Question 3

20 Points

Adjusting Entries

The following accounting was obtained from the books of Mo-Cafe on December 31, 2019:

1. On December 1, 2019 Mo-Cafe received $ 3,500 in advance for services to be performed next year. The amount was credited in Fees Earned.

2. The amount of insurance that expired for the year is $ 2,300.

3. A purchase of computer printer for $ 600 on account was recorded as a debit to Office Supplies for $ 600 and a credit to accounts payable for $ 600.

4. The office supply account has a balance of $ 2,341. A physical count of inventory revealed a balance of $ 1,232.

5. Salaries of $ 430 were unpaid at December 31.

6. Equipment costing $ 7,500 was purchased on January 1, 2019. The equipment has a useful life of 10 years and a salvage value of $ 2,500. Mo-Cafe uses the straight line method of depreciation.

Instruction: Prepare the adjusting entries as of December 31, 2019. Mo-Cafe is on a calendar year.

Question 4

20 Points

Bad Debt

The following information is obtained from the accounting records of Becker Inc.

SaIes---------------------------------------------------------------$ 750,000

Account Receivable December 31, 2019--------------- 125,000

Allowance for Doubtful Accounts--------------------------$ 1,300 (CR)

SaIes Discount--------------------------------------------------- 50,000

Sales Returns and Allowances------------------------------- 12,000

Prepare the adjusting entries for the allowance for doubtful accounts under the following assumptions:

(a) 2% of the current accounts receivables are uncollectible.

(b) 2% of the current accounts receivables are uncollectible but the allowance for doubtful accounts has a debit balance of $1,300.

Question 5

20 Points

Depreciation

Dexter Dunlop Co. purchased manufacturing equipment on January 1, 2019 at a cost of $1,100,000. The equipment is expected to have a useful life of 5 years and a salvage of $100,000.

Required:

Compute depreciation expenses for years 1 and 2 (showing your work) under the:

a) Straight-line method

Year 1

Year 2

b) Sum-of-the-years' digits method

Year 1

Year 2

c) Double declining balance method

Year 1

Year 2