HOMEWORK

Homework



Homework

Answer 1 (Ex-4.8):

A.

Date

Particulars

Ref.

Debit

Credit

Jun 30, 2014

Insurance Expense

$3750

Prepaid Insurance

$3750

B.

The amount of Prepaid Insurance as per June 30, 2014 will be $1250.

C.

If there would be no adjusting entry made on June 30, 2014 for Prepaid insurance then, it would result in understatement of expenses leading to overstatement of profits that year. The profits for the period ending June 30, 2014 would have been overstated by $1250. As Prepaid insurance is an asset and no proper entry for its adjustment has been made then ultimately it would result in overstatement of assets.

D.

There would no adjusting entry be made as the complete cash payment for Insurance had already been expensed out in the year 2013.

Answer 2 (Q-7):

According to International Accounting Standards (IAS -18) - Revenue; Accountant is right. The owner should defer the payment as it is not earned yet. The services in lieu of that cash payment have not yet been provided. The amount which may be recognized as Revenue is $60. The amount of the remaining balance i.e. $180 should be deferred to the next nine months.

Date

Particulars

Ref.

Debit

Credit

Mar 31

Cash

$240

Deferred Revenue

$240

Jun 30

Deferred Revenue

$60

Revenue

$60

Answer 3 (Problem 4.13):

JASON'S ELECTRICAL REPAIR SERVICE

General Journal

Dec 31, 2013

Date

Particulars

Ref.

Debit

Credit

Dec 31

Advertising Supplies

$1,700

Advertising Expense

$1,700

Dec 31

Store Supplies

900

Sundry Expense

900

Dec 31

Deferred Rent Revenue

900

Rent Revenue

900

Dec 31

Depreciation Expense

7,750

Accumulated Depreciation

7,750

Dec 31

Insurance Expense

1,250

Prepaid Insurance

1,250

Dec 31

Wages Expense

1,230

Wages Payable

1,230

Dec 31

Interest Expense

150

Interest payable

150

JASON'S ELECTRICAL REPAIR SERVICE

Income Statement

For the year ended Dec 31, 2013

$

$

REVENUE

Electrical Repairs Revenue

106,000

Rent revenue

2,700

GST Collections

6,600

115,300

OPERATING EXPENSES

Depreciation expense

7,750

Insurance expense

1,250

Wages expense

39,230

Interest on mortgage expense

900

Advertising expenses

3,200

Other selling expenses

7,500

Sundry expenses

8,650

Rent expense

4,800

Electricity expense

5,000

GST outlays

4,600

(82,880)

Net Profit

32,420

JASON'S ELECTRICAL REPAIR SERVICE

Balance Sheet

As at Dec 31, 2013

$

$

NON CURRENT ASSETS

Electrical Equipment

90,000

Less: Accumulated Depreciation

(20,250)

69,750

CURRENT ASSETS

Prepaid insurance

1,250

Accounts receivable

48,500

Investment in marketable securities

18,600

Advertising supplies

1,700

Store supplies

900

Cash at bank

9,200

TOTAL ASSETS

150,800

EQUITY AND LIABILITIES

EQUITY

J. Dunstan, Capital

62,500

Add: Net Profit

32,420

Less: J. Dunstan, Drawings

(5,500)

89,420

LIABILITIES

Mortgage payable

15,000

Wages payable

1,230

Accounts Payable

45,000

Interest payable

150

TOTAL EQUITY AND LIABILITIES

150,800

JASON'S ELECTRICAL REPAIR SERVICE

Statement of Changes in Equity

As at Dec 31, 2013

Capital

Drawings

Profit

Total

Balance as on Jan 01, 2013

62,500

-

-

62,500

Drawings

-

5,500

-

57,500

Profit for the year

-

-

32,420

89,420

Answer ...