Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 1 Accruals and Deferrals Extra Solutions to...

Accruals and Deferrals

Extra Solutions to Monday’s Handout

? ? ? ? ? ? ? ? ? ? ? ? ? ? ?

You should try the exercises in the handout but not covered in class.

The first one is about Prepaid Insurance and begins in the middle of page 6 on the handout. Turn there.

Insurance ExpensePrepaid Insurance

Bal. 1,000

$600 of premiums have expired

You try to make the adjusting entry before seeing the solution here.

? ? ? ? ? ? ? ? ? ? ? ? ? ?

Bal. 1,000

You try to make the adjusting entry before seeing the solution here:

Insurance Expense 600 Prepaid Insurance 600

? ? ? ? ? ? ? ? ? ? ? ? ? ?

Which method is being used?

Should the AJE be reversed?

Why or why not?

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Bal. 1,000

(the balance was in Prepaid Insurance before adjustment)

? ? ? ? ? ? ? ? ? ? ? ? ? ?

Bal. 1,000 AJE 600 AJE 600 C2 600

Following ASSET method, therefore, balance already in ASSET account. See also decision tree.

Bal. 1,000

You try to make the adjusting entry before seeing the solution here.

? ? ? ? ? ? ? ? ? ? ? ? ? ?

Bal. 1,000

You try to make the entry before seeing the solution here.

Prepaid Insurance 400 Insurance Expense 400

? ? ? ? ? ? ? ? ? ? ? ? ? ?

Why or why not?

? ? ? ? ? ? ? ? ? ? ? ? ? ?

EXPENSE

? ? ? ? ? ? ? ? ? ? ? ? ? ?

Bal. 1,000

(the balance was in Insurance Expense before adjustment)

? ? ? ? ? ? ? ? ? ? ? ? ? ?

Bal. 1,000 AJE 400AJE 400

Following EXPENSE method; the AJE created a balance in a balance sheet account, PPI, and, therefore, SHOULD BE reversed. See also decision tree. Further, following the expense method, the beginning balance next year should be in the EXPENSE account. The reversing entry gets it there.

AJE 400

? ? ? ? ? ? ? ? ? ? ? ? ? ?

Bal. 1,000 AJE 400C2 600

Following EXPENSE method; the AJE created a balance in a balance sheet account, PPI, and, therefore, SHOULD BE reversed. See also decision tree. Further, following the expense method, the beginning balance next year should be in the EXPENSE account. The reversing entry gets it there.

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Now turn to page 8 in the handout.

Work the two examples and check your work.

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Assume a prominent midwestern university collected $4,000 in tuition on September 1. When cash was debited, the university credited ...

Tuition EarnedUnearned Tuition

9/1 4,000

At November 30, how much has been earned?

? ? ? ? ? ? ? ? ? ? ? ? ? ?

$4,0003 mo 1 mo

$3,000 $1,000

9/1 4,000

? ? ? ? ? ? ? ? ? ? ? ? ? ?

$4,0003 mo 1 mo

$3,000 $1,000earned unearned

You try to make the adjusting entry before seeing the solution.

9/1 4,000

? ? ? ? ? ? ? ? ? ? ? ? ? ?

Did you try to make the entry before seeing the solution here?

11/30 Unearned Tuition 3,000 Tuition Earned 3,000

AJE 3,000AJE 3,000

Why or why not?

? ? ? ? ? ? ? ? ? ? ? ? ? ?

LIABILITY

? ? ? ? ? ? ? ? ? ? ? ? ? ?

(the balance was in Unearned Tuition, a liability account, before adjustment)

9/1 4,000

? ? ? ? ? ? ? ? ? ? ? ? ? ?

Following LIABILITY method, therefore, balance already in LIABILITY account. See also decision tree.

9/1 4,000 AJE 3,000AJE 3,000

? ? ? ? ? ? ? ? ? ? ? ? ?

Assume a prominent midwestern university collected $4,000 in tuition on September 1. When cash was debited, the university credited ...

9/1 4,000

? ? ? ? ? ? ? ? ? ? ? ? ? ?

$4,0003 mo 1 mo

$3,000 $1,000

You try to make the adjusting entry before seeing the solution.

9/1 4,000

? ? ? ? ? ? ? ? ? ? ? ? ? ?

$4,0003 mo 1 mo

$3,000 $1,000earned unearned

9/1 4,000

? ? ? ? ? ? ? ? ? ? ? ? ? ?

Did you try to make the entry before seeing the solution here?

11/30 Tuition Earned 1,000 Unearned Tuition 1,000

AJE 1,000AJE 1,000

Why or why not?

? ? ? ? ? ? ? ? ? ? ? ? ? ?

REVENUE

? ? ? ? ? ? ? ? ? ? ? ? ? ?

(the balance was in the REVENUE account, Tuition Earned, before adjustment)

9/1 4,000

? ? ? ? ? ? ? ? ? ? ? ? ? ?

Following REVENUE method; the AJE created a balance in a balance sheet account, Unearned Tuition, and, therefore, SHOULD BE reversed. See also decision tree. Further, following the REVENUE method, the beginning balance next year should be in the REVENUE account. The reversing entry gets it there.

9/1 4,000AJE 1,000AJE 1,000

? ? ? ? ? ? ? ? ? ? ? ? ? ?

9/1 4,000AJE 1,000AJE 1,000

C1 3,000

R 1,000

Following REVENUE method; the AJE created a balance in a balance sheet account, Unearned Tuition, and, therefore, SHOULD BE reversed. See also decision tree. Further, following the REVENUE method, the beginning balance next year should be in the REVENUE account. The reversing entry gets it there.

IV. Plant Assets (a form of deferrals)

A. Desire to maintain “cost” of account

B. “Decline in Usefulness” = DEPRECIATION

Depreciation Expense used Accumulated Depreciation usedC. “Nature” of Accumulated Depreciation is

CONTRA ASSET

Represents TOTAL depreciation taken since asset was acquired.

IV. Plant Assets (a form of deferrals)

D. Result of “main” account and “contra” account worth naming:

Equipment - Accumulated Depreciation = BOOK VALUE

(You would do well to remember it all semester!)

Thanks for taking the time to complete your accrual and deferral handout. Hopefully, the time you invested will pay off.

Remember to use the decision tree as a study tool!

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 1 Accruals and Deferrals Extra Solutions to...

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