Question
Palmer Industries prepares annual financial statements and adjusts its accounts only at the end of the year. The following information is available for the year
Palmer Industries prepares annual financial statements and adjusts its accounts only at the end of the year. The following information is available for the year ended December 31, 2014:
Required:
1. For each of the following situations, identify and analyze the adjustment to be recorded on December 31, 2014. Do not round intermediate calculations. If required, round your final answer to the nearest dollar.
a. Palmer purchased computer equipment two years ago for $15,000. The equipment has an estimated useful life of five years and an estimated salvage value of $250. Use straight line method of depreciation.
| Activity | - Select your answer -OperatingInvestingFinancingCorrect 1 of Item 1 |
| Accounts | - Select your answer -Accumulated Depreciation-Computer Increase, Depreciation Expense Computer IncreaseAccumulated Depreciation-Computer Increase, Depreciation Expense Computer DecreaseAccumulated Depreciation-Computer Decrease, Depreciation Expense Computer IncreaseAccumulated Depreciation-Computer Decrease, Depreciation Expense Computer DecreaseCorrect 2 of Item 1 |
| Statement(s) | - Select your answer -Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementCorrect 3 of Item 1 |
How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item.
| Balance Sheet | Income Statement | |||||||||||||
| Assets | = | Liabilities | + | Stockholders' Equity | Revenues | Expenses | = | Net Income | ||||||
| - Select your answer -Accumulated Depreciation-ComputerCashComputer EquipmentComputer Equipment ExpenseDepreciation Expense-ComputerNo EntryCorrect 1 of Item 2 | - Select your answer -Accumulated Depreciation-ComputerCashComputer EquipmentDepreciation Expense-ComputerDepreciation PayableNo EntryCorrect 3 of Item 2 | - Select your answer -Accumulated Depreciation-ComputerCashComputer EquipmentDepreciation Expense-ComputerDepreciation PayableNo EntryCorrect 6 of Item 2 | - Select your answer -Accumulated Depreciation-ComputerCashComputer EquipmentComputer Equipment ExpenseDepreciation Expense-ComputerNo EntryCorrect 8 of Item 2 | |||||||||||
b. The Office Supplies account had a balance of $3,600 on January 1, 2014. During 2014, Palmer added $17,600 to the account for purchases of office supplies during the year. A count of the supplies on hand at the end of December 2014 indicates a balance of $1,850.
| Activity | - Select your answer -OperatingInvestingFinancingCorrect 1 of Item 3 |
| Accounts | - Select your answer -Office Supplies on Hand Increase, Supplies Expense IncreaseOffice Supplies on Hand Increase, Supplies Expense DecreaseOffice Supplies on Hand Decrease, Supplies Expense IncreaseOffice Supplies on Hand Decrease, Supplies Expense DecreaseCorrect 2 of Item 3 |
| Statement(s) | - Select your answer -Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementCorrect 3 of Item 3 |
How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.
| Balance Sheet | Income Statement | |||||||||||||
| Assets | = | Liabilities | + | Stockholders' Equity | Revenues | Expenses | = | Net Income | ||||||
| - Select your answer -CashOffice Supplies on HandPurchasesSupplies ExpenseSupplies PayableNo EntryCorrect 1 of Item 4 | - Select your answer -Accounts ReceivableCashSupplies ExpenseSupplies on HandSupplies PayableNo EntryCorrect 3 of Item 4 | - Select your answer -Accounts ReceivableCashSupplies ExpenseSupplies on HandSupplies PayableNo EntryCorrect 6 of Item 4 | - Select your answer -CashOffice Supplies on HandPurchasesSupplies ExpenseSupplies PayableNo EntryCorrect 8 of Item 4 | |||||||||||
c. On August 1, 2014, Palmer created a liability account, Customer Deposits, for $24,000. This sum represents an amount that a customer paid in advance and that will be earned evenly by Palmer over a six-month period.
| Activity | - Select your answer -OperatingInvestingFinancingCorrect 1 of Item 5 |
| Accounts | - Select your answer -Customer Deposits Increase, Fees Earned IncreaseCustomer Deposits Increase, Fees Earned DecreaseCustomer Deposits Decrease, Fees Earned IncreaseCustomer Deposits Decrease, Fees Earned DecreaseCorrect 2 of Item 5 |
| Statement(s) | - Select your answer -Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementCorrect 3 of Item 5 |
How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.
| Balance Sheet | Income Statement | |||||||||||||
| Assets | = | Liabilities | + | Stockholders' Equity | Revenues | Expenses | = | Net Income | ||||||
| - Select your answer -CashCustomer DepositsCustomer Deposits ReceivableFees EarnedFees ExpenseNo EntryCorrect 1 of Item 6 | - Select your answer -Accounts PayableCustomer DepositsCustomer Deposits ReceivableFees EarnedRetained EarningsNo EntryCorrect 3 of Item 6 | - Select your answer -Accounts PayableCustomer DepositsCustomer Deposits ReceivableFees EarnedRetained EarningsNo EntryCorrect 6 of Item 6 | - Select your answer -CashCustomer DepositsCustomer Deposits ReceivableFees EarnedFees ExpenseNo EntryCorrect 8 of Item 6 | |||||||||||
d. Palmer rented some office space on November 1, 2014, at a rate of $2,700 per month. On that date, Palmer recorded Prepaid Rent for three months rent paid in advance.
| Activity | - Select your answer -OperatingInvestingFinancingCorrect 1 of Item 7 |
| Accounts | - Select your answer -Prepaid Rent Increase, Rent Expense IncreasePrepaid Rent Increase, Rent Expense DecreasePrepaid Rent Decrease, Rent Expense IncreasePrepaid Rent Decrease, Rent Expense DecreaseCorrect 2 of Item 7 |
| Statement(s) | - Select your answer -Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementCorrect 3 of Item 7 |
How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.
| Balance Sheet | Income Statement | |||||||||||||
| Assets | = | Liabilities | + | Stockholders' Equity | Revenues | Expenses | = | Net Income | ||||||
| - Select your answer -CashPrepaid RentRent ExpenseRent PayableRent RevenueNo EntryCorrect 1 of Item 8 | - Select your answer -Accounts PayableCashPrepaid RentRent ExpenseRent PayableNo EntryCorrect 3 of Item 8 | - Select your answer -Accounts PayableCashPrepaid RentRent ExpenseRent PayableNo EntryCorrect 6 of Item 8 | - Select your answer -CashPrepaid RentRent ExpenseRent PayableRent RevenueNo EntryCorrect 8 of Item 8 | |||||||||||
e. Palmer took out a 120-day, 9%, $200,000 note on November 1, 2014, with interest and principal to be paid at maturity. Assume a 360-day year.
| Activity | - Select your answer -OperatingInvestingFinancingCorrect 1 of Item 9 |
| Accounts | - Select your answer -Interest Payable Increase, Interest Expense IncreaseInterest Payable Increase, Interest Expense DecreaseInterest Payable Decrease, Interest Expense IncreaseInterest Payable Decrease, Interest Expense DecreaseCorrect 2 of Item 9 |
| Statement(s) | - Select your answer -Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementCorrect 3 of Item 9 |
How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.
| Balance Sheet | Income Statement | |||||||||||||
| Assets | = | Liabilities | + | Stockholders' Equity | Revenues | Expenses | = | Net Income | ||||||
| - Select your answer -CashInterest ExpenseInterest PayableNotes PayableNotes ReceivableNo EntryCorrect 1 of Item 10 | - Select your answer -CashInterest ExpenseInterest PayableInterest RevenueNotes PayableNo EntryCorrect 3 of Item 10 | - Select your answer -CashInterest ExpenseInterest PayableInterest RevenueNotes PayableNo EntryCorrect 6 of Item 10 | - Select your answer -CashInterest ExpenseInterest PayableNotes PayableNotes ReceivableNo EntryCorrect 8 of Item 10 | |||||||||||
f. Palmer operates five days per week with an average daily payroll of $500. Palmer pays its employees every Thursday. December 31, 2014, is a Wednesday.
| Activity | - Select your answer -OperatingInvestingFinancingCorrect 1 of Item 11 |
| Accounts | - Select your answer -Wages Payable Increase, Wages Expense IncreaseWages Payable Increase, Wages Expense DecreaseWages Payable Decrease, Wages Expense IncreaseWages Payable Decrease, Wages Expense DecreaseCorrect 2 of Item 11 |
| Statement(s) | - Select your answer -Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementCorrect 3 of Item 11 |
How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.
| Balance Sheet | Income Statement | |||||||||||||
| Assets | = | Liabilities | + | Stockholders' Equity | Revenues | Expenses | = | Net Income | ||||||
| - Select your answer -Accumulated WagesCashRetained EarningsWage ExpenseWages PayableNo EntryCorrect 1 of Item 12 | - Select your answer -Accounts ReceivableAccumulated WagesCashWage ExpenseWages PayableNo EntryCorrect 3 of Item 12 | - Select your answer -Accounts ReceivableAccumulated WagesCashWage ExpenseWages PayableNo EntryCorrect 6 of Item 12 | - Select your answer -Accumulated WagesCashRetained EarningsWage ExpenseWages PayableNo EntryCorrect 8 of Item 12 | |||||||||||
2. Assume that Palmers accountant forgets to record the adjustments on December 31, 2014. Will net income for the year be understated or overstated? - Select your answer -OverstatedUnderstatedCorrect 1 of Item 13
By what amount? (Ignore the effect of income taxes.) $
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Local Public Finance
Authors: René Geissler, Gerhard Hammerschmid, Christian Raffer
1st Edition
3030674681, 978-3030674687
