Fundamental Accounting Principles

23rd edition

Chapter 3 - Problems 3-1A and 3-6A

first -Problem 3-1A Identifying adjusting entries with explanations

For each of the following journal entries 1 through 12, enter the letter of the explanation that most closely describes it in the space beside each entry. (You can use letters more than once.)

A. To record receipt of unearned revenue.

B. To record this periods earning of prior unearned revenue.

C. To record payment of an accrued expense.

D. To record receipt of an accrued revenue.

E. To record an accrued expense.

F. To record an accrued revenue.

G. To record this periods use of a prepaid expense.

H. To record payment of a prepaid expense.

I. To record this periods depreciation expense.

___ 1. Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000

Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000

______ 2. Depreciation Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000

Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . 4,000

______ 3. Unearned Professional Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000

Professional Fees Earned . . . . . . . . . . . . . . . . . . . . . . . . . 3,000

______ 4. Insurance Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,200

Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,200

______ 5. Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400

______ 6. Prepaid Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,500

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,500

______ 7. Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000

Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000

______ 8. Interest Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000

Interest Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000

______ 9. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000

Accounts Receivable (from consulting) . . . . . . . . . . . . . . . 9,000

______ 10. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,500

Unearned Professional Fees ........................ 7,500

______ 11. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000

Interest Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000

______ 12. Rent Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000

Prepaid Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000

second - Problem 3-6AA Recording prepaid expenses and unearned revenues

Gomez Co. had the following transactions in the last two months of its year ended December 31. (Entries can draw from the following partial chart of accounts: Cash; Prepaid Insurance; Prepaid Advertising; Prepaid Consulting Fees; Unearned Service Fees; Services Fees Earned; Insurance Expense; Advertising Expense; Consulting Fees Expense.)

Nov. 1 Paid $1,800 cash for future newspaper advertising.

1 Paid $2,460 cash for 12 months of insurance through October 31 of the next year.

30 Received $3,600 cash for future services to be provided to a customer.

Dec. 1 Paid $3,000 cash for a consultants services to be received over the next three months.

15 Received $7,950 cash for future services to be provided to a customer.

31 Of the advertising paid for on November 1, $1,200 worth is not yet used.

31 A portion of the insurance paid for on November 1 has expired. No adjustment was

made in November to Prepaid Insurance.

31 Services worth $1,500 are not yet provided to the customer who paid on November 30.

31 One-third of the consulting services paid for on December 1 have been received.

31 The company has performed $3,300 of services that the customer paid for on December 15.

Required

1. Prepare entries for these transactions under the method that initially records prepaid expenses as assets and records unearned revenues as liabilities. Also prepare adjusting entries at the end of the year.

2. Prepare entries for these transactions under the method that initially records prepaid expenses as expenses and records unearned revenues as revenues. Also prepare adjusting entries at the end of the year. Analysis Component

3. Explain why the alternative sets of entries in requirements 1 and 2 do not result in different financial statement amounts.