Accruals and deferrals, Accounting course

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King’s College
Name: _____________________________________
Fall 2017
ACCT 115: Additional Accruals and Deferrals Practice
The records of Hetrick Company and Frear Corporation show the following information.
Prepare journal entries, if required, to adjust the books of Hetrick Company or Frear Corporation, as
noted. The fiscal year for both companies end December 31.
(A) On December 1, 2017, Hetrick Company received a rent payment for office space leased to Frear
Corporation. Because Frear has a very poor credit rating, Hetrick required an advance payment of rent
for eighteen months. The payment of $225,000 cash was for the following eighteen months and was
credited to deferred rent revenue when it was received. Record the original entry Hetrick made when
payment was received on December 1, 2017.
Date
Account Names
Debits
Credits
01-Dec-17
Computations:
(B) Refer to (A) above. Record the entry Hetrick should make, if any, to adjust the books before the
close of the year ended December 31, 2017, to record the rent revenue earned in December.
Date
Account Names
Debits
Credits
31-Dec-17
Computations:
(C) Refer to (A) above. If, on December 1, 2017, when Hetrick Company received the rent payment
of $225,000 for office space leased to Frear Corporation, the accountant for Hetrick credited
rent revenue instead of deferred rent revenue, what entry should Hetrick make, if any,
before the close of the year ended December 31, 2017 to record rent revenue earned in December?
Note: You may want to consider preparing multiple entries to complete this adjustment.
Date
Account Names
31-Dec-17
Computations:
Page 1 of 5
Debits
Credits
King’s College
Name: _____________________________________
Fall 2017
ACCT 115: Additional Accruals and Deferrals Practice
(D) Refer to (A) above. On December 1, 2017, when Frear Corporation made the payment to Hetrick
Company in advance for eighteen months of rent, totaling $225,000, Frear’s accountant debited
Prepaid Rent Expense for the entire amount. Record the original entry made by Frear.
Date
Account Names
Debits
Credits
01-Dec-17
Computations:
(E) Refer to (D) above. Record the entry Frear should make, if any, to adjust the books before the
close of the year ended December 31, 2017, to record rent expense incurred in December.
Date
Account Names
Debits
Credits
31-Dec-17
Computations:
(F) Refer to (D) above. If, on December 1, 2017, when Frear Corporation made the advance rent payment
of $225,000, the accountant for Frear debited rent expense instead of prepaid rent expense, what entry
should Frear make, if any, before the close of the year ended December 31, 2017 to record expense
incurred in December? Note: You may want to prepare multiple entries for this adjustment.
Date
Account Names
Debits
Credits
31-Dec-17
Computations:
(G) Short essay question: What observations do you have about the preceding problems (A) through (F),
comparing and contrasting the accounting for the rent payment by the two companies?
Page 2 of 5
King’s College
Name: _____________________________________
Fall 2017
ACCT 115: Additional Accruals and Deferrals Practice
(H) On September 1, 2017, Frear Corporation borrowed $1,200,000 from Hetrick Company,
signing an unsecured promissory note. The loan is for 3 years, at 7 percent annual interest.
The principal and interest are payable at the maturity date. The following entry was made by
Frear’s accountant when Frear received the loan amount and signed the promissory note.
dr. Cash
$1,200,000
cr. Note Payable
$1,200,000
Frear makes monthly entries for the accrual of interest incurred for the loan. What is
the monthly entry Frear should make for the month of November 2017, if any, for interest
expense incurred for the loan?
Date
Account Names
Debits
Credits
30-Nov-17
Computations:
(I) Refer to (H) above. The following entry was made by Hetrick’s accountant when Hetrick
made the loan to Frear:
dr. Note Receivable
$1,200,000
cr. Cash
$1,200,000
Hetrick makes monthly entries for the accrual of interest earned for the loan. What is
the monthly entry Hetrick should make for the month of December 2017, if any, for
interest expense earned for the loan?
Date
Account Names
Debits
Credits
31-Dec-17
Computations:
(J) Short essay question: What observations do you have about the preceding problems (H) and (I),
comparing and contrasting the accounting for the loan and related interest by the two companies?
Page 3 of 5
King’s College
Name: _____________________________________
Fall 2017
ACCT 115: Additional Accruals and Deferrals Practice
(K) On September 1, 2015, Hetrick Company purchased and installed robotic equipment for their
manufacturing process. Hetrick paid $2,000,000 for the equipment, making a down payment
of $500,000 and financing the remainder of the purchase price with a loan from Citizens
Bank. Record the entry Hetrick should have made for the acquisition of the equipment.
Date
Account Names
Debits
Credits
01-Sep-15
Computations:
(L) Refer to (K) above. Hetrick estimated that the useful life of the robotic equipment is 5 years,
or 60 months, and it will have a salvage value of $200,000 after the end of its useful life.
Hetrick makes monthly entries for depreciation expense for the robotic equipment.
What is the monthly entry Hetrick should make for the month of December 2017, if any,
for depreciation expense?
Date
Account Names
Debits
Credits
31-Dec-17
Computations:
(M) On June 1, 2017, Frear Company secured an insurance policy, for eighteen months of coverage,
beginning August 1, 2017. The total premium of $54,000 was paid on that date. Prepaid
Insurance Expense was debited at the time of the payment.
Frear records the insurance expense incurred for this policy on a monthly basis. What entry
should Frear have made for the month of October 2017?
Date
Account Names
Debits
Credits
31-Oct-17
Computations:
Page 4 of 5
King’s College
Name: _____________________________________
Fall 2017
ACCT 115: Additional Accruals and Deferrals Practice
(N) Refer to (K) above. The loan that Hetrick required to purchase the robotic equipment is for fifteen months,
and the principal and interest is due on the maturity date.
What is the maturity date of the loan? Enter your answer here:
The interest rate for the loan is 8%, per annum.
If Hetrick accrues interest expense monthly for the interest associated with the loan, what entry should
Hetrick make in December, 2017 for accrued interest, if any?
Date
Account Names
Debits
31-Dec-17
Computations:
(O) Refer to (N) above. How much interest expense will Hetrick pay for the loan?
Enter your answer here:
Computations:
Page 5 of 5
Credits

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