Chapter 3: Question 4BE (page 128)
BE3-4 (L02,3) Using the data in BE3-3, journalize the entry on July 1 and the adjusting entry on December 31 for Zubin Insurance Co. Zubin uses the accounts Unearned Service Revenue and Service Revenue.
The amount of service revenue is $2,500.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
(LO2,3) Dresser Company’s weekly payroll, paid on Fridays, totals \(8,000. Employees work 5-days week. Prepare Dresser’s adjusting entry on Wednesday, December 31, and the journal entry to record the \)8,000 cash payment on Friday, January 2.
Vedula Advertising was founded by MuraliVedula in January 2015. On the next page are both the adjusted and unadjusted trial balances as of December 31, 2017.
VEDULA ADVERTISING TRIAL BALANCE DECEMBER 31, 2017 | ||||||
| Unadjusted | Adjusted | |||||
Dr. | Cr. | Dr. | Cr. | |||
Cash | \( 11,000 | \) 11,000 | ||||
Accounts Receivable | 16,000 | 19,500 | ||||
Prepaid Insurance | 9,400 | 6,500 | ||||
Supplies | 3,350 | 1,790 | ||||
Equipment | 60,000 | 60,000 | ||||
Accumulated Depreciation—Equipment | \( 25,000 | \) 30,000 | ||||
Notes Payable | 8,000 | 8,000 | ||||
Accounts Payable | 2,000 | 2,000 | ||||
Interest Payable | 0 | 560 | ||||
Unearned Service Revenue | 5,000 | 3,100 | ||||
Salaries and Wages Payable | 0 | 820 | ||||
Common Stock | 20,000 | 20,000 | ||||
Retained Earnings | 5,500 | 5,500 | ||||
Dividends | 10,000 | 10,000 | ||||
Service Revenue | 57,600 | 63,000 | ||||
Salaries and Wages Expense | 9,000 | 9,820 | ||||
Insurance Expense | 1,560 | |||||
Interest Expense | 560 | |||||
Depreciation Expense | 5,000 | |||||
Supplies Expense | 2,900 | |||||
Rent Expense | 4,350 |
| 4,350 |
| ||
\(123,100 | \)123,100 | \(132,980 | \)132,980 | |||
Instructions
Question: The Amato Theater is nearing the end of the year and is preparing for a meeting with its bankers to discuss the renewal of a loan. The accounts listed below appeared in the December 31, 2017, trial balance.
Debit | Credit | |
Prepaid advertising | \(6,000 | |
Equipment | 192,000 | |
Accumulated depreciation | \)60,000 | |
Note payable | 90,000 | |
Unearned service revenue | 17,500 | |
Ticket revenue | 360,000 | |
Advertising expenses | 18,680 | |
Salaries and wages expenses | 67,600 | |
Interest expenses | 1,400 |
Additional information is available as follows.
1. The equipment has an estimated useful life of 16 years and a salvage value of \(40,000 at the end of that time. Amato uses the straight-line method for depreciation.
2. The note payable is a one-year note given to the bank January 31 and bearing interest at 10%. Interest is calculated on a monthly basis.
3. Late in December 2017, the theater sold 350 coupon ticket books at \)50 each. Two hundred of these ticket books have been used by year-end. The cash received was recorded as Unearned Service Revenue.
4. Advertising paid in advance was \(6,000 and was debited to Prepaid Advertising. The company has used \)2,500 of the advertising as of December 31, 2017.
5. Salaries and wages accrued but unpaid at December 31, 2017, were $3,500.
Accounting
Prepare any adjusting journal entries necessary for the year ended December 31, 2017.
Analysis
Determine Amato’s income before and after recording the adjusting entries. Use your analysis to explain why Amato’s bankers should be willing to wait for Amato to complete its year-end adjustment process before making a decision on the loan renewal.
Principles
Although Amato’s bankers are willing to wait for the adjustment process to be completed before they receive financial information, they would like to receive financial reports more frequently than annually or even quarterly. What trade-offs, in terms of relevance and faithful representation, are inherent in preparing financial statements for shorter accounting time periods?
Kellogg Company has its headquarters in Battle Creek, Michigan. The company manufactures and sells ready-to-eat breakfast cereals and convenience foods including cookies, toaster pastries, and cereal bars.
Selected data from Kellogg Company’s 2014 annual report follows (dollar amounts in millions).
2014 | 2013 | 2012 | |
Sales | \(14,580 | \)14,792 | $14,197 |
Gross profit % | 34.73% | 41.26% | 38.28% |
Operating profit | 1,024 | 2,837 | 1,562 |
Net cash flow less capital expenditure | 1,211 | 1,170 | 1,225 |
Net earnings | 633 | 1,808 | 961 |
In its annual reports, Kellogg Company has indicated that it plans to achieve sustainability of its operating results with operating principles that emphasize profit-rich, sustainable sales growth, as well as cash flow and return on invested capital. Kellogg believes its steady earnings growth, strong cash flow, and continued investment during a multi-year period demonstrates the strength and flexibility of its business model.
Instructions
(a) Compute the percentage change in sales, operating profit, net cash flow less capital expenditures, and net earnings from year to year for the years presented.
(b) Evaluate Kellogg’s performance. Which trend seems most favorable? Which trend seems least favorable? What are the implications of these trends for Kellogg’s sustainable performance objectives? Explain.
Midwest Enterprises made the following entry on December 31, 2017.
Interest Expense 10,000
Interest Payable 10,000
(To record interest expensedue on loan from Anaheim
National Bank)
What entry would Anaheim National Bank make regarding its outstanding loan to Midwest Enterprises? Explain why this must be the case.
What do you think about this solution?
We value your feedback to improve our textbook solutions.
