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Revenue and Expenses

Recognition of concepts. Ron Carroll 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.
Amounts paid on June 30 for a 1-year insurance policy.

Pre­paid expense

Professional fees earned but not billed as of June 30.

Accrued revenue

Repairs to the firm’s copy machine, incurred and paid in June.

None of the foregoing

An advance payment from a client for a performance next month at a convention.

Unearned revenue

The payment in part (d) from the client’s point of view.

Pre­paid expense

Interest owed on the company’s bank loan, to be paid in early July.

Accrued revenue

The bank loan payable in part (f).

None of the foregoing

Office supplies on hand at year-end.

None of the foregoing

Understanding the closing process. Examine the following list of accounts:

Interest Payable
Accumulated Depreciation: Equipment

Alex Kenzy, Drawing
Accounts Payable

Service Revenue
Cash

Accounts Receivable
Supplies Expense

Interest Expense

Which of the preceding accounts

Appear on a post-closing trial balance?

Alex Kenzy, Drawing

Are commonly known as temporary, or nominal, accounts?

Service Revenue, Interest Expense, and Supplies Expense

Generate a debit to Income Summary in the closing process?

Service Revenue

Are closed to the capital account in the closing process?

Alex Kenzy, Drawing

Adjusting entries and financial statements. The following information pertains to Fixation Enterprises:

The company previously collected $1,500 as an advance payment for services to be rendered in the future. By the end of December, one third of this amount had been earned.
Fixation provided $2,500 of services to Artech Corporation; no billing had been made by December 31.
Salaries owed to employees at year-end amounted to $1,650.
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 Fixation’s headquarters, beginning on November 1.

Fixation’s accounting year ends on December 31.
Instructions
Analyze the five preceding cases individually and determine the following:

The type of adjusting entry needed at year-end (Use the following codes: A, adjust­ment 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).

The company previously collected $1,500 as an advance payment for services to be rendered in the future. By the end of December, one third of this amount had been earned.
B
Fixation provided $2,500 of services to Artech Corporation; no billing had been made by December 31.

D

Salaries owed to employees at year-end amounted to $1,650.

C

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.

D

The company paid $18,000 on October 1 of the current year to Vantage Property Management. The payment was for 6 months’ rent of Fixation’s headquarters, beginning on November 1.

A

The year-end journal entry to adjust the accounts.

Unearned revenue                   $500
Revenue                                              $500
Accrued revenue                     $2,500
Revenue                                  $2,500
Salaries expanse                      $1650
Accrued expenses                               $1650
Accrued revenue                                 $3,300
Supplies                                               $3,300
Prepaid expenses                                 $12,000
Rent expenses                                                 $6,000
Cash                                                    $18,000

The income statement impact of each adjustment (e.g., increases total revenues by $500)……………………………………………………..
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