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Transactions Using Accrual Accounting
Alex Vera organized Succulent Express at the beginning of February 20Y4. During February, Succulent Express entered into the following transactions:
- Terry Mason invested $30,000 in Succulent Express in exchange for common stock.
- Paid $5,400 on February 1 for an insurance premium on a one-year policy.
- Purchased supplies on account, $1,800.
- Received fees of $57,000 during February.
- Paid expenses as follows: wages, $21,600; rent, $6,400; utilities, $2,800; and miscellaneous, $3,200.
- Paid dividends of $8,000.
Record the preceding transactions using the integrated financial statement framework. After each transaction, enter a balance for each item. If an amount box does not require an entry, leave it blank. Enter account decreases and net cash outflows as negative amounts using the minus sign.
Financial Statement Effects Balance Sheet Assets = Liabilities + Stockholders’ Equity
Accounts Payable Cash
+
Accounts Receivable Supplies
+
Common Stock Prepaid Insurance
=
Accounts Payable Retained Earnings
+
Accounts Receivable Common Stock
+
Accounts Payable Retained Earnings
a.
Fees earned Investment Paid dividends Paid expenses Paid insurance Purchased supplies
fill in the blank 8 fill in the blank 9 fill in the blank 10 fill in the blank 11 fill in the blank 12 fill in the blank 13 b.
Fees earned Investment Paid dividends Paid expenses Paid insurance Purchased supplies
fill in the blank 15 fill in the blank 16 fill in the blank 17 fill in the blank 18 fill in the blank 19 fill in the blank 20 Balances fill in the blank 21 fill in the blank 22 fill in the blank 23 fill in the blank 24 fill in the blank 25 fill in the blank 26 c.
Fees earned Investment Paid dividends Paid expenses Paid insurance Purchased supplies
fill in the blank 28 fill in the blank 29 fill in the blank 30 fill in the blank 31 fill in the blank 32 fill in the blank 33 Balances fill in the blank 34 fill in the blank 35 fill in the blank 36 fill in the blank 37 fill in the blank 38 fill in the blank 39 d.
Fees earned Investment Paid dividends Paid expenses Paid insurance Purchased supplies
fill in the blank 41 fill in the blank 42 fill in the blank 43 fill in the blank 44 fill in the blank 45 fill in the blank 46 Balances fill in the blank 47 fill in the blank 48 fill in the blank 49 fill in the blank 50 fill in the blank 51 fill in the blank 52 e.
Fees earned Investment Paid dividends Paid expenses Paid insurance Purchased supplies
fill in the blank 54 fill in the blank 55 fill in the blank 56 fill in the blank 57 fill in the blank 58 fill in the blank 59 Balances fill in the blank 60 fill in the blank 61 fill in the blank 62 fill in the blank 63 fill in the blank 64 fill in the blank 65 f.
Fees earned Investment Paid dividends Paid expenses Paid insurance Purchased supplies
fill in the blank 67 fill in the blank 68 fill in the blank 69 fill in the blank 70 fill in the blank 71 fill in the blank 72 Balances fill in the blank 73 fill in the blank 74 fill in the blank 75 fill in the blank 76 fill in the blank 77 fill in the blank 78 Statement of Cash Flows Income Statement a.
Operating Investing Financing No effect
$fill in the blank 80 d.
Fees earned Retained earnings Utilities expense No effect
$fill in the blank 82 b.
Operating Investing Financing No effect
fill in the blank 84 e.
Fees earned Prepaid insurance Wages expense No effect
fill in the blank 86 d.
Operating Investing Financing No effect
fill in the blank 88 e.
Fees earned Supplies Rent expense No effect
fill in the blank 90 e.
Operating Investing Financing No effect
fill in the blank 92 e.
Accounts payable Common stock Utilities expense No effect
fill in the blank 94 f.
Operating Investing Financing No effect
fill in the blank 96 e.
Dividends Miscellaneous expense Retained earnings No effect
fill in the blank 98
Increase in cash Decrease in cash No effect
$fill in the blank 100
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Adjustment Process
Alex Vera organized Succulent Express at the beginning of February 20Y4. During February, Succulent Express entered into the following transactions:
- Terry Mason invested $30,000 in Succulent Express in exchange for common stock.
- Paid $5,400 on February 1 for an insurance premium on a one-year policy.
- Purchased supplies on account, $1,800.
- Received fees of $57,000 during February.
- Paid expenses as follows: wages, $21,600; rent, $6,400; utilities, $2,800; and miscellaneous, $3,200.
- Paid dividends of $8,000.
The transactions above have already been recorded in the integrated financial statement framework below.
Record the adjusting entries at the end of February to record the insurance expense and supplies expense. There was $300 of supplies on hand as of February 28. Identify the adjusting entry for insurance as (a1) and supplies as (a2). Use the integrated financial statement framework below. After each transaction, enter a balance for each item. If an amount box does not require an entry, leave it blank. Enter account decreases as negative amounts using the minus sign.
Financial Statement Effects Balance Sheet Assets = Liabilities + Stockholders’ Equity Cash + Supplies + Prepaid Insurance = Accounts Payable + Common Stock + Retained Earnings a. Investment 30,000 30,000 b. Paid insurance (5,400) 5,400 Balances 24,600 5,400 30,000 c. Purchased supplies 1,800 1,800 Balances 24,600 1,800 5,400 1,800 30,000 d. Fees earned 57,000 57,000 Balances 81,600 1,800 5,400 1,800 30,000 57,000 e. Paid expenses (34,000) (34,000) Balances 47,600 1,800 5,400 1,800 30,000 23,000 f. Paid dividends (8,000) (8,000) Balances 39,600 1,800 5,400 1,800 30,000 15,000 a1.
Fees earned Insurance expense Investment Paid dividends Paid expenses Paid insurance Purchased supplies Supplies expense
fill in the blank 2 fill in the blank 3 fill in the blank 4 fill in the blank 5 fill in the blank 6 fill in the blank 7 Balances fill in the blank 8 fill in the blank 9 fill in the blank 10 fill in the blank 11 fill in the blank 12 fill in the blank 13 a2.
Fees earned Insurance expense Investment Paid dividends Paid expenses Paid insurance Purchased supplies Supplies expense
fill in the blank 15 fill in the blank 16 fill in the blank 17 fill in the blank 18 fill in the blank 19 fill in the blank 20 Balances, February 28 fill in the blank 21 fill in the blank 22 fill in the blank 23 fill in the blank 24 fill in the blank 25 fill in the blank 26 Statement of Cash Flows Income Statement a. Financing $30,000 d. Fees earned $57,000 b. Operating (5,400) e. Wages expense (21,600) d. Operating 57,000 e. Rent expense (6,400) e. Operating (34,000) e. Utilities expense (2,800) f. Financing (8,000) e. Miscellaneous expense (3,200) Increase in cash $39,600 a1.
Fees earned Insurance expense Prepaid insurance No effect
fill in the blank 28 a2.
Dividends Supplies Supplies expense No effect
fill in the blank 30
Net income Net loss No effect
$fill in the blank 32
eBook
Accrual Basis of Accounting
Margie Van Epps established Health Services, P.C., a professional corporation, in March of the current year. Health Services offers healthy living advice to its clients. The effect of each transaction on the balance sheet and the balances after each transaction for March are as follows. Each increase or decrease in retained earnings, except transaction (h), affects net income.
Financial Statement Effects Balance Sheet Assets = Liabilities + Stockholders’ Equity
Cash
+ Accounts
Receivable
+
Supplies
=
Accounts Payable
+
Common Stock
+
Retained Earnings a. 35,000 35,000 b. 1,800 1,800 Balances 35,000 1,800 1,800 35,000 c. (800) (800) Balances 34,200 1,800 1,000 35,000 d. 31,300 31,300 Balances 65,500 1,800 1,000
35,000
31,300 e. (25,000) (25,000) Balances 40,500 1,800 1,000 35,000 6,300 f. (1,250) (1,250) Balances 40,500 550 1,000 35,000 5,050 g. 8,900 8,900 Balances 40,500 8,900 550 1,000 35,000 13,950 h. (6,000) (6,000) Balances 34,500 8,900 550 1,000 35,000 7,950 Statement of Cash Flows Income Statement a. Financing $35,000 d. Fees earned $31,300 c. Operating (800) e. Expenses (25,000) d. Operating 31,300 f. Expenses (1,250) e. Operating (25,000) g. Fees earned 8,900 h. Financing (6,000) $13,950 Increase in cash $34,500
a. Identify each transaction.
a.
Adjustment for cost of supplies used Earned fees from cash customers Earned fees on account Issued common stock in exchange for cash Paid cash to creditors for amounts owed Paid dividends Paid expenses Purchased supplies, on account
b.
Adjustment for cost of supplies used Earned fees from cash customers Earned fees on account Issued common stock in exchange for cash Paid cash to creditors for amounts owed Paid dividends Paid expenses Purchased supplies, on account
c.
Adjustment for cost of supplies used Earned fees from cash customers Earned fees on account Issued common stock in exchange for cash Paid cash to creditors for amounts owed Paid dividends Paid expenses Purchased supplies, on account
d.
Adjustment for cost of supplies used Earned fees from cash customers Earned fees on account Issued common stock in exchange for cash Paid cash to creditors for amounts owed Paid dividends Paid expenses Purchased supplies, on account
e.
Adjustment for cost of supplies used Earned fees from cash customers Earned fees on account Issued common stock in exchange for cash Paid cash to creditors for amounts owed Paid dividends Paid expenses Purchased supplies, on account
f.
Adjustment for cost of supplies used Earned fees from cash customers Earned fees on account Issued common stock in exchange for cash Paid cash to creditors for amounts owed Paid dividends Paid expenses Purchased supplies, on account
g.
Adjustment for cost of supplies used Earned fees from cash customers Earned fees on account Issued common stock in exchange for cash Paid cash to creditors for amounts owed Paid dividends Paid expenses Purchased supplies, on account
h.
Adjustment for cost of supplies used Earned fees from cash customers Earned fees on account Issued common stock in exchange for cash Paid cash to creditors for amounts owed Paid dividends Paid expenses Purchased supplies, on account
b. What is the amount of the net income for March?
$fill in the blank 9
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Adjustment for Supplies
Answer each of the following independent questions concerning supplies and the adjustment for supplies for each entity’s first year of operations.
a. The balance in the supplies account, before adjustment at the end of the year, is $7,000. What is the amount of the adjustment if the amount of supplies on hand at the end of the year is $2,200?
$fill in the blank 1
b. The year-end supplies account balance is $1,300 while the supplies expense account year-end balance is $3,900. What was the amount of supplies purchased during the year?
$fill in the blank 2
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Effect of Omitting Adjustment
Accrued salaries of $6,750 owed to employees for December 30 and 31 were not considered Indicate which items will be erroneously stated because of the error on when preparing the financial statements for the year ended December 31, 20Y6. Indicate whether each of the items below will be overstated or understated as a result of the omission. Also indicate which financial statement is affected by each error.
Account Overstated/Understated Financial Statement Salary expense (or expenses)
overstated understated
Balance sheet Income statement
Net income
overstated understated
Balance sheet Income statement
Salaries payable (or liabilities)
overstated understated
Balance sheet Income statement
Stockholders’ equity (retained earnings)
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Quick ratio
The Gap Inc. (GPS) operates specialty retail stores under such brand names as GAP, Old Navy, and Banana Republic. The following asset and liability data (in millions) were adapted from recent financial statements.
Year 2 Year 1 Current assets: Cash $1,783 $1,783 Accounts receivable 282 335 Inventory 1,997 1,830 Prepaid and other current assets 506 367 Total current assets $4,568 $4,315 Total current liabilities $2,461 $2,453
1. Compute quick assets for Years 2 and 1.
Quick Assets Year 2 $fill in the blank 1million Year 1 $fill in the blank 2
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