Accounting Answers

a. Wworks starts and completes nine more Web sites and bills clients for $5,400.

b. Wworks purchases supplies worth $150 on account.

c. At the beginning of Feb, Webworks had nineteen keyboards costing $117 each and ten flash drives costing $20 each. Webworks uses periodic FIFO to cost its inventory

d. On account, Wworks purchases seventy keyboards for $118 each and 100 of the new flash drives for $22 each.

e. On Feb 1, Wworks borrows $3,000 from Local Area Bank. The loan plus accrued interest will be repaid at the end of two years. The interest rate is 6 percent.

f. Wworks purchases new computer equipment for use in designing Web sites. The equipment costs $5,500 and was paid for in cash.

g. Wworks pays Nancy $800 for her work during the first three weeks of Feb.

h. Wworks sells 75 keyboards for $11,250 and ninety of the new flash drives for $2,700 cash.

i. Wworks collects $5,200 in accounts receivable.

A. Prepare journal entries

Ray’s GamePlace sells all the hottest gear and video games. On January 1, 20X7, Ray’s had the following account balances:

Accounts receivable $ 27000

Less Allowance for bad debt (4000)

net accounts receivable 23000

1.

During 20X7, Ray’s wrote off $6,000 in uncollectible accounts. Make this journal entry.

2.

One account in the amount of $500 that had been written off in (a) above was collected. Make the journal entries to reinstate the account and show its collection.

3.

During 20X7, Ray’s made credit sales of $145,000 and collected $115,000 of accounts receivable. Record these journal entries.

4.

At the end of the year, Ray’s determines that approximately 7 percent of its ending accounts receivable balance will not be collected. Ray’s uses the percentage of receivables method of calculating bad debts. Make the necessary journal entry.

Assume that Nuance in number 1 above used the percentage of receivables method to estimate uncollectible accounts instead of the percentage of sales method. Nuance assumes that 5 percent of accounts receivable will never be collected.

1.

Prepare the entry to record Nuance’s bad debt expense for the year.

2.

Show how the net accounts receivable balance would be reported on the balance sheet.

3.

Why are companies allowed to choose between methods of estimating bad debts instead of being required to use one method?

Nuance Company had net credit sales for the year of $500,000. Nuance estimates that 2 percent of its net credit sales will never be collected.

1.

Prepare the entry to record Nuance’s bad debt expense for the year.

2.

Nuance had accounts receivable of $100,000 at the end of the year. Show how the net accounts receivable balance would be reported on the balance sheet. Assume that the allowance for doubtful accounts had a beginning balance of zero.

3.

Why is A/R shown at net rather than just showing the full amount?

12. Kevin decides to expand outside the college. On the first day of the month, KKCDK pays $20 in advance for advertising in the local paper. The advertisements will run during February and March.

13. The student groups paid for the 100 CDs not paid for in January.

14. KKCDK paid off its remaining accounts payable, salaries payable, taxes payable and interest payable.

15. KKCDK purchases 450 CDs for $135 on account.

16. KKCDK sells 500 CDs during the month for $0.80 each. KKCDK receives cash for 450 of them and is owed for the other 50.

17. KKCDK completes and delivers the advanced order of 50 CDs described in number 8 above.

18. KKCDK incurs $80 in tax expense. The taxes will be paid in March.

Required:

G. Prepare journal entries for the above events if needed.

H. Post the journal entries to the T-accounts.

I. Prepare an unadjusted trial balance for KKCDK for February.

J. Prepare adjusting entries for the following and post them to your T-accounts.

1. Kevin deposits $500 of his own money into the company’s checking account.

2. Kevin signs a note payable in the amount of $1,000 from Bank. The note is due in one year.

3. KKCDK (Kevin’s Kool CD Kopies) purchases a CD duplicator , which can copy seven CDs at one time. The cost is $1,300 and he pays cash.

4. KKCDK purchases 500 blank CDs for $150 on account.

5. KKCDK pays $20 cash for flyers to advertise.

6. KKCDK quickly catches on with the student groups on campus. KKCDK sells 400 CDs to various groups for $0.80 per CD. KKCDK receives cash payment for 300 of the CDs and the student groups owe for the other 100 CDs.

7. KKCDK pays $100 on its accounts payable.

8. KKCDK receives $40 in advance to copy 50 CDs for a student group. He will not begin work on the project until Feb

9. KKCDK incurs $40 in tax expense. The taxes will be paid in Feb

A. Prepare journal entries for the above events if needed.

B. prepare T-accounts.

C. Prepare an unadjusted trial balance for KKCDK for January

Jan Haley owns and operates Haley’s Dry Cleaners. The following occurred during December:

a. On December 1, Haley prepaid rent on her store for December and January with $2,000 cash.

b. On December 1, Haley purchased insurance with cash in the amount of $2,400 that will last six months.

c. Haley paid $900 of her accounts payable balance.

d. Haley paid off all of her salaries payable balance.

e. Haley purchased supplies on account in the amount of $2,400.

f. Haley paid a salary to her assistant of $1,000 in cash for work done in the first two weeks of December.

g. Haley dry-cleaned clothes for customers on account in the amount of $8,000.

h. Haley collected $6,300 of her accounts receivable balance.

i. Haley paid tax of $750 in cash.

Required:

A. Prepare the journal entry for each transaction.

B. Prepare all necessary T-accounts.

a. W works signs a note at the bank and is given $10,000 cash.

b. Leon deposits $2,000 of his own money into Webworks’s checking account.

c. W works purchases a new computer and additional equipment for $3,000.

d. W works purchases supplies worth $200 on account that should last W works two months.

e. W works hires Nancy Po to assist with admin tasks. She will charge $100 per Web site for her assistance.

f. W works begins working on his first two Web sites, one for Juan Sanchez, a friend of his dad’s and the other for Pauline Smith, a local businesswoman.

g. W works completes the site for Mr. Sanchez and sends him a bill for $600.

h. W works completes the site for Ms. Smith and sends her a bill for $450.

i. W works collects $600 in cash from Mr. Sanchez.

j. W works pays Nancy $100 for her work on Mr. Sanchez’s Web site.

k. W works receives $500 in advance to work on a Web site t. Work on the site will not begin until July.

l. W works pays taxes of $200 in cash.

A. Prepare journal entries

Determine if the following adjusting entries are

◦

accrued expense (AE)

◦

prepaid expense (PE)

◦

accrued revenue (AR)

◦

unearned revenue (UR)

1.

_____ Atlas Magazine was previously prepaid $400,000 by subscribers and has delivered half of the magazines ordered.

2.

_____ Hornsby Company agreed to provide 1,000 units of its product to Michaels Inc. and has substantially completed the agreement.

3.

_____ Nancy and Sons owes its employees $30,000 for work done over the past two weeks.

4.

_____ Replay Inc. advertised on TV 44 during the month of April, but has not yet made an entry to record the event.

5.

_____ Centurion Company paid Reliable Insurance Company $54,000 for insurance for twelve months, six of which have passed.

6.

_____ Reliable Insurance Company received a payment of $54,000 for insurance for twelve months from Centurion Company and six months have passed.

Determine if the following transactions for Marlin Corporation require an adjustment or not. If an adjusting entry is required, give the correct entry.

1.

At the beginning of the month, Marlin agreed to perform services for the next three months for Catsui Corporation for $30,000 per month. Catsui paid Marlin $90,000 in advance. One month has now passed.

2.

Marlin pays its employees every two weeks. At the end of the month, Marlin owes its employees $480,000, but will not pay them until the following week.

3.

Marlin paid $300,000 for rent at the beginning of the month by debiting prepaid rent and crediting cash. The $300,000 covered six months of occupancy, but only one month has passed.

4.

At the beginning of the month, Marlin agreed to perform services for Ryland Company for

127 Financial Accounting

$16,000 per month for the next six months. Ryland has not yet paid any cash to Marlin and the work is not substantially complete.