Question

Bob Reynolds operates a real estate business. A list of accounts on April 30, 2017, before any adjustments are recorded, appears as follows: Cash Prepaid Insurance Office Supplies Office Equipment Accumulated Depreciation - Office Equipment Automobile Accumulated Depreciation-Auto $15,700 450 250 50,000 Accounts Payable Deferred Commissions Notes Payable Capital Stock Retained Earnings Dividends Commissions Revenue Utilities Expense Salaries Expense 5,000 12,000 1,400 6,500 9,500 2,000 10,000 40,000 2,500 17,650 2,300 7,400 1,450 Advertising Expense

1. For each of the items of other data (a) through (h) provided below, identify and analyze adjustment necessary on April 30, 2017. Do not round intermediate calculations. If required, round your final answers to the nearest dollar.

a. The monthly insurance cost is $50.

b. Office supplies on hand on April 30, 2017, amount to $180.

c. The office equipment was purchased on April 1, 2016. On that date, it had an estimated useful life of ten years. Use straight line method of depreciation.

d. On September 1, 2016, the automobile was purchased; it had an estimated useful life of five years. Use straight line method of depreciation.

e. A deposit is received in advance of providing any services for first-time customers. Amounts received in advance are recorded initially in the account Deferred Commissions. Based on services provided to these first-time customers, the balance in this account at the end of April should be $5,000.

f. Repeat customers are allowed to pay for services one month after the date of the sale of their property. Services rendered during the month but not yet collected or billed to these customers amount to $1,500.

g. Interest owed on the note payable but not yet paid amounts to $20.

h. Salaries owed but unpaid to employees at the end of the month amount to $2,500.

2. Compute the net increase or decrease in net income for the month from the recognition of the adjustments in (1). (Ignore income taxes.)

3. Note the balance in Accumulated Depreciation—Office Equipment of $5,000. Which of the following explains by the account contains a balance of $5,000 on April 30, 2017?

Answer 1

1(a) Activity Accounts Statements Operating Insurance Expense Increase(Dr) Prepaid Insurance Dccrease (Cr) Balance sheet and Income statements Balance sheet Liabilities + $ -50 Asset Prepaid Insurance Revenues Equity $ Income Statement Expense = Net Income 50 $ -50 -50 (b) Activity Accounts Statements Operating Office supplies Expense Increase (Dr) Office supplies Decrease (Cr) Balance sheet and Income statements Balance sheet Liabilities + $ -70 Asset Office supplies Revenues Equity $ Income Statement Expense = Net Income 70 $ -70 (250-180=70) -70

Activity Accounts Statements Operating Depreciation Expense Increase (Dr) Accumulated Depreciation office equipmnet Increase (Cr) Balance sheet and Income statements Balance sheet = Liabilities + $-416.67 Asset Office Equipment Revenues Equity | $ -416.67 Income Statement Expense Net Income $ 416.67 $ -416.67 (50000/10) 5000/12 5000 416.67 Activity Accounts Statements Operating Depreciation Expense Increase (Dr) Accumulated Depreciation Auto Increase (Cr) Balance sheet and Income statements Balance sheet Liabilities + $ -200 Asset Automobile Revenues Equity $ Income Statement Expense = Net Income 200 $ -200 (12000/5= 2400/12 -200 2400 200

(e) Activity Accounts Statements Operating Deffered Commisin Decrease (Dr) Commission Revenue Increase (Cr) Balance sheet and Income statements Asset Deffered Commision Balance sheet Liabilities + -4,500 Equity $ Revenues $ 4,500 Income Statement Expense Net Income $ 4,500 (9500-5000) 4,500 Activity Accounts Statements Operating Accounts Receivables Increase (Dr) Commission Revenue Increase (Cr) Balance sheet and Income statements Asset Accounts Receivables Balance sheet Liabilities + 1500 Equity $ Revenues $ 1,500 Income Statement Expense Net Income $ 1,500 1,500

Activity Accounts Statements Operating Interest Expense Increase (Dr) Interest Payable Increase (Cr) Balance sheet and Income statements Balance sheet Liabilities + 20 Revenues Asset Interest Payable - Equity $ Income Statement Expense = Net Income $ 20 $ -20 -20 (h) Activity Accounts Statements Operating Salary Expense Increase (Dr) Salary Payable Increase (Cr) Balance sheet and Income statements Balance sheet Liabilities + 2,500 Asset Salary Payable Revenues Equity $ -2,500 Income Statement Expense = Net Income $ 2,500 $ -2,500

Net Increase In Net Income= 2,743