Concept explainers
Reliable Repairs & Service, an electronics repair store, prepared the following unadjusted
Reliable Repairs & Service Unadjusted Trial Balance April 30,2018 | ||
Debit Balances | Credit Balances | |
Cash | 10,350 | |
Accounts Receivable | 67,500 | |
Supplies | 16,200 | |
Equipment | 116,100 | |
Accounts Payable | 15,750 | |
Unearned Fees | 18,000 | |
Common Stock | 10,000 | |
111,500 | ||
Dividends | 13,500 | |
Fees Earned | 294,750 | |
Wages Expense | 94,500 | |
Rent Expense | 72,000 | |
Utilities Expense | 51,750 | |
Miscellaneous Expense | 8,100 | |
450,000 | 450,000 |
For preparing the adjusting entries, the following data were assembled:
- Fees earned but unbilled on April 30 were $9,850.
- Supplies on hand on April 30 were $4,660.
- Depreciation of equipment was estimated to be $6,470 for the year.
- The balance in unearned fees represented the April 1 receipt in advance for services to be provided. During April, $15,000 of the services were provided.
- Unpaid wages accrued on April 30 were $5,200.
Instructions
- 1. Journalize the adjusting entries necessary on April 30, 2018.
- 2. Determine the revenues, expenses, and net income of Reliable Repairs & Service before the adjusting entries.
- 3. Determine the revenues, expense, and net income of Reliable Repairs & Service after the adjusting entries.
- 4. Determine the effect of the adjusting entries on Retained Earnings.
1.
Adjusting Entries
Adjusting entries indicates those entries, which are passed in the books of accounts at the end of one accounting period. These entries are passed in the books of accounts as per the revenue recognition principle and the expenses recognition principle to adjust the revenue, and the expenses of a business in the period of their occurrence.
Adjusted Trial Balance
Adjusted trial balance is a trial balance prepared at the end of a financial period, after all the adjusting entries are journalized and posted. It is prepared to prove the equality of the total debit and credit balances.
Rule of Debit and Credit:
Debit - Increase in all assets, expenses & dividends, and decrease in all liabilities and stockholders’ equity.
Credit - Increase in all liabilities and stockholders’ equity, and decrease in all assets & expenses.
To record: The adjusting entries on April 30, 2019 of R Repairs and Services.
Explanation of Solution
The following entry shows the adjusting entry for accrued fees unearned on April 30.
Date | Account Titles and Explanation | Debit ($) | Credit ($) |
April 30 | Accounts Receivable | 9,850 | |
Fees earned | 9,850 | ||
(To record the accounts receivable at the end of the year.) |
Table (1)
The impact on the accounting equation for the above referred adjusting entry is as follows:
- Accounts Receivable is an asset, and it is increased by $9,850. So debit Accounts receivable by $9,850.
- Fees earned are component of stockholders’ equity and increased it by $9,850. So credit fees earned by $9,850.
The following entry shows the adjusting entry for supplies on April 30.
Date | Account Titles and Explanation | Debit ($) | Credit ($) |
April 30 | Supplies Expense (1) | 11,540 | |
Supplies | 11,540 | ||
(To record the supplies expense at the end of the accounting period) |
Table (2)
The impact on the accounting equation for the above referred adjusting entry is as follows:
- Supplies expense is a component of stockholders’ equity, and it decreased the stockholders’ equity by $11,540. So debit supplies expense by $11,540.
- Supplies are an asset for the business, and it is decreased by $11,540. So credit supplies by $11,540.
Working Note:
Calculation of fees earned for the accounting period
The adjusting entry for recording depreciation is as follows:
Date | Account Titles and Explanation | Debit ($) | Credit ($) |
April 30 | Depreciation expense | 6,470 | |
Accumulated Depreciation | 6,470 | ||
(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:
- Depreciation expense is component of stockholders’ equity and decreased it, so debit depreciation expense by $6,470.
- Accumulated depreciation is a contra asset account, and it decreases the asset value by $6,470. So credit accumulated depreciation by $6,470.
The following entry shows the adjusting entry for unearned fees on April 30.
Date | Account Titles and Explanation | Debit ($) | Credit ($) |
April 30 | Unearned Fees | 15,000 | |
Fees earned | 15,000 | ||
(To record the fees earned from services at the end of the accounting period.) |
Table (4)
The impact on the accounting equation for the above referred adjusting entry is as follows:
- Unearned fees are a liability, and it is decreased by $15,000. So debit unearned rent by $15,000.
- Fees earned are a component of Stockholders’ equity, and it is increased by $15,000. So credit rent revenue by $15,000.
The following entry shows the adjusting entry for wages expense on April 30.
Date | Account Titles and Explanation | Debit ($) | Credit ($) |
April 30 | Wages expenses | 5,200 | |
Wages Payable | 5,200 | ||
(To record the wages accrued but not paid at the end of the accounting period.) |
Table (5)
The impact on the accounting equation for the above referred adjusting entry is as follows:
- Wages expense is a component of Stockholders ‘equity, and it decreased it by $5,200. So debit wage expense by $5,200.
- Wages Payable is a liability, and it is increased by $5,200. So credit wages payable by $5,200.
2.
The revenues, expenses and net income of R Repairs and Services before adjusting entries
Answer to Problem 3.3APR
The revenues, expenses and net income before adjusting entries of R Repairs and Services are stated below:
- Revenue = $294,750 (given)
- Expenses = $226,350 (W.N-1)
- Net income = $68,400 (W.N-2)
Explanation of Solution
Working Notes:
W.N-1
Calculation of expenses before adjusting entries:
W.N-2
Calculation of net income before adjusting entries
Hence, the revenues, expenses and net income of R Repairs and Services are $294,750, $226,350 and $68,400 respectively.
3.
The revenues, expenses and net income of R Repairs and Services after adjusting entries
Answer to Problem 3.3APR
The revenues, expenses and net income after adjusting entries of R Repairs and Services are stated below:
- Revenue = $318,630 (W.N-4)
- Expenses = $254,655 (W.N-3)
- Net income = $63,975 (W.N-5)
Explanation of Solution
Working Notes:
W.N-3
Calculation of expenses after adjusting entries:
W.N-4
Calculation of revenue after adjusting entries
W.N-5
Calculation of net income after adjusting entries
Hence, the revenues, expenses and net income of R Repairs and Services are $318,630, $254,655 and $63,975 respectively.
4.
The effect of the adjusting entries on the retained earnings of R Repairs and Services.
Answer to Problem 3.3APR
The retained earnings will be increased by $1,640 after the adjusting entry.
Explanation of Solution
Due to the adjusting entry there is an increase in the net income of $1,640
Want to see more full solutions like this?
Chapter 3 Solutions
Corporate Financial Accounting
- As Perry Materials Supply was preparing for the year-end close, their balances were as follows: Accounts Receivable - $146000 (dr) Allowance for uncollectible accounts - $6200 (dr) Uncollected Account Expense - $0 Perry Materials uses the aging method and has completed the following analysis of the accounts receivable: Customer 1-30 Days 31-60 Days 61-90 Days Over 90 Days Total Balance Johnson $4,600 $3,200 $7,800 Hot Pots, Inc. 800 1,000 1,800 Potter 40,000 550 40,550 Harrison 3,600 900 4,500 Marx 2,000 50 2,050 Younger 65,000 65,000 Merry Maids 5,900 5,900 Acher 12,000 6,400 18,400 Totals $127,500 $13,750 $3,700 $1,050 $146,000 Uncollectible percentage 2% 10% 20% 40% Estimated uncollectible amount $2,550 $1,375 $740 $420 $5,085 Required: How much will the…arrow_forwardThe following summarizes the aging of accounts receivable for Orange Incorporated as of July 31, Year 1: Number of Days Unpaid Not yet due 1 to 30 days past due 31 to 60 days past due Over 60 days past due Total Accounts Receivable 11.130 $ 175,982 89,200 53,600 31,800 Historical % Uncollectible 17,424 margin of error +/-3 www. 29 12% 18% The unadjusted balance of the Allowance for Doubtful Accounts of Orange Incorporated is a credit balance in the amount of $17.578 on July 31, Year 1. What is the amount of the adjusting entry to be recorded on July 31 Year 17 35%arrow_forwardTaylor R incorporation reported the following balances after adjustment at the end of 2020 and 2019. total accounts receivable 2020 100,000 2019 95,000 net accounts receivable 2020 75,000 2019 85,000 During 2020 Taylor road of customer accounts, totaling 3000 and collected 750 on accounts written off In previous years, tailors doubtful accounts expense for the year ending December 3120 20 Isarrow_forward
- The unadjusted trial balance of Fortune Company included the following accounts: Debit $ Sales (80% on credit) for the year ended 31 Dec 2023 Credit $ 900,500 Accounts Receivable 31 Dec 2023 209,070 Allowance for Impairment 1 Jan 2023 3,500 The aging of accounts receivable produced the following five groupings. Days Past Due Amount Estimated Uncollectible % of Not yet due 85,000 1% 1-30 days past due 56,000 3% 31-60 days past due 33,500 5% 61-90 days past due 18,570 10% Over 90 days past due 16,000 15% Required: Prepare the adjusting entries to record the impairment loss of receivable for the year 2023. If Fortune Company: (a) (b) uses the Statement of Financial Position Approach to estimate the uncollectible accounts. Show your workings. uses the Income Statement Approach to estimate the uncollectible accounts, and it is expected that 1% of the net credit sales for the year will be uncollectible.arrow_forwardplease answer within the format by providing formula the detailed workingPlease provide answer in text (Without image)Please provide answer in text (Without image)Please provide answer in text (Without image) On December 31, a company has outstanding accounts receivable of $69,000, and it estimates that 3% of its receivables will be uncollectible. Prepare the adjusting journal entry at year-end to record bad debts expense if the Allowance for Doubtful Accounts has a: $1,173 credit balance before the adjustment. $345 debit balance before the adjustment.arrow_forwardCasebolt Company wrote off the following accounts receivable as uncollectible for the first year of its operations ending December 31: a. Journalize the write-offs under the direct write-off method. b. Journalize the write-offs under the allowance method. Also, journalize the adjusting entry for uncollectible accounts. The company recorded 5,250,000 of credit sales during the year. Based on past history and industry averages, % of credit sales are expected to be uncollectible. c. How much higher (lower) would Casebolt Companys net income have been under the direct write-off method than under the allowance method?arrow_forward
- Aging of receivables; estimating allowance for doubtful accounts Wig Creations Company supplies wigs and hair care products to beauty salons throughout Texas and the Southwest. The accounts receivable clerk for Wig Creations prepared the following partially completed aging of receivables schedule as of the end of business on December 31, 20Y7: The following accounts were unintentionally omitted from the aging schedule. Assume all due dates are for the current year except for Visions Hair Nail, which is due in the next year. Wig Creations has a past history of uncollectible accounts by age category, as follows: Instructions 1. Determine the number of days past due for each of the preceding accounts. 2. Complete the aging of receivables schedule by adding the omitted accounts to the bottom of the schedule and updating the totals. 3. Estimate the allowance for doubtful accounts, based on the aging of receivables schedule. 4. Assume that the allowance for doubtful accounts for Wig Creations has a credit balance of 7,375 before adjustment on December 31. Journalize the adjustment for uncollectible accounts. 5. Assume that the adjusting entry in (4) was inadvertently omitted, how would the omission affect the balance sheet and income statement?arrow_forwardUNCOLLECTIBLE ACCOUNTSALLOWANCE METHOD Lewis Warehouse used the allowance method to record the following transactions, adjusting entries, and closing entries during the year ended December 31, 20--: Selected accounts and beginning balances on January 1, 20--, are as follows: REQUIRED 1. Open the three selected general ledger accounts. 2. Enter the transactions and the adjusting and closing entries in a general journal (page 6). After each entry, post to the appropriate selected accounts. 3. Determine the net realizable value as of December 31, 20--.arrow_forwardUNCOLLECTIBLE ACCOUNTSPERCENTAGE OF SALES AND PERCENTAGE OF RECEIVABLES At the completion of the current fiscal year ending December 31, the balance of Accounts Receivable for Andersons Greeting Cards was 180,000. Credit sales for the year were 1,950,000. REQUIRED Make the necessary adjusting entry in general journal form under each of the following assumptions. Show calculations for the amount of each adjustment and the resulting net realizable value. 1. Allowance for Doubtful Accounts has a credit balance of 2,600. (a) The percentage of sales method is used and bad debt expense is estimated to be 1.5% of credit sales. (b) The percentage of receivables method is used and an analysis of the accounts produces an estimate of 30,250 in uncollectible accounts. 2. Allowance for Doubtful Accounts has a debit balance of 1,900. (a) The percentage of sales method is used and bad debt expense is estimated to be 1.0% of credit sales. (b) The percentage of receivables method is used and an analysis of the accounts produces an estimate of 20,500 in uncollectible accounts.arrow_forward
- UNCOLLECTIBLE ACCOUNTSPERCENTAGE OF SALES AND PERCENTAGE OF RECEIVABLES At the end of the current year, the accounts receivable account of Glenns Nursery Supplies has a debit balance of 390,000. Credit sales are 2,800,000. Record the end-of-period adjusting entry on December 31, in general journal form, for the estimated uncollectible accounts. Assume the following independent conditions existed prior to the adjustment: 1. Allowance for Doubtful Accounts has a credit balance of 1,760. (a) The percentage of sales method is used and bad debt expense is estimated to be 1% of credit sales. (b) The percentage of receivables method is used and an analysis of the accounts produces an estimate of 30,330 in uncollectible accounts. 2. Allowance for Doubtful Accounts has a debit balance of 1,900. (a) The percentage of sales method is used and bad debt expense is estimated to be of 1% of credit sales. (b) The percentage of receivables method is used and an analysis of the accounts produces an estimate of 29,890 in uncollectible accounts.arrow_forwardUNCOLLECTIBLE ACCOUNTSPERCENTAGE OF SALES AND PERCENTAGE OF RECEIVABLES At the completion of the current fiscal year ending December 31, the balance of Accounts Receivable for Yangs Gift Shop was 30,000. Credit sales for the year were 355,200. REQUIRED Make the necessary adjusting entry in general journal form under each of the following assumptions. Show calculations for the amount of each adjustment and the resulting net realizable value. 1. Allowance for Doubtful Accounts has a credit balance of 330. (a) The percentage of sales method is used and bad debt expense is estimated to be 2% of credit sales. (b) The percentage of receivables method is used and an analysis of the accounts produces an estimate of 6,950 in uncollectible accounts. 2. Allowance for Doubtful Accounts has a debit balance of 400. (a) The percentage of sales method is used and bad debt expense is estimated to be 1.5% of credit sales. (b) The percentage of receivables method is used and an analysis of the accounts produces an estimate of 5,685 in uncollectible accounts.arrow_forwardUNCOLLECTIBLE ACCOUNTSPERCENTAGE OF SALES AND PERCENTAGE OF RECEIVABLES At the end of the current year, the accounts receivable account of Parkers Nursery Supplies has a debit balance of 350,000. Credit sales are 2,300,000. Record the end-of-period adjusting entry on December 31, in general journal form, for the estimated uncollectible accounts. Assume the following independent conditions existed prior to the adjustment: 1. Allowance for Doubtful Accounts has a credit balance of 1,920. (a) The percentage of sales method is used and bad debt expense is estimated to be 1% of credit sales. (b) The percentage of receivables method is used and an analysis of the accounts produces an estimate of 24,560 in uncollectible accounts. 2. Allowance for Doubtful Accounts has a debit balance of 1,280. (a) The percentage of sales method is used and bad debt expense is estimated to be of 1% of credit sales. (b) The percentage of receivables method is used and an analysis of the accounts produces an estimate of 22,440 in uncollectible accounts.arrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningCentury 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:Cengage
- Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,