Industrial Equipment Ltd.

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A copy of the company’s Statement of Comprehensive Income and one page from its Notes to Financial Statements has been posted on ULearn (with Seminar 3 materials).

What is AlarmForce’s policy for recognizing revenue? Does this agree with the GAAP criteria?

Why do they have multiple policies for revenue?

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Completing the Accrual Accounting Process

Kate, the sole owner of Kate’s Home Inspection Services Ltd. has entered all the day to day transactions for her company for the year ending September 30, 2014. The trial balance, as it currently stands, is included in the appendix to the material. Additional information about the business follows. For each item, prepare the adjusting journal entry required, if any.

- The insurance policy has a 1 year term beginning January 1, 2014

$3,600/12 = $300 per month x 3 = $900

3,600-900 = $2,700

DR General and Admin Expense $2,700

CR Prepaid Insurance $2,700

- Kate counted her supplies on September 30 and found $1,400 was on hand.

DR General and Admin Expense $1,100

CR Supplies $1,100

- Vehicles were purchased on October 1, 2012 and are expected to have a life of five years.

78,000/5 = $15,600

DR Amortization Expense $15,600

CR Accumulated Depreciation – Vehicles $15,600

- Computers were purchased on April 1, 2012 and are expected to last for 4 years.

Computers 16,000/4 = $4,000

DR Amortization Expense $4,000

CR Accumulated Depreciation – Computers $4,000

- Kate requires certain that customers pay in advance of receiving services. Three customers paid $1,200 each during the month of September. The receipts were recorded as Unearned Service Revenue. On September 30, Kate completed 2 of the inspections.

1200x2 = 2,400

DR Unearned Service Revenue $2,400

CR Revenue $2,400

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- Interest on the long-term debt is charged at 8% and is due on December 31 of each year, together with $6,000 principle payment.

34000 x 8% x 9/12 = 2,040

DR Interest Expense $2,040

CR Interest Payable $2,040

- One customer paid Kate $1,600 on September 20. Kate mistakenly recorded the payment as revenue. It was a payment to settle an accounts receivable.

DR Revenue 1,600

CR Accounts Receivable 1,600

- Income taxes are estimated to be $6,000 for the year. The company has paid $4,000 in installments so far for the year.

DR Income Tax Expense $2,000

CR Income Tax Payable $2,000

- Update the trial balance. Why have none of the entries impacted the cash account?

Adjusting entries do not have a cash impact – they are done to record unrecorded items or make corrections at the year end

You may need to complete portions of the following requirements on your own. Solutions will be posted on ULearn.

- Prepare a statement of earnings, statement of retained earnings and a balance sheet for the year ending September 30, 2014.

- Prepare the closing entries required to complete the year.

- Prepare the post-closing trial balance.