Week Two Exercise AssignmentRevenue and Expenses1. Recognition of concepts. Ron

Week Two Exercise AssignmentRevenue and Expenses1. Recognition of concepts. Ron Carroll operates a small company that books enter tainers for theaters parties conventions and so forth. The company s fiscal year ends on June 30. Consider the following items and classify each as either (1) pre paid expense (2) unearned revenue (3) accrued expense (4) accrued revenue or (5) none of the foregoing.a. Amounts paid on June 30 for a 1-year insurance policyb. Professional fees earned but not billed as of June 30c. Repairs to the firm s copy machine incurred and paid in Juned. An advance payment from a client for a performance next month at a conventione. The payment in part (d) from the client s point of viewf. Interest owed on the company s bank loan to be paid in early Julyg. The bank loan payable in part (f)h. Office supplies on hand at year-end2. Analysis of prepaid account balance. The following information relates to Action Sign Company for 20X2:Insurance expense$4350Prepaid insurance December 31 20X21900Cash outlays for insurance during 20X26200Compute the balance in the Prepaid Insurance account on January 1 20X2.3. Understanding the closing process. Examine the following list of accounts:Interest PayableAccumulated Depreciation: EquipmentAlex Kenzy DrawingAccounts PayableService RevenueCashAccounts ReceivableSupplies ExpenseInterest ExpenseWhich of the preceding accountsa. appear on a post-closing trial balance?b. are commonly known as temporary or nominal accounts?c. generate a debit to Income Summary in the closing process?d. are closed to the capital account in the closing process?4. Adjusting entries and financial statements. The following information pertains to Fixation Enterprises: The company previously collected $1500 as an advance payment for services to be rendered in the future. By the end of December one third of this amount had been earned. Fixation provided $2500 of services to Artech Corporation; no billing had been made by December 31. Salaries owed to employees at year-end amounted to $1650. The Supplies account revealed a balance of $8800 yet only $3300 of supplies were actually on hand at the end of the period. The company paid $18000 on October 1 of the current year to Vantage Property Management. The payment was for 6 months rent of Fixation s headquarters beginning on November 1.Fixation s accounting year ends on December 31.InstructionsAnalyze the five preceding cases individually and determine the following:a. The typeof adjusting entry needed at year-end (Use the following codes: A adjust ment of a prepaid expense; B adjustment of an unearned revenue; C adjustment to record an accrued expense; or D adjustment to record an accrued revenue.)b. The year-end journal entry to adjust the accountsc. The income statement impact of each adjustment (e.g. increases total revenues by $500)5. Adjusting entries. You have been retained to examine the records of Kathy s Day Care Center as of December 31 20X3 the close of the current reporting period. In the course of your examination you discover the following: On January 1 20X3 the Supplies account had a balance of $2350. During the year $5520 worth of supplies was purchased and a balance of $1620 remained unused on December 31. Unrecorded interest owed to the center totaled $275 as of December 31. All clients pay tuition in advance and their payments are credited to the Unearned Tuition Revenue account. The account was credited for $75500 on August 31. With the exception of $15500 all amounts were for the current semester ending on December 31. Depreciation on the school s van was $3000 for the year. On August 1 the center began to pay rent in 6-month installments of $21000. Kathy wrote a check to the owner of the building and recorded the check in Pre paid Rent a new account. Two salaried employees earn $400 each for a 5-day week. The employees are paid every Friday and December 31 falls on a Thursday. Kathy s Day Care paid insurance premiums as follows each time debiting Pre paid Insurance:Date PaidPolicy No.Length of PolicyAmountFeb. 1 20X21033MCM191 year$540Jan. 1 20X37952789HP1 year912Aug. 1 20X3XQ943675ST2 years840InstructionsThe center s accounts were last adjusted on December 31 20X2. Prepare the adjusting entries necessary under the accrual basis of accounting.6. Bank reconciliation and entries. The following information was taken from the accounting records of Palmetto Company for the month of January:Balance per bank$6150Balance per company records3580Bank service charge for January20Deposits in transit940Interest on note collected by bank100Note collected by bank1000NSF check returned by the bank with the bank statement650Outstanding checks3080Instructions:a. Prepare Palmetto s January bank reconciliation.b. Prepare any necessary journal entries for Palmetto.7. Direct write-off method. Harrisburg Company which began business in early 20X7 reported $40000 of accounts receivable on the December 31 20X7 balance sheet. Included in this amount was $550 for a sale made to Tom Mattingly in July. On January 4 20X8 the company learned that Mattingly had filed for personal bankruptcy. Harrisburg uses the direct write-off method to account for uncollectibles.a. Prepare the journal entry needed to write off Mattingly s account.b. Comment on the ability of the direct write-off method to value receivables on the year-end balance sheet.8.Allowance method: estimation and balance sheet disclosure. The following pre- adjusted information for the Maverick Company is available on December 31: Accounts receivable $107000 Allowance for uncollectible accounts 5400 (credit balance) Credit sales 250000a. Prepare the journal entries necessary to record Maverick s uncollectible accounts expense under each of the following assumptions:(1) Uncollectible accounts are estimated to be 5% of Credit Sales.(2) Uncollectible accounts are estimated to be 14% of Accounts Receivable.b. How would Maverick s Accounts Receivable appear on the December 31 balance sheet under assumption (1) of part (a)?c. How would Maverick s Accounts Receivable appear on the December 31 balance sheet under assumption (2) of part (a)?9. Direct write-off and allowance methods: matching approach. The December 31 20X2 year-end trial balance of Targa Company revealed the following account information:DebitsCreditsAccounts Receivable$252000Allowance for Uncollectible Accounts$ 3000Sales855000Instructionsa. Determine the adjusting entry for bad debts under each of the following condi tions:(1) An aging schedule indicates that $12420 of accounts receivable will be uncollectible.(2) Uncollectible accounts are estimated at 2% of net sales.b. On January 19 20X3 Targa learned that House Company a customer had declared bankruptcy. Present the proper entry to write off House s $950 balance using the allowance method.c. Repeat the requirement in part (b) using the direct write-off method.d. In light of the House bankruptcy examine the allowance and direct write-off methods in terms of their ability to properly match revenues and expenses.10. Allowance method: analysis of receivables. At a January 20X2 meeting the presi dent of Sonic Sound directed the sales staff to move some product this year. The president noted that the credit evaluation department was being disbanded be cause it had restricted the company s growth. Credit decisions would now be made by the sales staff.By the end of the year Sonic had generated significant gains in sales and the president was very pleased. The following data were provided by the accounting department: 20X220X1Sales$23987000$8423000Accounts Receivable 12/31124440001056000Allowance for Uncollectible Accounts 12/31?23000 cr.The $12444000 receivables balance was aged as follows:Age of ReceivableAmountPercentage of Accounts Expected to Be CollectedUnder 31 days$532100099%31260 days38900009061290 days106700080Over 90 days216600060Assume that no accounts were written off during 20X2.Instructionsa. Estimate the amount of Uncollectible Accounts as of December 31 20X2.b. What is the company s Uncollectible Accounts expense for 20X2?c. Compute the net realizable value of Accounts Receivable at the end of 20X1 and 20X2.d. Compute the net realizable value at the end of 20X1 and 20X2 as a percentage of respective year-end receivables balances. Analyze your findings and comment on the president s decision to close the credit evaluation department.