Exercise 4-4 Accruals and Deferrals

I. Exercise 4-4 Accruals and Deferrals, p. 194

Accrued liability 1. Wages earned by employees but not yet paid.

Deferred revenue 2. Cash collected from subscriptions in advance of publishing a magazine.

Accrued asset 3. Interest earned on a customer loan for which principal and interest have not yet been collected.

Deferred expense 4. One year’s premium on life insurance policy paid in advance.

Deferred expense 5. Office building purchased for cash.

Deferred revenue 6. Rent collected in advance from a tenant.

Accrued liability 7. State income taxes owed at the end of the year.

Accrued asset 8. Rent owned by a tenant but not yet collected.

II. Exercise 4-24 The Effect of Adjustments on the Accounting Equation, p. 199

(I) increase (D) decrease (NE) no effect

Assets = Liabilities + Stock Equity

1. Prepaid insurance is reduced for the portion of the policy

that has expired during the period. D NE D

2. Interest incurred during the period but not yet paid is accrued. NE I D

3. Depreciation for the period is recorded. D NE D

4. Revenue is recorded for the earned portion of a liability for

amounts collected in advance from customers. NE D I

5. Rent revenue is recorded for amounts owed by a tenant

but not yet received. I NE I

6. Income taxes owed but not yet paid are accrued NE I D

III. Exercise 4-25 The Accounting Cycle, p. 199

Order Procedure

4 Prepare a work sheet

7 Close the accounts

1 Collect and analyze information from source documents

6 Prepare financial statements

3 Post transactions to accounts in the ledger

5 Record and post adjustments

2 Journalize daily transactions

IV. Problem 4-2 Annual Adjustments, p. 201

1. For each of the preceding situations, identify and analyze the adjustment to be recorded on December 31, 2012.

a. Palmer purchased computer equipment two...