Question

Chandra Company's fiscal year ends on June 30. It is June 30, 2018, and all of the 2018 entries have been made, except the following adjusting entries: a. On March 30, 2018, Chandra paid $3,200 for a six-month premium for property insurance starting on that date. Cash was credited and prepaid insurance was debited for this amount. b. At June 30, 2018, wages of $900 were earned by employees but not yet paid. The employees will be paid on the next pay date, July 15, 2018. c. On June 1, 2018, Chandra collected maintenance fees of $450 for two months. At that date, Chandra debited cash and credited deferred maintenance revenue for $450. d. Depreciation must be recognized on a service truck that cost $19,000 on July 1, 2017. Depreciation of the truck was estimated at $4,000 per year. e. Cash of $4,200 was collected on May 1, 2018, for services to be rendered evenly over the next year, beginning on May 1 (deferred service revenue was credited). f. On February 1, 2018, the company borrowed $16,000 from a local bank and signed a 9 percent note for that amount. The principal and interest are payable on January 31, 2019. g. On June 15, 2018, the company received from the city a tax bill for $500, covering property taxes on land for the first half of 2018. The amount is payable during July 2018. h. The company earned service revenue of $2,000 on a special job that was completed on June 29, 2018. Collection will be made during July 2018, no entry has been recorded. Required: 1. Indicate whether each transaction relates to a deferred revenue, a deferred expense, an accrued revenue, or an accrued expense. 2. Prepare the adjusting entry required for each transaction at June 30, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

1) NOTE: Deferred revenue refers to a postponed revenue where collection against the same will take place now but service or sale transaction agreed will take place in later date; a) Deferred expense b) Accrued expense c) Deferred revenue d) Deferred expense e) Deferred revenue f) Accrued expense g) Accrued expense h) Accrued revenue Deferred expense refers to a postponed expense where payment for the same will take place now but recognition of expense will take place in later date due to economic benefit deferred over more than one accounting period; Accrued revenue refers to a revenue that has been earned but collection against the same will take place in later date; Accrued expense refers to an expense that has been incurred but payment for the same will take place in later date.

Debit $1,600 Credit [$3,200 x (3/6) --> As 3 months' insurance expired out of 6 months' premium paid] $1,600 [Expired for April, May & June] $900 $900 $225 ($450 x (1/2) --> As 1 month's revenue is earned out of 2 months' premium collected] $225 $4,000 Transact. General Journal a) Insurance Expense Prepaid Insurance b) Salaries & Wages Expense Salaries & Wages Payable c) Deferred Maintenance Revenue Maintenance Revenue d) Depreciation Expense Accumulated Depreciation e) Deferred Service Revenue Service Revenue f) Interest Expense Interest Payable g) Property Tax Expense Property Tax Payable h) Accounts Receivable Service Revenue $700 $4,000 [$4,20 x (2/12) --> As 2 months' revenue is earned out of 12 months' advance collected] $700 [$ 16,000 x 9% x (5/12) --> As 5 months' interest exp is accrued out of 12 months' due] $600 [Expired for February thru June] $600 $500 $500 $2,000 $2,000

3) Transact. Effect on Net income $1,600 $900 $225 $4,000 $700 $600 $500 $2,000 Effect on Cash None None None None None None None None Eve