Problem

Preparing Adjusting Entries and Determining Account BalancesAlpine Expeditions operates a...

Preparing Adjusting Entries and Determining Account Balances

Alpine Expeditions operates a mountain climbing school in Colorado. Some clients pay in advance for services; others are billed after services have been performed. Advance payments are credited to an account entitled Unearned Client Revenue. Adjusting entries are performed on a monthly basis. An unadjusted trial balance dated December 31,2011, follows. (Bear in mind that adjusting entries have already been made for the first 11 months of 2011, but not for December.)

ALPINE EXPEDITIONS

UNADJUSTED TRIAL BALANCE

DECEMBER 31, 2011

Cash

 $ 13,900

 

Accounts receivable

78,000

 

Unexpired insurance

18,000

 

Prepaid advertising

2,200

 

Climbing supplies

4,900

 

Climbing equipment

57,600

 

Accumulated depreciation: climbing equipment

 

$ 38,400

Accounts payable

 

1,250

Notes payable

 

10,000

Interest payable

 

150

Income taxes payable

 

1,200

Unearned client revenue

 

9,600

Capital stock

 

17,000

Retained earnings

 

62,400

Client revenue earned

 

188,000

Advertising expense

7,400

 

Insurance expense

33,000

 

Rent expense

16,500

 

Climbing supplies expense

8,400

 

Repairs expense

4,800

 

Depreciation expense: climbing equipment

13,200

 

Salaries expense

57,200

 

Interest expense

150

 

Income taxes expense

12,750

 

 

$328,000

$328,000

Other Data

1. Accrued but unrecorded fees earned as of December 31 amount to $6,400.

2. Records show that $6,600 of cash receipts originally recorded as unearned client revenue had been earned as of December 31.

3. The company purchased a 12-month insurance policy on June 1,2011, for $36,000.

4. On December 1, 2011, the company paid $2,200 for numerous advertisements in several climbing magazines. Half of these advertisements have appeared in print as of December 31.

5. Climbing supplies on hand at December 31 amount to $2,000.

6. All climbing equipment was purchased when the business first formed. The estimated life of the equipment at that time was four years (or 48 months).

7. On October 1, 2011, the company borrowed $10,000 by signing an eight-month, 9 percent note payable. The entire note, plus eight months’ accrued interest, is due on June 1,2012.

8. Accrued but unrecorded salaries at December 31 amount to $3,100.

9. Estimated income taxes expense for the entire year totals $14,000. Taxes are due in the first quarter of 2012.

Instructions

a. For each of the numbered paragraphs, prepare the necessary adjusting entry (including an explanation).

b. Determine that amount at which each of the following accounts will be reported in the company’s balance sheet dated December 31,2011:

1.

Cash

6.

Climbing Equipment

10.

Interest Payable

2.

Accounts Receivable

7.

Accumulated Depreciation:

11.

Income Taxes Payable

3.

Unexpired Insurance

 

Climbing Equipment

12.

Unearned Client

4.

Prepaid Advertising

8.

Salaries Payable

 

Revenue

5.

Climbing Supplies

9.

Notes Payable

 

 

c. Which of the accounts listed in part b represent deferred expenses? Explain.

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