Quake Co. had the following transactions in the last two months of its fiscal year ended May 31.

Apr. 1 Paid $3,450 cash to an accounting firm for future consulting services.
 1 Paid$2,700 cash for 12 months of insurance through March 31 of the next year.
 30 Received $7,500 cash for future services to be provided to a customer.

May 1 Paid$3,450 cash for future newspaper advertising.
 23 Received $9,450 cash for future services to be provided to a customer.
 31 Of the consulting services paid for on April 1,$1,500 worth has been received.
 31 A portion of the insurance paid for on April 1 has expired. No adjustment was made in April to Prepaid Insurance.
 31 Services worth $3,600 are not yet provided to the customer who paid on April 30.
 31 Of the advertising paid for on May 1,$1,050 worth is not yet used.
 31 The company has performed $4,500 of services that the customer paid for on May 23.

Required
1. Prepare entries for these transactions under the method that records prepaid expenses and unearned revenues in balance sheet accounts. Also prepare adjusting entries at the end of the year.
2. Prepare entries for these transactions under the method that records prepaid expenses and unearned revenues in income statement accounts. Also prepare adjusting entries at the end of the year.

Analysis Component
3. Discuss why the alternative sets of entries in parts 1 and 2 do not result in different financial statement amounts.

Below are the restated amounts of net income and retained earnings for Volunteers Inc. and Raiders Inc. for the period 2009-2018. Volunteers began operations in 2010, while Raiders began several years earlier.

$$\text{VOLUNTEERS INC.} \\ \text{(\$ in millions)} \\ \begin{matrix} \text{Year} & \text{Net Income (Loss)} & \text{Retained Earnings}\\ \text{2009} & \text{\_\_\_} & \text{\$0}\\ \text{2010} & \text{\$30} & \text{\_\_\_\_\_}\\ \text{2011} & \text{$(7)$} & \text{\_\_\_\_\_}\\ \text{2012} & \text{41} & \text{\_\_\_\_\_}\\ \text{2013} & \text{135} & \text{\_\_\_\_\_}\\ \text{2014} & \text{30} & \text{\_\_\_\_\_}\\ \text{2015} & \text{$(131)$} & \text{\_\_\_\_\_}\\ \text{2016} & \text{577} & \text{\_\_\_\_\_}\\ \text{2017} & \text{359} & \text{\_\_\_\_\_}\\ \text{2018} & \text{360} & \text{\_\_\_\_\_}\\ \end{matrix}$$

$$\text{RAIDERS INC.} \\ \text{(\$ in millions)} \\ \begin{matrix} \text{Year} & \text{Net Income (Loss)} & \text{Retained Earnings}\\ \text{2009} & \text{$\$ 35$} & \text{\$11}\\ \text{2010} & \text{$(43)$} & \text{\_\_\_\_\_}\\ \text{2011} & \text{63} & \text{\_\_\_\_\_}\\ \text{2012} & \text{63} & \text{\_\_\_\_\_}\\ \text{2013} & \text{102} & \text{\_\_\_\_\_}\\ \text{2014} & \text{135} & \text{\_\_\_\_\_}\\ \text{2015} & \text{$(42)$} & \text{\_\_\_\_\_}\\ \text{2016} & \text{74} & \text{\_\_\_\_\_}\\ \text{2017} & \text{110} & \text{\_\_\_\_\_}\\ \text{2018} & \text{162} & \text{\_\_\_\_\_}\\ \end{matrix}$$

Calculate the balance of retained earnings each year for each company. Neither company paid dividends during this time.

Adjusting entries affect at least one balance sheet account and at least one income statement account. For the following entries, identify the account to be debited and the account to be credited. Indicate which of the accounts is the income statement account and which is the balance sheet account.

a. Entry to record revenue earned that was previously received as cash in advance.
b. Entry to record annual depreciation expense.
c. Entry to record wage expenses incurred but not yet paid (nor recorded).
d. Entry to record revenue earned but not yet billed (nor recorded).
e. Entry to record expiration of prepaid insurance.

Meyer Co. applies 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.

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.

Required
1. Use the information to prepare adjusting entries as of December 31, 2011.
2. Prepare journal entries to record the first subsequent cash transaction in 2012 for parts c and e.

What is motivation and why is this idea so important to marketers?

Four types of adjustments are described in the chapter: (1) prepaid expenses, (2) unearned revenues, (3) accrued expenses, and (4) accrued revenues.

Required
1. Create learning teams of four (or more) members. Each team member must select one of the four adjustments as an area of expertise (each team must have at least one expert in each area).
2. Form expert teams from the individuals who have selected the same area of expertise. Expert teams are to discuss and write a report that each expert will present to his or her learning team addressing the following:
 a. Description of the adjustment and why it’s necessary.
 b. Example of a transaction or event, with dates and amounts, that requires adjustment.
 c. Adjusting entry(ies) for the example in requirement b.
 d. Status of the affected account(s) before and after the adjustment in requirement c.
 e. Effects on financial statements of not making the adjustment.
3. Each expert should return to his or her learning team. In rotation, each member should present his or her expert team’s report to the learning team. Team discussion is encouraged.

A six-column table for JJW Company is shown below. The first two columns contain the unadjusted trial balance for the company as of July 31, 2011. The last two columns contain the adjusted trial balance as of the same date.

Required

Analysis Component
1. Analyze the differences between the unadjusted and adjusted trial balances to determine the eight adjustments that likely were made. Show the results of your analysis by inserting these adjustment amounts in the table’s two middle columns. Label each adjustment with a letter a through h and provide a short description of it at the bottom of the table.

Preparation Component
2. Use the information in the adjusted trial balance to prepare the company’s (a) income statement and its statement of owner’s equity for the year ended July 31, 2011 (note: J. Winner, Capital at July 31, 2010, was $28,420, and the current-year withdrawals were$10,000), and (b) the balance sheet as of July 31, 2011.

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 payment of a prepaid expense.
B. To record this period’s use of a prepaid expense.
C. To record this period’s depreciation expense.
D. To record receipt of unearned revenue.
E. To record this period’s earning of prior unearned revenue.
F. To record an accrued expense.
G. To record payment of an accrued expense.
H. To record an accrued revenue.
I. To record receipt of accrued revenue.

The adjusted trial balance for Callahay Company as of December 31, 2011 is shown below:

Required
1. Use the information in the adjusted trial balance to prepare (a) the income statement for the year ended December 31, 2011; (b) the statement of owner’s equity for the year ended December 31, 2011; and (c) the balance sheet as of December 31, 2011.
2. Determine the profit margin for year 2011.

Determine the unknown amounts in each of these four separate situations a through d.

Financial information for Forever 18 includes the following selected data:

$$\begin{matrix} \text{(\$ in millions)} & \text{2018} & \text{2017}\\ \hline \text{Net income} & \text{$\$ 129$} & \text{$\$ 308$}\\ \text{Dividends on preferred stock} & \text{$\$ 20$} & \text{$\$ 15$}\\ \text{Average shares outstanding (in millions)} & \text{150} & \text{400}\\ \text{Stock price} & \text{$\$ 12.02$} & \text{$\$ 10.97$}\\ \end{matrix}$$

1. Calculate earnings per share in 2017 and 2018. Did earnings per share increase in 2018? 2. Calculate the price-earnings ratio in 2017 and 2018. In which year is the stock priced lower in relation to reported earnings?

Financial information for Forever 18 includes the following selected data (in millions):

$$\begin{array}{|c|c|c|} \hline \text{ (\$ in millions) } & 2012 & {2011} \\ \hline \text { Net income } & \$ 210 & \$ 180 \\ \hline \text { Dividends on preferred stock } & \$ 25 & \$ 20 \\ \hline \text { Shares outstanding (in millions) } & 240 & 220 \\ \hline \text { Stock price } & \$ 11.52 & \$ 10.47 \\ \hline \end{array}$$

Required:

1. Calculate earnings per share in 2011 and 2012. Did earnings per share increase in 2012?
2. Calculate the price-earnings ratio in 2011 and 2012. In which year is the stock priced lower in relation to reported earnings?

On January 1, 2024, Splash City issues $\$ 500,000$ of $9 \%$ bonds, due in 20 years, with interest payable semiannually on June 30 and December 31 each year. Required: Assuming the market interest rate on the issue date is $10 \%$, the bonds will issue at $\$ 457,102$.

1. Complete the first three rows of an amortization schedule.
2. Record the bond issue on January 1, 2024, and the first two semiannual interest payments on June 30, 2024, and December 31, 2024.

Marsha Moder employs one college student every summer in her coffee shop. The student works the five weekdays and is paid on the following Monday. (For example, a student who works Monday through Friday, June 1 through June 5, is paid for that work on Monday, June 8.) Moder adjusts her books monthly, if required, to show salaries earned but unpaid at month-end. The student works the last week of July — Friday is August 1. If the student earns $100 per day, what adjusting entry must Moder make on July 31 to correctly record accrued salaries expense for July?