1460T_c03.qxd1/14/0612:31 am Page105 EQA Brief Exercises·105 13.What differences are there between the trial balance be- 17.Selanne Enterprises made the following entry on De- fore closing and the trial balance after closing with re- cember 31,2007 spect to the following accounts? Interest Expense 10.000 (a)Accounts Payable. Interest Payable 10,000 (To record interest expense due on loan (b)Expense accounts. from Anaheim National Bank.) (c)Revenue accounts. What entry would Anaheim National Bank make (d)Retained Earnings account. regarding its outstanding loan to Selanne Enterprises? (e)Cash Explain why this must be the case. 14.What are adjusting entries and why are they necessary? *18.Distinguish between cash-basis accounting and accrual- 15.What are closing entries and why are they necessary? basis accounting.Why is accrual-basis accounting acceptable for most business enterprises and the cash- 16.John Damon,maintenance supervisor for Red Sox In- basis unacceptable in the preparation of an income state- surance Co.,has purchased a riding lawnmower and ac- ment and a balance sheet? cessories to be used in maintaining the grounds around corporate headquarters.He has sent the following in- *19.When wages expense for the year is computed,why are formation to the accounting department. beginning accrued wages subtracted from,and ending Cost of mower and 7/1/07 accrued wages added to,wages paid during the year? Date purchased accessories $3,000 Monthly salary of *20.List two types of transactions that would receive differ- Estimated useful life 5 yrs groundskeeper $1,100 ent accounting treatment using (a)strict cash-basis ac- Estimated annual fuel cost $150 counting,and (b)a modified cash basis. Compute the amount of depreciation expense(related to *21.What are reversing entries,and why are they used? the mower and accessories)that should be reported on *22."A worksheet is a permanent accounting record,and its Red Sox's December 31,2007,income statement.Assume use is required in the accounting cycle."Do you agree? straight-line depreciation. Explain. BRIEF EXERCISES PLUS (L0 4)BE3-1 Transactions for Argot Company for the month of May are presented below.Prepare journal en- tries for each of these transactions.(You may omit explanations.) May 1 B.D.Argot invests $3,000 cash in exchange for common stock in a small welding corporation 3 Buys equipment on account for $1,100. 13 Pays $400 to landlord for May rent. 21 Bills Noble Corp.$500 for welding work done. (L0 4)BE3-2 Brett Favre Repair Shop had the following transactions during the first month of business.Jour nalize the transactions.(Omit explanations.) Aug.2 Invested $12,000 cash and $2,500 of equipment in the business. 7 Purchased supplies on account for $400.(Debit asset account.) 12 Performed services for clients,for which $1,300 was collected in cash and $670 was billed to the clients. 15 Paid August rent $600. 19 Counted supplies and determined that only $270 of the supplies purchased on August 7 are still on hand. (Lo 4,BE3-3 On July 1,2007,Blair Co.pays $18,000 to Hindi Insurance Co.for a 3-year insurance contract. 5) Both companies have fiscal years ending December 31.For Blair Co.journalize the entry on July 1 and the adjusting entry on December 31. (L0 4,BE3-4 Using the data in BE3-3,journalize the entry on July 1 and the adjusting entry on December 5) 31 for Hindi Insurance Co.Hindi uses the accounts Unearned Insurance Revenue and Insurance Revenue (LO 4,BE3-5 Assume that on February 1,Procter Gamble (P&G)paid $840,000 in advance for 2 years'in- 5) surance coverage.Prepare P&G's February 1 journal entry and the annual adjusting entry on June 30. (L0 4,BE3-6 Mogilny Corporation owns a warehouse.On November 1,it rented storage space to a lessee (ten- 5) ant)for 3 months for a total cash payment of $2,700 received in advance.Prepare Mogilny's November 1 journal entry and the December 31 annual adjusting entry.Brief Exercises • 105 13. What differences are there between the trial balance be￾fore closing and the trial balance after closing with re￾spect to the following accounts? (a) Accounts Payable. (b) Expense accounts. (c) Revenue accounts. (d) Retained Earnings account. (e) Cash. 14. What are adjusting entries and why are they necessary? 15. What are closing entries and why are they necessary? 16. John Damon, maintenance supervisor for Red Sox In￾surance Co., has purchased a riding lawnmower and ac￾cessories to be used in maintaining the grounds around corporate headquarters. He has sent the following in￾formation to the accounting department. Cost of mower and Date purchased 7⁄1 ⁄07 accessories $3,000 Monthly salary of Estimated useful life 5 yrs groundskeeper $1,100 Estimated annual fuel cost $150 Compute the amount of depreciation expense (related to the mower and accessories) that should be reported on Red Sox’s December 31, 2007, income statement. Assume straight-line depreciation. 17. Selanne Enterprises made the following entry on De￾cember 31, 2007. Interest Expense 10,000 Interest Payable 10,000 (To record interest expense due on loan from Anaheim National Bank.) What entry would Anaheim National Bank make regarding its outstanding loan to Selanne Enterprises? Explain why this must be the case. *18. Distinguish between cash-basis accounting and accrual￾basis accounting. Why is accrual-basis accounting acceptable for most business enterprises and the cash￾basis unacceptable in the preparation of an income state￾ment and a balance sheet? *19. When wages expense for the year is computed, why are beginning accrued wages subtracted from, and ending accrued wages added to, wages paid during the year? *20. List two types of transactions that would receive differ￾ent accounting treatment using (a) strict cash-basis ac￾counting, and (b) a modified cash basis. *21. What are reversing entries, and why are they used? *22. “A worksheet is a permanent accounting record, and its use is required in the accounting cycle.” Do you agree? Explain. BE3-1 Transactions for Argot Company for the month of May are presented below. Prepare journal en￾tries for each of these transactions. (You may omit explanations.) May 1 B.D. Argot invests $3,000 cash in exchange for common stock in a small welding corporation. 3 Buys equipment on account for $1,100. 13 Pays $400 to landlord for May rent. 21 Bills Noble Corp. $500 for welding work done. BE3-2 Brett Favre Repair Shop had the following transactions during the first month of business. Jour￾nalize the transactions. (Omit explanations.) Aug. 2 Invested $12,000 cash and $2,500 of equipment in the business. 7 Purchased supplies on account for $400. (Debit asset account.) 12 Performed services for clients, for which $1,300 was collected in cash and $670 was billed to the clients. 15 Paid August rent $600. 19 Counted supplies and determined that only $270 of the supplies purchased on August 7 are still on hand. BE3-3 On July 1, 2007, Blair Co. pays $18,000 to Hindi Insurance Co. for a 3-year insurance contract. Both companies have fiscal years ending December 31. For Blair Co. journalize the entry on July 1 and the adjusting entry on December 31. BE3-4 Using the data in BE3-3, journalize the entry on July 1 and the adjusting entry on December 31 for Hindi Insurance Co. Hindi uses the accounts Unearned Insurance Revenue and Insurance Revenue. BE3-5 Assume that on February 1, Procter & Gamble (P&G) paid $840,000 in advance for 2 years’ in￾surance coverage. Prepare P&G’s February 1 journal entry and the annual adjusting entry on June 30. BE3-6 Mogilny Corporation owns a warehouse. On November 1, it rented storage space to a lessee (ten￾ant) for 3 months for a total cash payment of $2,700 received in advance. Prepare Mogilny’s November 1 journal entry and the December 31 annual adjusting entry. BRIEF EXERCISES (L0 4) (L0 4) (L0 4, 5) (L0 4, 5) (L0 4, 5) (L0 4, 5) 1460T_c03.qxd 1/14/06 12:31 am Page 105