Question

P4-2 LO4-1 Recording Adjusting Entries (AP4-2) All of the current year's entries for Zimmerman Company have been made, except the following adjusting entries. The company's annual accounting year ends on December 31. a. On September 1 of the current year, Zimmerman collected six months' rent of $9,600 on storage space. Al that date, Zimmerman debited Cash and credited Unearned Rent Revenue for $9,600. b. On October 1 of the current year, the company borrowed $18,000 from a local bank and signed a one year, 12 percent note for that amount. The principal and interest are payable on the maturity date. c. Depreciation of $3,500 must be recognized on a service truck purchased in July of the current year at a cost of $22.000. d. Cash of $3,000 was collected on November of the current year for services to be rendered evenly over the next year beginning on November of the current year. Unearned Service Revenue was credited when the cash was received. e On November 1 of the current year, Zimmerman paid a one-year premium for property insurance, $8,400, for coverage starting on that date. Cash was credited and Prepaid Insurance was debited for this amount. The company earned service revenue of $4,000 on a special job that was completed December 29 the current year. Collection will be made during January of the next year. No entry has been recordcu At December 31 of the current year, wages earned by employees totaled $14,000. The employees WII U paid on the next payroll date in January of the next year. h On December 31 of the current year, the company estimated it owed $500 for this year's property on land. The tax will be paid when the bill is received in January of next year.

Answer 1

P4-2 Journal Entires

Debit Credit

a.Deferred Revenue

Unearned Revenue($9,600×4/6) $6,400

Rent Revenue $6,400

b.Accrued Expense

Interest Expense($18,000×12%×3/12) $540

Interest Payable $540

c.Deferred Expense

Depreciation Expense $3,500

Accumulated Depreciation $3,500

d.Deferred Revenue

Unearned Fee Revenue($3,000×2/12) $500

Fee Revenue $500

e.Deferred Expense

Insurance Expense($8,400×2/12). $1,400

Prepaid Insurance $1,400

f. Accrued Revenue

Accounts Receivable $4,000

Service Revenue $4,000

g.Accrued Expense

Wages Expense $14,000

Wages Payable $14,000

h.Accrued Expense

Property Tax Expense $500

Property Tax Payable $500

P4-6

1.Journal Entries

Debit Credit

1.Accounts Receivable $1,820

Service Revenue $1,820

(Since services has been provided on accounts and is accrued revenue therefore accounts receivable has been debited and service revenue has been credited)

2.Insurance Expense $130

Prepaid Insurance $130

(Since insurance expense has been accrued and is a nature of expense it has been debited and prepaid insurance is an asset it has been credited)

3.Depreciation Expense $6,000

Accumulated Depreciation $6,000

(Since depreciation is in the nature of deferred expense depreciation expense has been debited and accumulated depreciation has been credited)

4.Income Tax Expense $1,155

Income Tax Payable $1,155

(Since income tax expense has been accrued but has not been paid therefore income tax expense has been debited and income tax expense has been credited)

2.Calculating the income before and after the adjusting entries

Amounts before. Amounts after

Adjusting entries adjusting entries

Service Revenue $64,400 $66,220

Expenses:

Depreciation Expense $6,000

Insurance Expense $130

Salary Expense $55,470 $55,470

Income Tax Expense $1,155

Total Expense $55,470. $62,755

Net Income $8,930 $3,445

Net income amount of $3,445 after adjusting entries are correct because it includes all revenues and expense.This amount is correct because it has been calcualted after incorporating all adjusting entries, it incorporates the effect of revenue realization and expense matching principles applied to all transactions whose effects extend beyond the period in which the transaction occurred.Net income of $8,930 was incorrect because it does not inclued revenue of $1,820 and expense of $7,285.

3.Calculations of earnings per share

Earnings per share = $3,445 ÷ 3,000shares = $1.15 per share

4.Calculatuon of Total Assets Turnover Ratio

Total Asset Turnover Ratio = Sales Revenue ÷ Average Total Assets

Average Total Assets = (Opening Total Assets + Closing Total Assets)/2

Opening Total Assets = $110,000

Closing total assets = $13,500 + $1,820 + ($720-$130) + ($168,280 - $48,100) = $136,090

Average Total Assets = ($110,000 + $136,090) = $123,045

Total Asset Turnover Ratio = $66,220/$123,045 = 0.538

5.Closing Entry at December 31

Debit Credit

Service Revenue $66,200

Depreciation Expense $6,000

Insurance Expense $130

Salary Expense $55,470

Income Tax Expense $1,155

Retained Earnings $3,444