Concept explainers
Crazy Mountain Outfitters Co., an outfitter store for fishing treks, prepared the following unadjusted
For preparing the
- • Supplies on hand on April 30 were $1,380.
- • Fees earned but unbilled on April 30 were $3,900.
- •
Depreciation of equipment was estimated to be $3,000 for the year. - • Unpaid wages accrued on April 30 were $2,475.
- • The balance in unearned fees represented the April 1 receipt in advance for services to be provided. Only $14,140 of the services was provided between April 1 and April 30.
Instructions
- 1. Journalize the adjusting entries necessary on April 30, 2019.
- 2. Determine the revenues, expenses, and net income of Crazy Mountain Outfitters Co. before the adjusting entries.
- 3. Determine the revenues, expenses, and net income of Crazy Mountain Outfitters Co. after the adjusting entries.
- 4. Determine the effect of the adjusting entries on John Bridger, Capital.
(1)
Record the adjusting entries on April 30, 2019 of CMO Company.
Answer to Problem 3PB
Adjusting Entries: Adjusting entries indicates those entries, which are passed in the books of accounts at the end of one accounting period. These entries are passed in the books of accounts as per the revenue recognition principle and the expenses recognition principle to adjust the revenue, and the expenses of a business in the period of their occurrence.
Adjusted Trial Balance: Adjusted trial balance is a trial balance prepared at the end of a financial period, after all the adjusting entries are journalized and posted. It is prepared to prove the equality of the total debit and credit balances.
Rule of Debit and Credit:
Debit - Increase in all assets, expenses & dividends, and decrease in all liabilities and stockholders’ equity.
Credit - Increase in all liabilities and stockholders’ equity, and decrease in all assets & expenses.
The following entry shows the adjusting entry for supplies on April 30.
Date | Account Titles and Explanation | Debit ($) | Credit ($) |
April 30 | Supplies Expense (1) | 5,820 | |
Supplies | 5,820 | ||
(To record the supplies expense at the end of the accounting period) |
Table (1)
The impact on the accounting equation for the above referred adjusting entry is as follows:
Explanation of Solution
Justification for journal entry
- Supplies expense is a component of stockholders’ equity, and it decreased the stockholders’ equity by $5,820. So debit supplies expense by $5,820.
- Supplies are an asset for the business, and it is decreased by $5,820. So credit supplies by $5,820.
Working Note 1:
Calculation of fees earned for the accounting period
The following entry shows the adjusting entry for accrued fees unearned on April 30.
Date | Account Titles and Explanation | Debit ($) | Credit ($) |
April 30 | Accounts Receivable | 3,900 | |
Fees earned | 3,900 | ||
(To record the accounts receivable at the end of the year.) |
Table (2)
The impact on the accounting equation for the above referred adjusting entry is as follows:
Justification for journal entry
- Accounts Receivable is an asset, and it is increased by $3,900. So debit Accounts receivable by $3,900.
- Fees earned are component of stockholders’ equity and increased it by $3,900. So credit fees earned by $3,900.
The adjusting entry for recording depreciation is as follows:
Date | Account Titles and Explanation | Debit ($) | Credit ($) |
April 30 | Depreciation expense | 3,000 | |
Accumulated Depreciation | 3,000 | ||
(To record the depreciation on office equipment for the current year.) |
Table (3)
The impact on the accounting equation for the above referred adjusting entry is as follows:
Justification for journal entry
- Depreciation expense is component of stockholders’ equity and decreased it, so debit depreciation expense by $3,000.
- Accumulated depreciation is a contra asset account, and it decreases the asset value by $3,000. So credit accumulated depreciation by $3,000.
The following entry shows the adjusting entry for wages expense on April 30.
Date | Account Titles and Explanation | Debit ($) | Credit ($) |
April 30 | Wages expenses | 2,475 | |
Wages Payable | 2,475 | ||
(To record the wages accrued but not paid at the end of the accounting period.) |
Table (4)
The impact on the accounting equation for the above referred adjusting entry is as follows:
Justification for journal entry
- Wages expense is a component of Stockholders ‘equity, and it decreased it by $2,475. So debit wage expense by $2,475.
- Wages Payable is a liability, and it is increased by $2,475. So credit wages payable by $2,475.
The following entry shows the adjusting entry for unearned fees on June 30.
Date | Account Titles and Explanation | Debit ($) | Credit ($) |
June 30 | Unearned Fees | 14,140 | |
Fees earned | 14,140 | ||
(To record the fees earned from services at the end of the accounting period.) |
Table (5)
The impact on the accounting equation for the above referred adjusting entry is as follows:
Justification for journal entry
- Unearned fees are a liability, and it is decreased by $14,140. So debit unearned rent by $14,140.
- Fees earned are a component of Stockholders’ equity, and it is increased by $14,140. So credit rent revenue by $14,140.
(2)
Determine the revenues, expenses and net income of CMO Company before adjusting entries.
Answer to Problem 3PB
The revenues, expenses and net income before adjusting entries of CMO Company are stated below:
- Revenue = $305,800 (given)
- Expenses = $261,800 (W.N-1)
- Net income = $44,000 (W.N-2)
Explanation of Solution
Working Note 1: Calculation of expenses before adjusting entries:
Working Note 2: Calculation of net income before adjusting entries
Hence, the revenues, expenses and net income of CMO Company are $305,800, $261,800 and $44,000 respectively.
(3)
Determine the revenues, expenses and net income of CMO Company after adjusting entries
Answer to Problem 3PB
The revenues, expenses and net income after adjusting entries of CMO Company are stated below:
- Revenue = $323,840 (W.N-4)
- Expenses = $273,095 (W.N-3)
- Net income = $50,745 (W.N-5)
Explanation of Solution
Working Note 3: Calculation of expenses after adjusting entries:
Working Note 4: Calculation of revenue after adjusting entries:
Working Note 5: Calculation of net income after adjusting entries
Hence, the revenues, expenses and net income of CMO Company are $323,840, $273,095 and $50,745 respectively.
(4)
Determine the effect of the adjusting entries on the capital of CMO Company.
Answer to Problem 3PB
The capital of CMO Company will be increased by $10,745 after the adjusting entry.
Explanation of Solution
Due to the adjusting entry there is an increase in the net income of $10,745
Want to see more full solutions like this?
Chapter 3 Solutions
Financial Accounting
- On December 31, Strike Company has decided to discard one of its batting cages. The equipment had an initial cost of $238,400 and has accumulated depreciation of $214,560. Depreciation has been recorded up to the end of the year. Which of the following will be included in the journal entry for the disposal? a. Loss on Disposal of Asset, debit, $214,560 b. Accumulated Depreciation, debit, $238,400 c. Gain on Disposal of Asset, credit, $23,840 d. Equipment, credit, $238,400arrow_forwardOn May 1, a commercial baking company purchased a commercial oven on account. The oven costs $40,000, has a life of 5 years, and has no salvage value. The company ordinally uses straight-line depreciation. The company recorded the following transaction. Debit equipment maintenance expense $40,000; credit Accounts payable $40,000. The company paid for the oven in June. If the company does not correct this error before December 31, which impact will the error have on the balance sheet? Property. plant, and equipment (PP&E) will be understated Operating expenses will be understated Property. plant and equipment (PP&E) will be overstated Accumulated depreciation will be overstated A hospital accidentally invoiced a patient twice for the same treatment, which cost $800. The patient received two invoices and paid them both. The hospital recorded $1,600 of revenue and $1,600 of payments. If the books have not been closed for this period, which entry would correct the hospital's error? • Debit…arrow_forwardOn October 1, Bentley Delivery Services acquired a new truck with a list price (fair market value) of $75,000. Bentley Delivery received a trade-in allowance (fair market value) of $24,000 on an old truck of similar type and paid cash of $51,000. The following information about the old truck is obtained from the account in the equipment ledger: cost, $56,000;accumulated depreciation on December 31, the end of the preceding fiscal year, $35,000; annual depreciation, $7,000. Assuming that the exchange has commercial substance, journalize the entries to record (a) the current depreciation of the old truck to the date of trade-in and (b) the transaction on October 1.arrow_forward
- On December 31, Strike Company has decided to discard one of its batting cages. The equipment had an initial cost of $209,525 and has accumulated depreciation of $188,572.50. Depreciation has been recorded up to the end of the year. Which of the following will be included in the entry to record the disposal? a.Accumulated Depreciation, debit, $209,525 b.Gain on Disposal of Asset, credit, $20,952.50 c.Loss on Disposal of Asset, debit, $188,572.50 d.Equipment, credit, $209,525arrow_forwardDuring 20x7, the controller of the Sparrow Company asked you to prepare correcting journal entries for the following three situations: 1. Machine A was purchased for 400,000 on January 1, 20x5. It had an estimated residual value of 50,000 and an estimated service life of 10 years. It has been depreciated under the double-declining-balance metgod for 2 years. Now, at the beginning of the third year, Sparrow hass decided to change to the straight-line method. 2. Machine B was purchased for 500,000 on January, 20x2. Straight line depreciation has been recorded for 5 years, and the Accumulated Depreciation account has a balance of 250,000. The estimated residual value remains at 50,000 but the service life is now estimated to be 1 year longer than estimated originally. 3. Machine C was purchased for 200,000 on January 20x6. Double-declinig-balance depreciation has been recorded for 1 year. The estimated residual value of the machine is 20,000 and the estimated service life is 5 years. The…arrow_forwardNew tire retreading equipment, acquired at a cost of $937,500 on September 1 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $80,600. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year. On the basis of the data presented to the manager, the double-declining-balance method was selected. In the first week of the fifth year, on September 6, the equipment was sold for $137,300. Required: 1. Determine the annual depreciation expense for each of the estimated four years of use, the accumulated depreciation at the end of each year, and the book value of the equipment at the end of each year by the following methods: First Imagearrow_forward
- On December 31, Strike Company has decided to discard one of its batting cages. The equipment had an initial cost of $230,200 and has accumulated depreciation of $207,180.00. Depreciation has been recorded up to the end of the year. Which of the following will be included in the entry to record the disposal? Oa. Accumulated Depreciation, debit, $230,200 Ob. Loss on Disposal of Asset, debit, $207,180.00 Oc. Gain on Disposal of Asset, credit, $23,020.00 Od. Equipment, credit, $230,200 Previous Nextarrow_forwardOn December 31, Strike Company has decided to discard one of its batting cages. The equipment had an initial cost of $206,400 and has accumulated depreciation of $185,760. Depreciation has been recorded up to the end of the year. Which of the following will be included in the entry to record the disposal? a.Equipment, credit, $206,400 b.Gain on Disposal of Asset, credit, $20,640 c.Accumulated Depreciation, debit, $206,400 d.Loss on Disposal of Asset, debit, $185,760arrow_forwardPastina Company manufactures and sells various types of pasta to grocery chains as private label brands. The company’s fiscal year-end is December 31. The unadjusted trial balance as of December 31, 2011, appears below: The equipment is being depreciated using the straight-line method over an eight-year useful life with $10,000 salvage value. The company estimates that 4% of all year-end accounts receivable probably will not be collected. Employee wages are paid twice a month, on the 22nd wages earned for the 1st through the 15th , and on the 7th of the following month for wages earned from the 16th through the end of month. Wages earned from December 16 through December 31, 2011, were $1,565. On October 1, 2011, Pastina borrowed $50,800 from a local bank and signed a note. The note requires interest to be paid annually on September 30 at 10%. The principal is due in 10 years. On April 1, 2011, the company lent a supplier $28,000 and a note was…arrow_forward
- Pastina Company manufactures and sells various types of pasta to grocery chains as private label brands. The company’s fiscal year-end is December 31. The unadjusted trial balance as of December 31, 2011, appears below: The equipment is being depreciated using the straight-line method over an eight-year useful life with $10,000 salvage value. The company estimates that 4% of all year-end accounts receivable probably will not be collected. Employee wages are paid twice a month, on the 22nd wages earned for the 1st through the 15th , and on the 7th of the following month for wages earned from the 16th through the end of month. Wages earned from December 16 through December 31, 2011, were $1,565. On October 1, 2011, Pastina borrowed $50,800 from a local bank and signed a note. The note requires interest to be paid annually on September 30 at 10%. The principal is due in 10 years. On April 1, 2011, the company lent a supplier $28,000 and a note was signed requiring principal and…arrow_forwardNew lithographic equipment, acquired at a cost of $950,400 on March 1 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $106,920. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year. On the basis of the data presented to the manager, the double-declining-balance method was selected. In the first week of the fifth year, on March 4, the equipment was sold for $154,682. Required: 1. Determine the annual depreciation expense for each of the estimated five years of use, the accumulated depreciation at the end of each year, and the book value of the equipment at the end of each year by (a) the straight-line method and (b) the double-declining-balance method. Round your answers to the nearest whole dollar. 2. Journalize the entry to record the sale assuming the manager chose the double-declining-balance method. Refer to the Chart of Accounts for…arrow_forwardNew lithographic equipment, acquired at a cost of $905,600 on March 1 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $101,880. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year. On the basis of the data presented to the manager, the double-declining-balance method was selected. In the first week of the fifth year, on March 4, the equipment was sold for $149,286. 3. Journalize the entry to record the sale in (2), assuming that the equipment was sold for $103,386 instead of $149,286. Refer to the Chart of Accounts for exact wording of account titles.arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning