acc205 ashford university week 2

week_two_exercise_assignment x

To participate in the following discussions, go to this week’s Discussion link in the left navigation.

  1. Accounting Cycle Financial statements are a product of the accounting cycle.  Think about two different companies:  a manufacturing company, and a retail company.  Why would different companies have different accounting cycles?  Would you expect the steps of the accounting cycle to be the same for each company?  Why or why not? Guided Response: Review several of your peers’ posts and identify what steps of the accounting cycle that you feel are the most critical.  Respond to at least two of your peers and provide recommendations to extend their thinking.  Challenge your peers by asking a question that may cause them to reevaluate their position on the accounting cycle. 
  2. Bank Reconciliation What is the purpose of a bank reconciliation?  What are the reasons for differences between the cash reported in the accounting records and the cash balance in the bank statements?   Analyze several of your peers’ posts.  Let at least two of your peers know what happens to the discrepancies between the book balance and the bank balance.  Could these differences just be written off? Guided Response: A bank reconciliation reconciles the bank account balance per the books to the actual bank balance.  Outstanding checks, deposits in transit, and bank errors are reasons there are differences between the cash reported in the accounting records and the cash balance in the bank statements.  


Exercise Assignment To complete the following assignment, go to this week’s Assignment link in the left navigation.

Revenue and Expenses Please complete each of the exercises below in a word document. Save the document, and submit to in week using the
Assignment Submission button. 



Week Two Exercise Assignment

Revenue and Expenses

1. Recognition of concepts. Ron Carroll operates a small company that books entertainers for theaters, parties, conventions, and so forth. The company’s fiscal year ends on June 30. Consider the following items and classify each as either (1) prepaid expense, (2) unearned revenue, (3) accrued expense, (4) accrued revenue, or (5) none of the foregoing.

a. Amounts paid on June 30 for a 1-year insurance policy.

b. Professional fees earned but not billed as of June 30.

c. Repairs to the firm’s copy machine, incurred and paid in June.

d. An advance payment from a client for a performance next month at a convention.

e. The payment in part (d) from the client’s point of view.

f. Interest owed on the company’s bank loan, to be paid in early July.

g. The bank loan payable in part (f).

h. Office supplies on hand at year-end.

2. Understanding the closing process. Examine the following list of accounts:

Interest Payable

Accumulated Depreciation: Equipment

Alex Kenzy, Drawing

Accounts Payable

Service Revenue


Accounts Receivable

Supplies Expense

Interest Expense

Which of the preceding accounts

a. appear on a post-closing trial balance?

b. are commonly known as temporary, or nominal, accounts?

c. generate a debit to Income Summary in the closing process?

d. are closed to the capital account in the closing process?

3. Adjusting entries and financial statements. The following information pertains to Fixation Enterprises:

· The company previously collected $1,500 as an advance payment for services to be rendered in the future. By the end of December, one third of this amount had been earned.

· Fixation provided $2,500 of services to Artech Corporation; no billing had been made by December 31.

· Salaries owed to employees at year-end amounted to $1,650.

· The Supplies account revealed a balance of $8,800, yet only $3,300 of supplies were actually on hand at the end of the period.

· The company paid $18,000 on October 1 of the current year to Vantage Property Management. The payment was for 6 months’ rent of Fixation’s headquarters, beginning on November 1.

Fixation’s accounting year ends on December 31.


Analyze the five preceding cases individually and determine the following:

a. The type of adjusting entry needed at year-end (Use the following codes: A, adjustment of a prepaid expense; B, adjustment of an unearned revenue; C, adjustment to record an accrued expense; or D, adjustment to record an accrued revenue).

b. The year-end journal entry to adjust the accounts.

c. The income statement impact of each adjustment (e.g., increases total revenues by $500).

4. 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 examination, you discover the following:

· 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.

· Unrecorded interest owed to the center totaled $275 as of December 31.

· 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 $15,500all amounts were for the current semester ending on December 31.

· Depreciation on the school’s van was $3,000 for the year.

· 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.

· Two salaried employees earn $400 each for a 5-day week. The employees are paid every Friday, and December 31 falls on a Thursday.

· Kathy’s Day Care paid insurance premiums as follows, each time debiting Prepaid Insurance:

Date Paid

Policy No.

Length of Policy


Feb. 1, 20X2


1 year


Jan. 1, 20X3


1 year


Aug. 1, 20X3


2 years



The center’s accounts were last adjusted on December 31, 20X2. Prepare the adjusting entries necessary under the accrual basis of accounting.

5. Bank reconciliation and entries. The following information was taken from the accounting records of Palmetto Company for the month of January:

Balance per bank


Balance per company records


Bank service charge for January


Deposits in transit


Interest on note collected by bank


Note collected by bank


NSF check returned by the bank with the bank statement


Outstanding checks



a. Prepare Palmetto’s January bank reconciliation.

b. Prepare any necessary journal entries for Palmetto.

6. Direct write-off method. Harrisburg Company, which began business in early 20X7, reported $40,000 of accounts receivable on the December 31, 20X7, balance sheet. Included in this amount was $550 for a sale made to Tom Mattingly in July. On January 4, 20X8, the company learned that Mattingly had filed for personal bankruptcy. Harrisburg uses the direct write-off method to account for uncollectibles.

a. Prepare the journal entry needed to write off Mattingly’s account.

b. Comment on the ability of the direct write-off method to value receivables on the year-end balance sheet.

7. 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:






Accounts Receivable, 12/31



Allowance for Uncollectible Accounts, 12/31


23,000 cr.

The $12,444,000 receivables balance was aged as follows:

Age of Receivable


Percentage of Accounts Expected to Be Collected

Under 31 days



31260 days



61290 days



Over 90 days



Assume that no accounts were written off during 20X2.


a. Estimate the amount of Uncollectible Accounts as of December 31, 20X2.

b. What is the company’s Uncollectible Accounts expense for 20X2?

c. Compute the net realizable value of Accounts Receivable at the end of 20X1 and 20X2.

d. 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.

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