QUESTION 1

The following situations are independent:

1.Mark Installation completes a $4,000 contract, starting work on June 16, and completing the work on July 15. The home builder pays them $1,000 in advance on June 15, $2,600 on July 15, and the balance ($400) when the home is sold in September.

2.An interior designer signs a contract in December 2020 to provide design services to a home builder, related to decorating a new show home. The contract is valued at $25,000 and the designer receives a 10% down payment upon signing the contract. All design work is done during January 2021. On February 1, 2021, the show home opens to the public and the home builder pays the 90% balance remaining on the contract.

3.A lawyer has a meeting with a new client on April 15 and agrees to represent her in a legal case. The fee negotiated is to be based on the number of hours the lawyer spends on the case. At the end of the meeting, the client pays the lawyer $500 as a "retainer." The case involves research and negotiations that take place in May. On June 2, the lawyer invoices the client for $3,200 and the client pays the balance due ($2,700) in two equal instalments on June 15 and July 15.

4.On January 1 an insurance company receives $4,200 for a one-year insurance policy that will expire on December 31.

Instructions

For each situation, state in which month(s) the revenue will be recognized and calculate how much is recognized in each month and explain why.

QUESTION 2

The balance sheets of Mark Company include the following:

Dec 31, 2021Dec 31, 2020

Interest Receivable$6,300$-0-

Supplies5,0003,500

Wages Payable3,6003,800

Unearned Revenue-0-4,000

The income statement for 2021 shows the following:

Interest Revenue$20,400

Service Revenue41,700

Supplies Expense8,700

Wages Expense37,000

Instructions

Calculate the following for 2021:

a)Cash received for interest.

b)Cash paid for supplies.

c)Cash paid for wages.

d)Cash received for services.

QUESTION 3

Below are two independent scenarios:

1. Vatex is a public company and is required to follow IFRS. The company recently received $50,000 for work to be performed next quarter. The bookkeeper recorded this transaction as a Debit to Cash and a Credit to Revenue.

2. Vastor is a small private company and follows ASPE. At the end of the year the company has four days of unpaid and unrecorded wages amounting to $5,600. To provide for these expenses, Vastor recorded a Debit to Wages Expense and a Credit to Wages Payable.

Instructions

a) Determine the basis of accounting used (accrual basis or cash basis).

b) Prepare the correct entry for the opposite basis of accounting. (i.e., If cash basis is currently used, you must prepare the entry that would be recorded under accrual basis accounting)

QUESTION 4

The trial balances of Farro Company follow with the accounts arranged in alphabetic order:

Trial Balances

UnadjustedAdjustedPost-Closing

Accounts Payable...................................... $10,000$10,000$10,000

Accounts Receivable.................................. 2,2003,2003,200

Accumulated Depreciationequipment..... 13,00017,00017,000

Advertising Expense................................... 011,3000

Cash.......................................................... 60,00060,00060,000

Depreciation Expense................................ 04,0000

Equipment................................................. 75,00075,00075,000

Retained Earnings..................................... 82,20082,200102,400

Dividends.................................................. 16,00016,0000

Prepaid Advertising................................... 12,8001,5001,500

Prepaid Rent.............................................. 15,00011,00011,000

Rent Expense............................................. 04,0000

Service Revenue......................................... 96,000105,0000

Supplies.................................................... 3,200700700

Supplies Expense....................................... 2,0004,5000

Unearned Revenue.................................... 23,00015,00015,000

Wages Expense.......................................... 38,00045,0000

Wages Payable.......................................... 07,0007,000

Instructions

Analyze the data and prepare the adjusting entries and b) the closing entries made by Farro Company.

QUESTION 5

a.Explain accrual basis accounting, and when to recognize revenues and expenses.

b.Describe how accounts, debits, and credits are used to record business transactions.