1. Exercise 4
4. Accounting for prepaid expenses and unearned revenues.
Hawaii-Blue began business on January 1 of the current year
and offers deep-sea fishing trips to tourists. Tourists pay $125
in advance for an all-day outing off the coast of Maui. The
company collected monies during January for 210 outings, with
30 of the tourists not planning to take their trips until early
February.
Hawaii-Blue rents its fishing boat from Pacific Yacht Supply.
An agreement was signed at the beginning of the year, and
$72,000 was paid for the rights to use the boat for 2 full years.
1. Prepare journal entries to record (1) the collection of monies
from tourists and (2) the revenue generated during January.
2. Calculate Hawaii-Blue's total obligation to tourists at the end
of January. On what financial statement and in which section
would this amount appear?
3. Prepare journal entries to record (1) the payment to Pacific
Yacht Supply and (2) the subsequent adjustment on January 31.
4. On what financial statement would Hawaii-Blue's January
boat rental cost appear?
Exercise 8
8. Closing entries. Gomez Company had the following adjusted
trial balance on December 31:
Cash
$ 2,300
Accounts Receivable
16,500
Prepaid Insurance
1,200

2. Land
40,000
Accounts Payable
$ 1,800
Miguel Gomez, Capital
43,700
Miguel Gomez, Drawing
2,500
Service Revenue
38,000
Rent Expense
9,000
Insurance Expense
5,400
Advertising Expense
3,500
Utilities Expense
3,100
$83,500
$83,500
1. Prepare the closing entries that Gomez would record on
December 31.
Problem 3
Adjusting entries. You have been retained to examine the
records of Kathy's Day Care Center as of December 31, 20X3,
the close of the current reporting period. In the course of your

3. examination, you discover the following:
1. On January 1, 20X3, the Supplies account had a balance of
$2,350. During the year, $5,520 worth of supplies was
purchased, and a balance of $1,620 remained unused on
December 31.
2. Unrecorded interest owed to the center totaled $275 as of
December 31.
3. All clients pay tuition in advance, and their payments are
credited to the Unearned Tuition Revenue account. The account
was credited for $75,500 on August 31. With the exception of
$15,500, which represented prepayments for 10 months' tuition
from several well-to-do families, all amounts were for the
current semester ending on December 31.
4. Depreciation on the school's van was $3,000 for the year.
5. On August 1, the center began to pay rent in 6-month
installments of $21,000. Kathy wrote a check to the owner of
the building and recorded the check in Prepaid Rent, a new
account.
6. Two salaried employees earn $400 each for a 5-day week.
The employees are paid every Friday, and December 31 falls on
a Thursday.
7. Kathy's Day Care paid insurance premiums as follows, each
time debiting Prepaid Insurance:
Date Paid
Policy No.
Length of Policy
Amount
Feb. 1, 20X2
1033MCM19
1 year
$540
Jan. 1, 20X3
7952789HP
1 year
912
Aug. 1, 20X3

4. XQ943675ST
2 years
840
Instructions
The center's accounts were last adjusted on December 31, 20X2.
Prepare the adjusting entries necessary under the accrual basis
of accounting.
Chapter 4 Exercises
3. Bank reconciliation and entries. The following information
was taken from the accounting records of Palmetto Company for
the month of January:
Balance per bank
$6,150
Balance per company records
3,580
Bank service charge for January
20
Deposits in transit
940
Interest on note collected by bank
100
Note collected by bank
1,000
NSF check returned by the bank with the bank statement
650
Outstanding checks
3,080
1. Prepare Palmetto's January bank reconciliation.
2. Prepare any necessary journal entries for Palmetto.
Exercise 6
6. Allowance method: estimation and balance sheet disclosure.
The following preadjusted information for the Maverick
Company is available on December 31:
Accounts receivable
$107,000

5. Allowance for uncollectible accounts
5,400 (credit balance)
Credit sales
250,000
1. Prepare the journal entries necessary to record Maverick's
uncollectible accounts expense under each of the following
assumptions:
(1) Uncollectible accounts are estimated to be 5% of Credit
Sales.
(2) Uncollectible accounts are estimated to be 14% of Accounts
Receivable.
2. How would Maverick's Accounts Receivable appear on the
December 31 balance sheet under assumption (1) of part (a)?
3. How would Maverick's Accounts Receivable appear on the
December 31 balance sheet under assumption (2) of part (a)?
Problem 4
3. Allowance method: analysis of receivables. At a January
20X2 meeting, the president of Sonic Sound directed the sales
staff "to move some product this year." The president noted that
the credit evaluation department was being disbanded because it
had restricted the company's growth. Credit decisions would
now be made by the sales staff.
By the end of the year, Sonic had generated significant gains in
sales, and the president was very pleased. The following data
were provided by the accounting department:
20X2
20X1
Sales
$23,987,000
$8,423,000
Accounts Receivable, 12/31
12,444,000
1,056,000
Allowance for Uncollectible Accounts, 12/31
?

6. 23,000 cr.
The $12,444,000 receivables balance was aged as follows:
Age of Receivable
Amount
Percentage of Accounts Expected to Be Collected
Under 31 days
$5,321,000
99%
31-60 days
3,890,000
90
61-90 days
1,067,000
80
Over 90 days
2,166,000
60
Assume that no accounts were written off during 20X2.
Instructions
1. Estimate the amount of Uncollectible Accounts as of
December 31, 20X2.
2. What is the company's Uncollectible Accounts expense for
20X2?
3. Compute the net realizable value of Accounts Receivable at
the end of 20X1 and 20X2.
4. Compute the net realizable value at the end of 20X1 and
20X2 as a percentage of respective year-end receivables
balances. Analyze your findings and comment on the president's
decision to close the credit evaluation department.
Student Guidance ReportAshford University ACC205Guidance
ReportYour Browser Must be Open to Access VideoWeek
TwoLISTEN TO AUDIO/VIDEO EXPLAINING THE
GUIDANCE REPORTYELLOW INDICATES ACCOUNT
AMOUNTS CHANGEDChange Account to:Based Upon Course

7. Start DateExercise/
ProblemAccount to
be changedOriginal
AmountJan-FebMar-AprMay-JunJul-AugSept-OctNov-DecCh 3
Ex 4Fish Trip125150175200225250275Boat
rental72,00078,00084,00090,00096,000102,000108,000Question
sYOUR ANSWERS BASED UPON COURSE START DATE
Prepare journal entries to record (1) the collection of monies
from tourists and (2) the revenue generated during
January.CashUnearned Fish TripsUnearned Fish TripsEarned
Fish TripsCalculate Hawaii-Blue's total obligation to tourists at
the end of JanuaryOn what financial statement and in which
section would this amount appear?What section of the financial
statement would this amount appear?Prepare journal entries to
record (1) the payment to Pacific Yacht Supply and (2) the
subsequent adjustment on January 31.Prepaid Boat
RentalCashBoat Rental ExpensePrepaid Boat RentalOn what
financial statement would Hawaii-Blue's January boat rental
cost appear?Account to
be changedOriginal
AmountCh 3 Ex 8 Miguel Gomez, Drawing
2,500300035004000350050005500 Service Revenue
38,000390004000041000470004900050000 Rent Expense
9,00095001000010500170001750018000YOUR ANSWERS
BASED UPON COURSE START DATEService
RevenueCapitalCapitalRent Expense Insurance Expense
Advertising Expense Utilities Expense CapitalDrawingCh 3 Pb
3Account to
be changedOriginal
AmountJan-FebMar-AprMay-JunJul-AugSept-OctNov-
DecUnrecorded interest275300325350370376377Total Tuition
in
advance60000700007100074000750007900083000Depreciation
3000400041004200430044004500Rent210002400030000360004
20004800054000Salaries400500600700800900950Feb 1
20X2540600610620640650660Jan 1

8. 20X3912100010501060107010901095YOUR ANSWERS
BASED UPON COURSE START DATEUnrecorded interest
owed to the center totaled $275 as of December 31.Interest
ExpenseInterest PayableAll clients pay tuition in advance, and
their payments are credited to the Unearned Tuition Revenue
account. The account was credited for $75,500 on August 31.
With the exception of $15,500, which represented prepayments
for 10 months' tuition from several well-to-do families, all
amounts were for the current semester ending on December
31.Unearned Tuition RevenueTuition RevenueDepreciation on
the school's van was $3,000 for the year.Depreciation
ExpenseAccumulated DepreciationOn August 1, the center
began to pay rent in 6-month installments of $21,000. Kathy
wrote a check to the owner of the building and recorded the
check in Prepaid Rent, a new account.Rent ExpensePrepaid
RentTwo salaried employees earn $400 each for a 5-day week.
The employees are paid every Friday, and December 31 falls on
a Thursday.Salary ExpenseSalaries PayableKathy's Day Care
paid insurance premiums as follows, each time debiting Prepaid
Insurance: Date Paid Policy No. Length of Policy Amount
Feb. 1, 20X2 1033MCM19 1 year $540 Jan. 1, 20X3
7952789HP 1 year 912 Aug. 1, 20X3 XQ943675ST 2 years
840Insurance ExpensePrepaid InsuranceCh 4 Ex 3Balance per
bank 6150$6,252$6,354$6,456$6,558$6,660$6,762Note
collected by bank 10001,1021,2041,3061,4081,5101,612YOUR
ANSWERS BASED UPON COURSE START DATEBalance per
bank Deposits in transit Outstanding checks Adjusted Bank
BalanceBalance per company records Bank service charge for
January Interest on note collected by bank Note collected by
bank NSF check returned by the bank with the bank statement
Adjusted Book BalanceCh 4 Ex 6Account to
be changedOriginal
Amount5% of credit sales00.060.070.080.090.10.1114% of
accounts receivable00.150.160.170.180.190.2(1) Uncollectible
accounts are estimated to be 5% of Credit Sales.YOUR
ANSWERS BASED UPON COURSE START

9. DATEUncollectible Accounts ExpenseAllowance for
Uncollectible Accounts(2) Uncollectible accounts are estimated
to be 14% of Accounts Receivable.Uncollectible Accounts
ExpenseAllowance for Uncollectible AccountsHow would
Maverick's Accounts Receivable appear on the December 31
balance sheet under assumption (1) of part (a)?Accounts
ReceivableLess: Allowance for Uncollectible AccountsHow
would Maverick's Accounts Receivable appear on the December
31 balance sheet under assumption (2) of part (a)?Accounts
ReceivableLess: Allowance for Uncollectible AccountsNet
ReceivablesAccount to
be changedOriginal
AmountCh 4 Pb 3Percentage of Accounts Expected to Be
Collected196%93%90%87%84%81%YOUR ANSWERS BASED
UPON COURSE START DATE What is the company's
Uncollectible Accounts expense for 20X2? Compute the net
realizable value of Accounts Receivable at the end of 20X2.Net
Realizable value 20X2Accounts receivableLess: Allowance for
Uncollectible AccountsNet Realizable ValueCompute the net
realizable value at the end of 20X2 as a percentage of respective
year-end receivables balances. Analyze your findings and
comment on the president's decision to close the credit
evaluation
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