Question

yiel Attempt 1 2.500 The accountant for Lily's Emporium, Inc. prepared the following trial balance at December 31, 2021: Debit Credit Cash 5.700 Accounts Receivable Notes Receivable 2,000 Supplies 600 Equipment 18,000 Unearned Consulting Fees 3,300 Capital Stock 15,600 Retained Earnings, January 1, 2021 0 Dividends 3,300 Consulting Fees Earned 26,800 Insurance Expense 2,100 Salaries Expense 7,700 Utilities Expense 1,700 Rent Expense 2.100 $45.700 $45,700 Additional information items a The Note Receivable is a 8%, 5-month note dated November 1, 2021 b A count of the Supplies on December 31, 2021, shows $150 in Supplies on hand. C The Insurance Expense is for a 12-month policy, paid on October 1, 2021 d The equipment has a life of 7 years, was purchased on May 1, 2021, and Lily will use the straight-line method of recording depreciation, Lily expects that the equipment will have a $500 salvage value Consulting Fees Eamed includes a $1.200 prepayment by a client on June 30, 2021 for consulting services to be rendered for twelve months. e Question 1 (3 points) ✓ Saved The adjusting entry required with respect to Consulting Fees would be 80 ga E4 DD 19 FB $ 4 - 3 5 6 & 7 ( 9 8 E R T Y U 0 Р D F G H J K L

Answer 1

Answer.1

Option C is correct.

As prepayment received on june,30 for the rendering of continue service till next one year, so, on dec,31 we have earned for 6months only and having unearned fees for next 6months.But wrongly entire fees is recorded as income,.and hence $600 is unearned income which is wrongly recorded as earned income.

Hence we have to deferal with a debit to consulting fee earned by $600.

Consultancy fees earned dr. $600

Unearned fees cr. $600

Answer.2

Option B is correct.

As insurance expenses paid is for a year on oct,1. ie. is a prepaid insurance expense for the period of jan to dec,2022.

On oct,1 entry would be ....

Prpaid insurance expenses dr. $2100

Cash Account cr.$2100

But it recorded entire as an expense in the current year.

So on dec,31 we have reversed it as....

Prepaid insurance expenses dr. $1575

Insurance expenses cr. $1575.

Because insurance expenses of $525 is incurred upto dec,31. And remaing have be reveresed.

answer.3

Option A is correct.

Depreciation under straight line method:

annual depreciation =

(purchase price - salvage value) / useful life

= $(18000-500)/7

ie. $2500 annual depreciation.

But lily has purchased equipment on may,1

Hence depreciation is calculated for a period of 8 months ie. May to dec,2021.

Hence ($2500/12)×8month

ie. $1667 approximately.

Answer.4

Option A is correct.

Customers frequently sign promissory notes to settle overdue accounts receivable balances.Notice that the entry does not include interest revenue, which is not recorded until it is earned.

When a note's maker pays according to the terms specified on the note, the note is said to be honored. Assuming that no adjusting entries have been made to accrue interest revenue, the honored note is recorded by debiting cash for the amount the customer pays, crediting notes receivable for the principal value of the note, and crediting interest revenue for the interest earned.

But here note is drawn on Nov,1 for a period of 5 months,

Now,on Dec,31 an adjustment entry should be passed as:

Interest receivable on Notes receivable dr. $27

Interest income cr. $27

ie. I income for 5month. (2000×8%)×5\12month

ie.66.667

Interest income on dec,31 ie. For 2 month

($66.667/5)×2 month

ie.$27.

Answer.5

Option B is correct.

ie.reversed entry for consulatncy and insurance is done in above parts,and for supplies in actual there is in hand is less than the recorded in the above balances. Hemce its also be reveresed.

in understated inventory, an adjustment entry needs to be made to remove the surplus stock, which in turn reduces closing stock to the correct level and increases the COGS.

Answer.6

Option B is correct.

Journal for ending inventory would be done as..

Inventory dr. $600

Cogs cr. $600

Now it have to be reversed upto $150.

So adjustment entry on dec,31 would be...

Cogs dr. $450

Inventory cr. $450