Traditonal Homework #2

Adrianna Hatcher

6. (0.5 point each) Prepare the Adjusting Journal Entries (AJEs) that should be made on December 31, 2011, the end of the accounting year, for each of the following independent situations. If no AJE is required, indicate none. Assume the firm only makes AJEs at the end of the accounting year. a. On October 31, 2011, the firm paid $60,000 for a 6-month insurance policy. The journal entry to record the October 31 payment included a debit to a permanent (asset) account. AJE 12/31/11 EX Expense 20,000 A Prepaid Insurance 20,000 b. On August 1, 2011, the firm paid $80,000 for an 8-month rental of a machine. The journal entry to record the payment included a debit to a temporary (expense) account. AJE 12/31/11 A Prepaid 50,000 EX Expense 50,000 c. On December 1, 2011, the firm collected $24,000 of rent for 3 months in advance. The journal entry to record the receipt included a credit to a liability (permanent) sheet account. AJE 12/31/11 L Unearned 8,000 R Revenue 8,000 d. On March 1, 2011, the firm collected $84,000 of rent for 12 months in advance. The journal entry to record the receipt included a credit to a revenue (temporary) sheet account. AJE 12/31/11 R Revenue 21,000 L Unearned 21,000 e. On September 30, 2011, the firm borrowed $2,000,000 at 4% from Sixth National Bank. The firm will repay the $2,000,000 on October 1, 2014. The firm will pay the interest on the loan annually and the first interest payment will be October 1, 2012. AJE 12/3/11 EX Expense 20,000(2,000,000)*4%*3/12 L Payable 20,000 f. On August 1, 2011, the firm invested in a 3-year, 5%, $750,000 bond. The company will receive interest on the bond annually with the first interest receipt occurring on July 31, 2012. AJE 12/31/11 A Receivable 15625 (750,000*5%*5/12) L Revenue 15625 7. (0.5 point each) Prepare the Adjusting Journal Entries (AJEs) that should be made on September 30, 2011, the end of the accounting year, for each of the following independent situations. If no AJE is required, indicate none. Assume the firm only makes AJEs at the end of the accounting year. A. On December 1, 2010, the firm collected $120,000 of rent for 12 months in advance. The journal entry to record the receipt included a credit to a liability account. AJE 9/30/11 R REVENUE L UNEARNED B. On August 1, 2011, the firm collected $48,000 of rent for 6 months in advance. The journal entry to record the receipt included a credit to an income statement account. AJE 9/30/11 L UNEARNED 40,000 R REVENUE 40,000 C. On July 1, 2011, the firm collected $7,500 of rent for 3 months in advance. The journal entry to record the receipt included a credit to a temporary account. AJE 9/30/11 NONE

Traditonal Homework #2

Adrianna Hatcher

On March 31, 2011, the firm collected $15,000 of rent for 3 months in advance. The journal entry to record the receipt included a credit to a permanent account. AJE 9/30/11 NONE D. On August 1, 2011, the company borrowed $4,000,000 for 1 year at 6%. Interest and principle are due and payable on July 31, 2012. AJE 9/30/11 EX EXPENSE (4,000,000*6%*2/12) 40,000 L PAYABLE 40,000 E. On April 30, 2011, the company borrowed $1,500,000 for five months at 4%. The principle is due on October 1, 2011. The interest is due every month and the first interest payment will take place on June 1, 2011. AJE 9/30/11 NONE F. On January 1, 2009, the company borrowed $25,000,000 for 5 years at 2%. Interest is due and payable every quarter and the first interest payment will take place on April 1, 2011. The principle is payable in five equal installments and the first principle payment took place on January 1, 2010. AJE 9/30/11 EX EXPENSE (25,000,000*4%*9/12) 750,000 L PAYABLE 750,000 G. On January 31, 2011, the firm paid $36,000 for a 12-month equipment rental. The journal entry to record the payment included a debit to a balance sheet account. AJE 9/30/11 A PREPAID 21,000 EX EXPENSE 21,000 H. On March 1, 2011, the firm paid $48,000 for a 3-month machinery rental. The journal entry to record the payment included a debit to a temporary account. AJE 9/30/11 NONE I. On September 1, 2011, the firm paid $60,000 for a 6-month photocopy machine rental. The journal entry to record the payment included a debit to a temporary account. AJE 9/30/11 A PREPAID 10,000 EX EXPENSE 10,000 8. (2 points) Included in John Inc.s June 30, 2011 trial balance was a note payable for $1,500,000. The note was a 10-month, 5% note dated May 1, 2011. Interest on the note will be paid when the note matures on February 28, 2012. Prepare Johns December 31, 2011 adjusting journal entry (AJE) to record accrued interest expense. In addition, prepare Johns February 28, 2012 journal entry to record the payment of the note and the interest. Assume John only makes AJEs every December 31 AND John does NOT making reversing entries. AJE 12/31/11 EX EXPENSE (1,500,000*5%*8/12) 50,000 L PAYABLE 50,000 9. (2 points) Big-Mouth Frog Corporation had revenues of $500,000 and expenses of $550,000. A. Assume Big-Mouth uses an income summary account. Prepare the entries Big-Mouth would make to close out the temporary accounts into the income summary account AND the income summary account into the retained earnings account. R Revenues $500,000 EX Expenses 550,000 EQ Income summary (50,000) EQ Income summary (50,000)
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Traditonal Homework #2

Adrianna Hatcher

EQ Retained earnings (50,000) B. Assume Big-Mouth does NOT use an income summary account but instead, closes temporary account balances directly into retained earnings. Prepare the entry Big-Mouth would make to close out the temporary accounts into the retained earnings account R Revenues $500,000 EX Expenses $550,000 EQ Retained earnings (50,000)