2-1 Cash to Accrual Adjusting Entries and Income Statement Chapter 2 Illustrated Solution: Problem 2-30

2-2 Gee Enterprises records all transactions on the cash basis. You have been asked to prepare an income statement on the accrual basis. Prepare adjusting entries to convert the books from a cash to an accrual basis. Part 1

2-3 Situation Amounts due from customers at year-end were $28,000. Of this amount, $3,000 will probably not be collected. Part 1 (a)

2-4 Situation Amounts due from customers at year-end were $28,000. Of this amount, $3,000 will probably not be collected. Part 1 (a) Solution Accounts Receivable……………………………28,000 Sales…………………………………………28,000 Doubtful Accounts Expense……………………3,000 Allowance for Doubtful Accounts…………3,000

2-5 Situation Salaries of $11,000 for December 2002 were paid on January 5, Ignore payroll taxes. Part 1 (b)

2-6 Situation Salaries of $11,000 for December 2002 were paid on January 5, Ignore payroll taxes. Part 1 (b) Solution Salaries Expense………………………………11,000 Salaries Payable……………………………11,000

2-7 Situation Gee rents its building for $3,000 a month, payable quarterly in advance. The contract was signed on January 1, Part 1 (c)

2-8 Situation Gee rents its building for $3,000 a month, payable quarterly in advance. The contract was signed on January 1, Part 1 (c) Solution Prepaid Rent………………………………………9,000 Rent Expense…………………………………9,000

2-9 Situation The bill for December’s utility costs of $2,700 was paid January 10, Part 1 (d)

2-10 Situation The bill for December’s utility costs of $2,700 was paid January 10, Part 1 (d) Solution Utilities Expense………………………………….2,700 Accrued Liabilities……………………………2,700

2-11 Situation Equipment of $30,000 was purchased on January 1, The expected life is 5 years, no salvage value. Assume straight-line depreciation. Part 1 (e)

2-12 Situation Equipment of $30,000 was purchased on January 1, The expected life is 5 years, no salvage value. Assume straight-line depreciation. Part 1 (e) Solution Depreciation Expense……………………………6,000 Accumulated Depreciation—Equipment…..6,000 $30,000/5 years.

2-13 Situation Commissions of 15% of sales are paid on the same day cash is received from customers. Part 1 (f)

2-14 Situation Commissions of 15% of sales are paid on the same day cash is received from customers. Part 1 (f) Solution Commission Expense…………………………….3,750 Commission Payable…………………………3,750 $25,000 x 15%. No commission on uncollectible accounts.

2-15 Situation A 1-year insurance policy was issued on company assets on July 1, Premiums are paid annually in advance. Part 1 (g)

2-16 Situation A 1-year insurance policy was issued on company assets on July 1, Premiums are paid annually in advance. Part 1 (g) Solution Prepaid Insurance……………………………….3,000 Insurance Expense………………………….3,000 $6,000 x 6/12.

2-17 Situation Gee borrowed $50,000 for one year on May 1, Interest payments based on an annual rate of 12% are made quarterly, beginning with the first payment on August 1, (Quarterly payments will also be made on November 1, 2002, February 1, 2003 and May 1, 2003.) Part 1 (h)

2-18 Situation Gee borrowed $50,000 for one year on May 1, Interest payments based on an annual rate of 12% are made quarterly, beginning with the first payment on August 1, (Quarterly payments will also be made on November 1, 2002, February 1, 2003 and May 1, 2003.) Part 1 (h) Solution Interest Expense…………………………………1,000 Interest Payable…………………………….1,000 $50,000 x 12% x 2/12.

2-19 Situation The income tax rate is 40%. No prepayments of income taxes were made during Part 1 (i)

2-20 Situation The income tax rate is 40%. No prepayments of income taxes were made during Part 1 (i) Solution Income Tax Expense….…………………………26,300 Income Taxes Payable..…………………….26,300 $65,750 x.4; see Part 2.

2-21 Prepare the income statement for the year ended December 31, 2002, based on the entries in Part 1. Part 2

2-22 Prepare the income statement for the year ended December 31, 2002, based on the entries in Part 1. Part 2

2-23 End of Problem