Expense.)
a. M&R Company provided \(2,000 in services to customers that are expected to pay the company sometime
in January following the company’s year-end.
b. Wage expenses of \)1,000 have been incurred but are not paid as of December 31.
c. M&R Company has a \(5,000 bank loan and has incurred (but not recorded) 8% interest expense of
\)400 for the year ended December 31. The company will pay the \(400 interest in cash on January 2
following the company’s year-end.
d. M&R Company hired a firm to provide lawn services at a monthly fee of \)500 with payment occurring
on the 15th of the following month. Payment for December services will occur on January 15
following the company’s year-end.
e. M&R Company has earned \(200 in interest revenue from investments for the year ended December
31. The interest revenue will be received on January 15 following the company’s year-end.
f. Salary expenses of \)900 have been earned by supervisors but not paid as of December 31.
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 E. Current liabilities
B. Long-term investments F. Long-term liabilities
C. Plant assets G. Equity
D. Intangible assets
14. Common stock
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 E. Current liabilities
B. Long-term investments F. Long-term liabilities
C. Plant assets G. Equity
D. Intangible assets
18. Notes receivable (due in 120 days)
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 E. Current liabilities
B. Long-term investments F. Long-term liabilities
C. Plant assets G. Equity
D. Intangible assets
8. Current portion of long-term note payable
Compute Chavez Company’s current ratio using the following information.
Accounts receivable \(18,000 Long-term notes payable \)21,000
Accounts payable 11,000 Office supplies. 2,800
Buildings 45,000 Prepaid insurance 3,560
Cash. 7,000 Unearned services revenue 3,000
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