Milbank Repairs & Service, an electronics repair store, prepared the following unadjusted trial balance at the end of its first year of operations:

Milbank  Repairs & Service, an electronics repair store, prepared the following unadjusted trial balance at the end of its first year of operations:

Milbank Repairs & Service Unadjusted Trial Balance June 30, 2019 Debit   Balances Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,350 Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,500 Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,200 Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166,100 Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,750 Unearned Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000 Nancy Townes, Capital  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171,500 Nancy Townes, Drawing  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,500 Fees Earned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294,750 Wages Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,500 Rent Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,000 Utilities Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,750 Miscellaneous Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,100 500,000 500,000

For preparing the adjusting entries, the following data were assembled:

• Fees earned but unbilled on June 30 were $7,380.

• Supplies on hand on June 30 were $2,775.

• Depreciation of equipment was estimated to be $11,000 for the year.

• The balance in unearned fees represented the June 1 receipt in advance for services to be provided. During June, $16,500 of the services were provided.

• Unpaid wages accrued on June 30 were $3,880.

Instructions

1. Journalize the adjusting entries necessary on June 30, 2019.

2. Determine the revenues, expenses, and net income of Milbank Repairs & Service before the adjusting entries.

3. Determine the revenues, expenses, and net income of Milbank Repairs & Service after the adjusting entries. 

4. Determine the effect of the adjusting entries on Nancy Townes, Capital.

Answer:

1. a. Accounts Receivable7,380

Fees Earned7,380 Accrued fees earned.b. Supplies Expense13,425 Supplies13,425 Supplies used ($16,200 – $2,775). c. Depreciation Expense11,000 Accumulated Depreciation—Equipment 11,000 Equipment depreciation. d. Unearned Fees16,500 Fees Earned16,500 Fees earned. e. Wages Expense3,880 Wages Payable3,880 Accrued wages.

2. Revenues................................. $294,750 Expenses................................. 226,350 ($94,500 + $72,000 + $51,750 + $8,100) Net Income.................................$ 68,400

3. Revenues................................. $318,630 ($294,750 + $7,380 + $16,500) Expenses................................. 254,655 ($226,350 + $13,425 + $11,000 + $3,880) Net Income.................................$ 63,975

4. The effect of the adjusting entries on Nancy Townes, Capital is the difference in netincome in (2) and (3) of $4,425 ($68,400 – $63,975). The adjusting entries reduced net income by $4,425.

For the year ending August 31, Mammalia Medical Co. mistakenly omitted adjusting entries for (1) depreciation of $5,800

For the year ending August 31, Mammalia Medical Co. mistakenly omitted adjusting entries for (1) depreciation of $5,800, (2) fees earned that were not billed of $44,500, and (3) accrued wages of $7,300. Indicate the effect of the errors on (a) revenues, (b) expenses, and (c) net income for the year ended August 31.

Answer:

a. Revenues were understated by $44,500.

b. Expenses were understated by $13,100 ($5,800 + $7,300).

c. Net income was understated by $31,400 ($44,500 – $13,100).

The following errors took place in journalizing and posting transactions: a. The receipt of $8,400 for services rendered

The following errors took place in journalizing and posting transactions:

a. The receipt of $8,400 for services rendered was recorded as a debit to Accounts Receivable and a credit to Fees Earned.

b. The purchase of supplies of $2,500 on account was recorded as a debit to Office Equipment and a credit to Supplies.

Journalize the entries to correct the errors. Omit explanations.

Answer:

a. 

Cash 8,400

       Accounts Receivable 8,400

b. 

Supplies 2,500

        Office Equipment 2,500

Supplies 2,500

        Accounts Payable 2,500

Note:  The first entry in (b) reverses the incorrect entry, and the second entry records the correct entry. These two entries could also be combined into one entry as shown below; however, preparing two entries would make it easier for someone to understand later what happened and why the entries were necessary.

Supplies 5,000

       Office Equipment 2,500

       Accounts Payable 2,500

Prepare a journal entry on April 30 for fees earned on account, $11,250.

Prepare a journal entry on April 30 for fees earned on account, $11,250.

Answer:

Apr. 30 

Accounts Receivable 11,250

                   Fees Earned 11,250

The revenues and expenses of Sentinel Travel Service for the year ended August 31, 2019, follow:

The revenues and expenses of Sentinel Travel Service for the year ended August 31, 2019, follow: 

Fees earned $750,000

Office expense 295,000

Miscellaneous expense 12,000

Wages expense 450,000

Prepare an income statement for the year ended August 31, 2019.

Answer:

SENTINEL TRAVEL SERVICE

Income Statement

For the Year Ended August 31, 2019

Fees earned$750,000 Expenses: Wages expense$450,000 Office expense295,000 Miscellaneous expense12,000 Total expenses757,000 Net loss$ (7,000)

The revenues and expenses of Adventure Travel Service for the year ended April 30, 2019, follow: Fees earned $2,180,000

The revenues and expenses of Adventure Travel Service for the year ended April 30, 2019, follow: 

Fees earned $2,180,000

Office expense 400,000

Miscellaneous expense 25,000

Wages expense 1,300,000

Prepare an income statement for the year ended April 30, 2019.

Answer:

ADVENTURE TRAVEL SERVICE

Income Statement

For the Year Ended April 30,2019

Fees earned$2,180,000 Expenses: Wages expense$1,300,000 Office expense400,000 Miscellaneous expense25,000 Total expenses1,725,000 Net income$ 455,000

Which of the following accounts will usually appear in the post-closing trial balance? a. Accounts Receivable

Which of the following accounts will usually appear in the post-closing trial balance?

a. Accounts Receivable
b. Cash
c. Depreciation Expense
d. Fees Earned
e. Doug Woods, Capital
f. Doug Woods, Drawing


Answers:
a. Accounts Receivable
b. Cash
e. Doug Woods, Capital
g. Equipment
h. Land
i. Salaries Payable
j. Unearned Rent

At the end of the current year, $59,500 of fees have been earned but have not been billed to clients. a. Journalize the adjusting entry to record the accrued fees.

At the end of the current year, $59,500 of fees have been earned but have not been billed to clients.

a. Journalize the adjusting entry to record the accrued fees.

b.  If the cash basis rather than the accrual basis had been used, would an adjusting entry have been necessary? Explain.


Answers:

a. Accounts Receivable59,500
Fees Earned59,500
Accrued fees.
b. No. If the cash basis of accounting is used, revenues are recognized only 
when the cash is received. Therefore, earned but unbilled revenues would not 
be recognized in the accounts, and no adjusting entry would be necessary.

The following errors took place in journalizing and posting transactions: a. Cash of $8,800 received on account was recorded as a debit to Fees Earned and a credit to Cash.

The following errors took place in journalizing and posting transactions:

a. Cash of $8,800 received on account was recorded as a debit to Fees Earned and a credit to Cash.

b. A $1,760 purchase of supplies for cash was recorded as a debit to Supplies Expense and a credit to Accounts Payable.

Journalize the entries to correct the errors. Omit explanations.


Answer:

The correction could be made with one or two entries as shown below.
a. Cash17,600         
Fees Earned8,800           
Accounts Receivable8,800           
or (reverses original entry)
Cash8,800           
Fees8,800           
Cash8,800           
Accounts Receivable8,800           
b. Accounts Payable*1,760           
Supplies Expense1,760           
Supplies1,760           
Cash1,760           
* The first entry reverses the original entry. The second entry is the entry that should 
have been made initially.

The following errors occurred in posting from a two-column journal: 1. A credit of $6,000 to Accounts Payable was not posted.

The following errors occurred in posting from a two-column journal:

1. A credit of $6,000 to Accounts Payable was not posted.
2. An entry debiting Accounts Receivable and crediting Fees Earned for $5,300 was not posted.
3. A debit of $2,700 to Accounts Payable was posted as a credit.
4. A debit of $480 to Supplies was posted twice.
5. A debit of $3,600 to Cash was posted to Miscellaneous Expense.
6. A credit of $780 to Cash was posted as $870.
7. A debit of $12,620 to Wages Expense was posted as $12,260.

Considering each case individually (i.e., assuming that no other errors had occurred), indicate (a) by “yes” or “no” whether the trial balance would be out of balance; (b) if answer to (a) is “yes,” the amount by which the trial balance totals would differ; and (c) whether the Debit or Credit column of the trial balance would have the larger total. Answers should be presented in the following form, with error (1) given as an example:

           (a)        (b)        (c)
Error Out of Balance Difference Larger Total
1.         yes      $6,000       debit


Answer:

(a) (b)
Error Out of Balance Difference
1. yes $6,000
2. no —
3. yes 5,400
4. yes 480
5. no —
6. yes 90
7. yes 360
debit
debit
—
credit
credit