Problem 1-Adjusting the Books Using Adjusting Entries Huntington Company's annual accounting...
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Problem 1: Adjusting the Books Using Adjusting Entries
Huntington Company's annual accounting year ends on December 31. It is December 31, 2012, and all of the 2012 entries except the following adjusting entries have been made:
- a. On September 1, 2012, Huntington collected six months of rent worth $9,000 on storage space. At that date, cash was debited and unearned rent revenue was credited for $9,000.
- b. On October 1, 2012, the company borrowed $30,000 from a local bank and signed a 12 percent note for that amount. The principal and interest are payable on the maturity date, September 30, 2013.
- c. Depreciation of $5,000 must be recognized on a service truck purchased on July 1, 2012, at a cost of $30,000.
- d. Cash of $4,800 was collected on November 1, 2012, for services to be rendered evenly over the next year beginning on November 1. Unearned service revenue was credited when the cash was received.
- e. On November 1, 2012, Huntington paid a one-year premium for fire insurance of a total of $12,000 for one year of coverage starting on that date. Cash was credited and prepaid insurance was debited for this amount.
- f. The company earned service revenue of $6,000 on a special job that was completed December 24, 2012. Collection will be made during January 2013. No entry has been recorded.
- g. At December 31, 2012, wages earned by employees totaled $17,500. The employees will be paid on the next payroll date, January 15, 2013.
- h. On December 31, 2012, the company estimated it owed $16,000 for 2012 property taxes on land. The tax will be paid when the bill is received in January 2013.
Using the information above, prepare the adjusting entry required for each transaction at December 31, 2012.
To complete this problem, you may choose to use the Assessment 3, Problem 1 Template, which is linked in the Suggested Resources under the Capella Resources heading.
Problem 2: Analyzing the Effects of Adjusting Entries on the Accounting Model
To complete this problem, you will need to refer to Problem 1.
Indicate in a table format the effect of each adjusting entry in Problem 1 (a through h) and the amount of the effect. Use + for increase, - for decrease, and NE for no effect.
This problem is built around the following formulas and concepts:
- Assets = Liabilities + Stockholders' Equity.
- Revenues - Expenses = Net Income.
- Net Income accounts are closed to Retained Earnings, a part of Shareholders' Equity.
It is recommended that you use the Assessment 3, Problem 2 Template