Generally Accepted Accounting Principles and Net Realizable Value Essay

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Michael Thomas
Week 2 Assignment ACC205: Principles of Accounting
October 20, 2014

Week Two Exercise Assignment
Revenue and Expenses

1. Recognition of concepts. Jim Armstrong operates a small company that books enter¬tainers for theaters, parties, conventions, and so forth. The company’s fiscal year ends on June 30. Consider the following items and classify each as either (1) pre¬paid expense, (2) unearned revenue, (3) accrued expense, (4) accrued revenue, or (5) none of the foregoing. a Interest owed on the company's bank loan, to be paid in early July Accrued Expense b Professional fees earned but not billed as of June 30 Accrued Revenue c Office supplies on hand at year-end None of the foregoing d An advance payment from a client for a performance next month at a convention Unearned Revenue e The payment in part (d) from the client's point of view Prepaid Expense f Amounts paid on June 30 for a 1-year insurance policy Prepaid Expense g The bank loan payable in part (a) None of the Foregoing h Repairs to the firm's copy machine, incurred and paid in June None of the foregoing

2. Understanding the closing process. Examine the following list of accounts:
Note Payable Accumulated Depreciation: Building
Alex Kenzy, Drawing Accounts Payable
Product Revenue Cash
Accounts Receivable Supplies Expense
Utility Expense

Which of the preceding accounts
a. appear on a post-closing trial balance?
Note Payable, Accounts Receivable, Accumulated Depreciation: Building, Accounts Payable, and Cash
b. are commonly known as temporary, or nominal, accounts?
Product, Revenue, Supplies Expense, and Utility Expense
c. generate a debit to Income Summary in the closing process?
Utility Expense and Supplies Expense
d. are closed to the capital account in the closing process?
Alex Kenzy, Drawing

3. Adjusting entries and financial statements. The following information pertains to Sally Corporation:
• The company previously collected $1,500 as an advance payment for services to be rendered in the future. By the end of December, one half of this amount had been earned. B
• Sally Corporation provided $1,500 of services to Artech Corporation; no billing had been made by December 31. A
• Salaries owed to employees at year-end amounted to $1,000. D
• The Supplies account revealed a balance of $8,800, yet only $3,300 of supplies were actually on hand at the end of the period. C
• The company paid $18,000 on October 1 of the current year to Vantage Property Management. The payment was for 6 months’ rent of Sally Corporation’s headquarters, beginning on November 1. C
Sally Corporation’s accounting year ends on December 31.
Analyze the five preceding cases individually and determine the following:
a. The type of adjusting entry needed at year-end (Use the following codes: A, adjust¬ment of a prepaid expense; B, adjustment of an unearned revenue; C, adjustment to record an accrued expense; or D, adjustment to record an accrued revenue.)
b. The year-end journal entry to adjust the accounts:

PART B Case Account Description Debit Credit
1 Unearned Revenue $750 Service Revenue $750 1500 x 1/2 = 750 2 Accounts Receivable $1,500 Service Revenue $1,500 3 Salaries Expense $1,000 Salaries Payable $1,000 4 Supplies Expense $5,500 Supplies $5,500 8800 – 3300 = 5500 5 Rent Expense $6,000 Prepaid Rent $6,000 18000 x 2/6 = 6000

c. The income statement impact of each adjustment (e.g., increases total revenues by $500)
1. Increases the total revenues by $ 750
2. Increases the total revenues by $ 1,500
3. Increases the total expenses by $ 1,000
4. Increases the total expenses by $ 5,500
5. Increases the total expenses by $ 6,000

4. Adjusting entries. You have been retained to examine the records