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Accounting Lecture 3

Journal Entries
Question E3-17
1. Dr. Cash 125 000
Cr. Common shares 125 000
2. Dr. Pre paid rent 3 000
Cr. Cash 3000
3. Sept. 3
rd
20
th
*lease hold improvement leasing property, limited time to enjoy benefits
(duration of lease) and renovations
Dr. Renovation 20000
Cr. Cash 20000
4. Dr. equipment 125 000
Cr. Cash 75 000
Cr. Accounts payable 50 000
5. Dr. supplies 5 000
Cr. Accounts payable 5 000
6. Dr. cash ($350 x 300/2) 52 500
Dr. accounts receivable 52 500
Cr. Revenue 105 000
7. Dr. wage/salary expense 10 000
Cr. Cash 1000
8. Dr. Wage/salary expense 1200
Cr. Accrued wages payable 1200
9. Dr. Utility Expense 2000
Cr. 2000
10. Dr. accounts payable
Cr. Cash 2700
11. Dr. cash
Cr. Accounts receivable
12. Dr. supply expense 3900
Cr. Supply 3900
Adjusting entries
Dr. depreceiation expense (renovation) 1111
Cr. Accumulated depreciation 1111
(20 000/3/12x2)
Dr. Depreciation expense 4167
Cr. Accumulated Dep (equipment) (125 000/5/12x2) 4167
Dr. Rent expense (rent) 1500
Cr. Prepaid rent (3000/2) 1500
You also need to do closing entries ***
Handout question
Accounting error
Q1: depreciation to be recognized in 2011:
Annual depreciation: (40 000-4000)/10 = 3600
Depreciation (aug 1 dec 31 2011) = 1500
The correct entry should be
Dr. depreciation expense 1500
Cr. Accumulated dep 1500
By not doing the entry, impact to 2011:
Expense understated by 1500
Net income is overstated by 1500
Owners equity is overstated by 1500
Assets overstated 1500
2012 = everything is recorded correctlytherefore NE for all boxes on sheet exceptfor the balance sheet
entries because they are accumulative therefore OE is overstated by 1500 and assets overstated by 1500
Q2.
This is wrong because they have violated the accrual and matching principles
Wrong: 2011
You need to close the accounts on the year end.
Accrue salary expense from December 28 to 31:
Since Dec 28/29 are Saturdays and Sundays, only need to accrue for Mondays & Tuesdays
30 000 paid weekly/5 x2 = 12 000
By not accruing the salaries in 2011 the:
Expenses are understated by12 000
Net income overstated 12 000
Oe overstated 12000
Liabilities understated 12 000
The journal entry to record the accrual should be:
Salary expense: 12 000
cr. Salary payable 12 000
In 2012
By putting all 2011 salaries to 2012, the expenses are overstated 12 000
Net income understated by 12 000
Liabilities NE
OE NE
Question 3
By not recording the revenue in 2011 where the revenue is generated,
2011
Revenue is understated by 2500
Netincome is understated by 2500
Owners equity is understated by 2500
Assetsunderstated 2500
The correct entry in 2011
Dr. accounts receivable 2500
Cr. Revenue 2500
Impact in 2012
Revenue overstated by 2500
Netincome is overstated by 2500
OE NE
Assets NE

Question 4
Expensed the advertisement when it should have been expensed at a different period
In 2011:
Expenses overstated by 1000
Net income is understated by 10 000
Owners equity is understated by 10 000
Asset understated by 10 000(pre paid advertising)
In 2012
Expenses understated by 10 000
Net income is overstated by 10 000
OE NE
Asset NE

Questoon 5
Should have been taken from accounts receivable but you did revenue
In 2011
Revenue is overstated by 1900
Net income is overstated by 1900
OE overstated by 1900
Assets ( accounts receivable) overstated by 1900
In 2012
Revenue Ne
Net income Ne
OE overstated by 1900
Assets overstated by 1900
Mistake is not corrected- this error will continue on
Question 6
By recording the collection of cash as a liability instead of revenue
2011
Revenue is understated 300
Net income Is understaded by 300
OE u 300
Liability O 300
In 2012
Revenue NE
Net income NE
Oe u 300
Liabilities overstated by 300
Qustion 7
The payment for insurance at the end of 2011should be recorded as a prepaid expense rather than
an expense
In 2011
Expense overstated by 8000
Net income is understated by 8000
Owners equit u 8000
Assets(prepaid insurance) U 8000
2012
Insurance is understated because not recorded properly
Expense u 4000
Net income o4000
OE u 4000
Assets understated4000
Total effect --- look online for answers