E3-5 Devin Wolf Company has the following balances in selected accounts on December should adopt the achtily each statement as true or false. If false, indicate how to correct the statement. E3-2 On numerous occasions, proposals have surfaced to put the federal government on the accrual basis of accounting. This is no small issue. If this basis were used, it would mean that billions in unrecorded liabilities would have to be booked, and the federal deficit (a) What is the difference between accrual basis accounting and cash-basis accounting? E3-3 Carillo Industries collected $108.000 from customers in 2017. Of the amount col- lected, $25,000 was for services performed in 2016. In addition, Carillo performed services Carillo Industries also paid $72,000 for expenses in 2017. Of the amount paid, $30,000 All the accounts have normal balances. The information below has been gathered a 1. Devin Wolf Company borrowed $10,000 by signing a one-year note on September cash and ounting would increase substantially. Instructions (b) Why would politicians prefer the cash basis over the accrual basis? accrual basis of accounting. 1 accrual e. worth $36,000 in 2017, which will not be collected until 2018. expenses in 2017, which will not be paid until 2018 Instructions (a) Compute 2017 cash-basis net income. (b) Compute 2017 accrual basis net income. of adjusting E3-4 Hong Corporation encounters the following situations: 1. Hong collects $1,300 from a customer in 2017 for services to be performed in 2018 2. Hong incurs utility expense which is not yet paid in cash or recorded. 3. Hong's employees worked 3 days in 2017 but will not be paid until 2018 4. Hong performs services for customers but has not yet received cash or recorded the Seid 2.400 rent on December 1 for the 4 months starting December Oncerved cash for future services and recorded a liability until the service was performed consulting services for a client in December 2017. On Dezember 31, It had not billed the client for services provided of $1,200. 8. Hong paid cash for an expense and recorded an asset until the item was used up. 9. Hong purchased $900 of supplies in 2017; at year-end, 5400 of supplies remain unused, 10. Hong purchased equipment on January 1, 2017, the equipment will be used for 5 years. 11. Hong borrowed $10,000 on October 1, 2017, signing an 8% one year note payable. Instructions Identify what type of adjusting entry (prepaid expense, unearned revenue, accrued expense, or accrued revenue) is needed in each situation at December 31, 2017 $-0- ustig entries d data. 31, 2017 7,000 10,000 2,100 Accounts Receivable Accumulated Depreciation Equipment Equipment Interest Payable Notes Payable Prepaid Insurance Salaries and Wages Payable Supplies Uneared Service Revenue 2.450 30,000 December 31, 2017 1. 2017 nower 3. Depreciation and 2. A count of supplies on December 31, 2017, indicates that supplies of $900 are on hand. 4. Devin Wolf Company paid $2,100 for 12 months of insurance coverage on June 1, 2017 on the equipment for 2017 is $1,000. 5. On December 1, 2017, Devin Wolf collected $32,000 for consulting services to be per- formed from December 1, 2017, through March 31, 2018. 6. Devin Wolf performed consulting services for a client in December 2017. The client will be billed $4,200 7. Devin Wolf Company pays its employees total salaries of $9,000 every Monday for the preceding 5-day week (Monday through Friday). On Monday, December 29, employees were paid for the week ending December 26. All employees worked the last 3 days of 2017. Instructions Prepare adjusting entries for the seven items described above. E3-6 Zaragoza Company accumulates the following adjustment data at December 31. Ide 1. Services performed but not recorded total $1,000. 2. Supplies of $300 have been used. (60 3. Utility expenses of $225 are unpaid. 4. Services related to unearned service revenue of $260 were performed. 5. Salaries of $800 are unpaid. 6. Prepaid insurance totaling $350 has expired. Instructions For each of the above items indicate the following. (a) The type of adjustment (prepaid expense, unearned revenue, accrued revenue, or accrued expense). (b) The status of accounts before adjustment (overstatement or understatement). E3-7 The ledger of Passehl Rental Agency on March 31 of the current year includes the from selected accounts, shown below, before adjusting entries have been prepared." (LO 2 Debit Credit Prepaid Insurance $ 3,600 2,800 25,000 Equipment $ 8,400 Depreciation-Equipment 20,000 10,200 60,000 -0- 14,000 Prepa Supplies Accumulated Notes Payable Unearned Rent Revenue Rent Revenue Interest Expense Salaries and Wages Expense lected, $25,000 was for services performed in 2016. In addition, Carillo performed services worth $36,000 in 2017, which will not be collected until 2018. E3-3 Carillo Industries collected $108,000 from customers in 2017. Of the amount col- Carillo Industries also paid $72,000 for expenses in 2017. Of the amount paid, $30,000 was for expenses incurred on account in 2016. In addition, Carillo incurred $42,000 of expenses in 2017, which will not be paid until 2018. All the accounts have normal balances. The information below has been gathered at Instructions (a) Compute 2017 cash-basis net income. (b) Compute 2017 accrual-basis net income. E3-4 Hong Corporation encounters the following situations: 1. Hong collects $1,300 from a customer in 2017 for services to be performed in 2018. 2. Hong incurs utility expense which is not yet paid in cash or recorded. 3. Hong's employees worked 3 days in 2017 but will not be paid until 2018. 4. Hong performs services for customers but has not yet received cash or recorded the transaction 5. Hong paid $2,400 rent on December 1 for the 4 months starting December 1. 6. Hong received cash for future services and recorded a liability until the service was performed 7. Hong performed consulting services for a client in December 2017. On December 31, it had not billed the client for services provided of $1,200. 8. Hong paid cash for an expense and recorded an asset until the item was used up. 9. Hong purchased $900 of supplies in 2017; at year-end, $400 of supplies remain unused. 10. Hong purchased equipment on January 1, 2017; the equipment will be used for 5 years. 11. Hong borrowed $10,000 on October 1, 2017, signing an 8% one-year note payable. Instructions Identify what type of adjusting entry (prepaid expense, unearned revenue, accrued expense, or accrued revenue) is needed in each situation at December 31, 2017. E3-5 Devin Wolf Company has the following balances in selected accounts on December 31, 2017 $ -O- Accounts Receivable Accumulated Depreciation-Equipment Equipment Interest Payable 10,000 Notes Payable 2,100 Prepaid Insurance Salaries and Wages Payable 2,450 Supplies 30,000 Unearned Service Revenue Decanal -0- 7,000 new building on November 1. At December 31, the company had the following rental Instructions (a) Journalize the adjusting entries on May 31. (b) Prepare a ledger using the three-column form of account. Enter the trial balance amounts and post the adjusting entries. (Use J1 as the posting reference.) (c) Prepare an adjusted trial balance on May 31. (d) Prepare an income statement and an owner's equity statement for the month of May and a balance sheet at May 31. income 54545 ding capital $46,025 lasse 593.075 P3-3A Alena Co. was organired on July 1, 2017. Quarterly financial statements are pre- pared. The unadjusted and adjusted trial balances as of September 30 are shown below. 2,200 ALENA CO. Trial Balance September 30, 2017 Unadjusted Dr. Cr: Cash $ 8,700 Accounts Receivable 10,400 Supplies 1,500 Prepaid Rent Equipment 18,000 Accumulated Depreciation Equipment $ 0- Notes Payable 10,000 Accounts Payable 2.500 Salaries and Wages Payable Interest Payable Unearned Rent Revenue 1,900 Owner's Capital 22,000 Owner's Drawings 1,600 Service Revenue 16,000 Rent Revenue 1.410 Salaries and Wages Expense 8,000 Rent Expense 1,900 Depreciation Expense Supplies Expense Utilities Expense 1,510 Interest Expense $53,810 $53,810 Adjusted Dr. Cr. $ 8.700 11.500 650 500 18.000 $ 700 10,000 2.500 725 100 450 22,000 1,600 17,100 2.860 8,725 3,600 700 850 1,510 100 $56,435 $56,435 et income 54,475 ding capital 524,875 tal assets 538,650 Instructions (a) Journalize the adjusting entries that were made. (b) Prepare an income statement and an owner's equity statement for the 3 months ending September 30 and a balance sheet at September 30, (c) If the note bears interest at 12%, how many months has it been outstanding? readsting entries 13 urance expense 54.890 P3-4A A review of the ledger of Remina Company at December 31, 2017, produces the following data pertaining to the preparation of annual adjusting entries. 1. Prepaid Insurance $10.440. The company has separate insurance policies on its build- 2016, for $7.920. The policy has a term of 3 years. Policy A2958 on the vehicles was purchased on January 1, 2017 for $4,500. This policy has a term of 2 years contracts that are paid in full for the entire term of the lease Term in months) nt revenue $84.000 Date Now! Dec. 1 Monthly Rent $5,000 $8.500 Number of Leases