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P3-1A P3-2A E3-4 E3-5 E3-6

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Fundamental Accounting Principles 20e

P3-1A Meyer Co. follows the practice of recording prepaid expenses and unearned revenues in balance sheet accounts.
The company’s annual accounting period ends on December 31, 2011. The following information
concerns the adjusting entries to be recorded as of that date.

a. The Office Supplies account started the year with a $3,000 balance. During 2011, the company purchased supplies for $12,400, which was added to the Office Supplies account. The inventory of supplies available at December 31, 2011, totaled $2,640.

b. An analysis of the company’s insurance policies provided the following facts.
Policy Date of Purchase Coverage Cost
A April 1, 2010 24 $15,840
B April 1, 2011 36 13,068
C August 1, 2011 12 2,700

The total premium for each policy was paid in full (for all months) at the purchase date, and the
Prepaid Insurance account was debited for the full cost. (Year-end adjusting entries for Prepaid
Insurance were properly recorded in all prior years.)

c. The company has 15 employees, who earn a total of $2,100 in salaries each working day. They are
paid each Monday for their work in the five-day workweek ending on the previous Friday. Assume
that December 31, 2011, is a Tuesday, and all 15 employees worked the first two days of that week.
Because New Year’s Day is a paid holiday, they will be paid salaries for five full days on Monday,
January 6, 2012.

d. The company purchased a building on January 1, 2011. It cost $855,000 and is expected to have a
$45,000 salvage value at the end of its predicted 30-year life. Annual depreciation is $27,000.
e. Since the company is not large enough to occupy the entire building it owns, it rented space to a tenant at $2,400 per month, starting on November 1, 2011. The rent was paid on time on November 1, and the amount received was credited to the Rent Earned account. However, the tenant has not paid the December rent. The company has worked out an agreement with the tenant, who has promised to pay both December and January rent in full on January 15. The tenant has agreed not to fall behind again.

f. On November 1, the company rented space to another tenant for $2,175 per month. The tenant paid
five months’ rent in advance on that date. The payment was recorded with a credit to the Unearned
Rent account.

P3-2A For each of the following entries, enter the letter of the explanation that most closely describes it in the space beside each entry. (You can use letters more than once.)
A. To record receipt of unearned revenue.
B. To record this period’s earning of prior
unearned revenue.
C. To record payment of an accrued expense.
D. To record receipt of an accrued revenue
E. To record an accrued expense.
F. To record an accrued revenue.
G. To record this period’s use of a prepaid expense.
H. To record payment of a prepaid expense.
I. To record this period’s depreciation expense

1. Rent Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
Prepaid Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
______ 2. Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000
Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000
______ 3. Depreciation Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . 4,000
______ 4. Unearned Professional Fees . . . . . . . . . . . . . . . . . . . . . . . . 3,000
Professional Fees Earned . . . . . . . . . . . . . . . . . . . . . . 3,000
and so on .....

E3-4 The following three separate situations require adjusting journal entries to prepare financial statements as of April 30. For each situation, present both the April 30 adjusting entry and the subsequent entry during May to record the payment of the accrued expenses.

a. On April 1, the company retained an attorney for a flat monthly fee of $2,500. This amount is paid to the attorney on the 12th day of the following month in which it was earned.

b. A $780,000 note payable requires 9.6% annual interest, or $6,240 to be paid at the 20th day of each month. The interest was last paid on April 20 and the next payment is due on May 20. As of April 30, $2,080 of interest expense has accrued.

c. Total weekly salaries expense for all employees is $9,000. This amount is paid at the end of the day on Friday of each five-day workweek. April 30 falls on Tuesday of this year, which means that the employees had worked two days since the last payday. The next payday is May 3.

E3-5 Determine the missing amounts in each of these four separate situations a through d.
a b c d
Supplies available — prior year-end . . . . . . . . . . . . . . . . $ 300 $1,600 $1,360 ?
Supplies purchased during the current year . . . . . . . . . 2,100 5,400 ? $6,000
Supplies available — current year-end . . . . . . . . . . . . . . 750 ? 1,840 800
Supplies expense for the current year . . . . . . . . . . . . . ? 1,300 9,600 6,575

E3-6 Pablo Management has five part-time employees, each of whom earns $100 per day. They are normally paid on Fridays for work completed Monday through Friday of the same week. They were paid in full on Friday, December 28, 2011. The next week, the five employees worked only four days because New Year’s Day was an unpaid holiday. Show (a) the adjusting entry that would be recorded on Monday, December 31, 2011, and (b) the journal entry that would be made to record payment of the employees’ wages on Friday, January 4, 2012.

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