29 Jun Question 1. Recognition of concepts. Jim Arm
Question
1. Recognition of concepts. Jim Armstrong operates a small company that books entertainers 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) prepaid 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
b Professional fees earned but not billed as of June 30
c Office supplies on hand at year-end
d An advance payment from a client for a performance next month at a convention
e The payment in part (d) from the client’s point of view
f Amounts paid on June 30 for a 1-year insurance policy
g The bank loan payable in part (a)
h Repairs to the firm’s copy machine, incurred and paid in June
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?
b. are commonly known as temporary, or nominal, accounts?
c. generate a debit to Income Summary in the closing process?
d. are closed to the capital account in the closing process?
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.
· Sally Corporation provided $1,500 of services to Artech Corporation; no billing had been made by December 31.
· Salaries owed to employees at year-end amounted to $1,000.
· 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.
· 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.
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