Accounting - 225 Week #3 Assignment

Week 3 Assignment
Aaron Cobb
Acc-225
September 13th, 2013
Hratch Derkalousdian

Week 3 Assignment
3-1
Classify the following adjusting entries as involving prepaid expenses (PE), unearned revenues (UR), accrued expenses (AE), or accrued revenues (AR).

A. UR - To record revenue earned that was previously received as cash in advance.
B. AE - To record annual depreciation expense.
C. AE -To record wages expense incurred but not yet paid (nor recorded).
D. AR -To record revenue earned but not yet billed (nor recorded).
E. PE -To record expiration of prepaid insurance.

3-9
In its first year of operations, Harden Co. earned $39,000 in revenues and received $33,000 cash from these customers. The company incurred expenses of $22,500 but had not paid $2,250 of them at yearend. Harden also prepaid $3,750 cash for expenses that would be incurred the next year. Calculate the first year’s net income under both the cash basis and the accrual basis of accounting.

The cash basis is $13,000 because there was $33,000 cash received and $20,000 paid out and the difference of the received cash and the paid cash is $13,000 net income. The accrual basis has $39,000 in total billing and expenses of $18,750, derived from the $22,500 of incurred expenses minus the $3,750 that was prepaid for the next year leaving a difference of $20,250 net income.
Page 118
3-1
1. B
2. E
3. C
4. F
5. D
6. A

Page 120
3-7
Balance Sheet Insurance Asset Using Insurance Expense Using Accrual Basis Cash Basis Accrual Basis Cash Basis
Dec. 31, 2003 $11,700 $0 2003 $4,500 $16,200
Dec. 31, 2004 $6,300 $0 2004 $5,400 $0
Dec. 31, 2005 $900 $0 2005 $5,400 $0
Dec. 31, 2006 $0 $0 2006 $900 $0
Total $16,200