Busi 2221 Fall 2020 Chapter 3 Handout Assignment Name: __________________________ Date: _____________ 1. The following ledger accounts are used by the Shawanda Race Track: Cash Accounts Receivable Prepaid Printing Prepaid Rent Unearned Admissions Revenue Note Payable Interest payable Admissions Revenue Concessions Revenue Interest Expense Printing Expense Rent Expense Instructions For each of the transactions below, prepare the journal entry (if one is required) to record the initial transaction and then prepare the adjusting entry, if any, required on November 30, the end of the fiscal year. a) On November 1, paid rent on the track facility for three months, $105,000. b) On November 1, sold season tickets for admission to the racetrack. The racing season is year-round with 25 racing days each month. Season ticket sales totalled $900,000. c) On November 1, borrowed $150,000 from their bank by issuing a 6% note payable due in three months. Interest is payable at maturity. d) On November 5, schedules for 20 racing days in November, 25 racing days in December and 15 racing days in January were printed for $3,000. e) The accountant for the concessions company reported that gross receipts for November were $140,000. Ten percent is due to Shawanda and will be remitted by December 10. Page 1 2. The Larson Company prepared the following income statement using the cash basis of accounting: THE LARSON COMPANY Income Statement, Cash Basis Year Ended December 31, 2017 Service revenue Expenses Profit $460,000 220,000 $240,000 Additional data: 1. Service revenue includes $40,000 collected from a customer for whom services were provided in 2016, and who was billed in 2016. 2. There are an additional $15,000 of expenses that were incurred on account, for which payment will not be made until 2018. 3. Depreciation on a company automobile for the year amounted to $7,000. This amount is not included in the expenses above. 4. On December 1, 2017, paid $1,600 for two months' rent (December and January). This amount is included in the expenses above. Instructions a) Prepare Larson's income statement on the accrual basis in conformity with generally accepted accounting principles. Show calculations and explain each change. b) Explain which basis (cash or accrual) provides a better measure of profit. Page 2 E49:07 10 14 DE 100% Accounting Principles, Volume 1, Canadian Edition, 8th Edition Aa 7 an Taking It Further Could Burke Bros. avoid the need to record adjusting entries by originally recording items 1 through 4 as expenses, and items 5 and 6 as revenues? Explain. P3.3B (LO 3) AP Burke Bros. records adjusting entries on an annual basis. The company has the following information available on accruals that must be recorded for the year ended December 31, 2021: Prepare entries for accrual adjustments and subsequent cash transactions. 1. Burke Bros. has a $40,000,5.5% note payable. Interest is payable on a monthly basis on the first of the month. Assume that Burke Bros. made the correct interest payment on December 1, 2021, and January 1, 2022. 2. Burke Bros. pays its employees a total of $7,500 every second Monday for work completed the two preceding weeks. Employees work a five-day week, Monday to Friday, and are paid for all statutory holidays. December 31, 2021, is a Friday. Employees were paid on Monday, December 20, 2021, and will be paid again on Tuesday, January 4, 2022. 3. Burke Bros. owns drilling equipment, which it rents to customers for $1,200 per day. On December 31, 2021, a customer has had the equipment for 10 days. Burke Bros. billed the customer for 15 days when the equipment was returned on January 5, 2022. The customer paid the full amount that day. 4. Burke Bros. received the $290 December telephone bill on January 5, 2022. The bill was paid on January 9, 2022. 5. Burke Bros. has a $10,000, 7% note receivable with a customer. Interest is receivable every six months on October 31 and April 30. Assume the customer makes the correct payment to Burke Bros. on April 30, 2021, and October 31, 2021. Instructions For each of the above items, do the following: a. Prepare the adjusting journal entry required on December 31, 2021. b. Prepare the journal entry to record the related cash transaction in 2022. Assume all payments and receipts are made as indicated. Taking It Further Indicate which elements in the financial statements (assets, liabilities, owner's equity, revenue, expenses, and profit) would be either understated or overstated at December 31, 2021, if the accounts were not adjusted. Do AB (100 AP Sam Ruadev started his own avale renain shon Samiveles on Sentember 1 0001 Sam wants to renare monthly financial K .. 3-49 B-4
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