ACCTG 202 ACCOUNTING (1)

School: Pacific Lutheran University - Course: ACCTG 202 - Subject: Accounting

Problem: Reeds Geophysical Consulting formally adjusts and closes its accounts only at year- end. Interim financial statements are prepared from worksheets, but the adjustments are not recorded in the accounting records. At December 31, 1997, the balances in the ledger accounts prior to making adjusting entries for the year as follow; REED GEOPHYSICAL CONSULTING Trial Balance December 31, 1997 Cash.......................................................................................................$ 19,140 Consulting fees receivable....................................................................$ 23,400 Prepaid office rent ..................................................................................$3,300 Prepaid dues and subscription.............................................................$960 Supplies .......................................................................................................$1,300 Equipment .................................................................................................$ 40,000 Accumulated depreciation: equipment ..............................................$ 7,200 Notes payable ...........................................................................................$5,000 Unearned consulting fees ......................................................................$ 35,650 Glen Reed, capital ....................................................................................$ 47,040 Glen Reed, drawing ..................................................................................$ 63,000 Consulting fees earned ............................................................................$ 90,860 Salaries expense ........................................................................................$ 16,900 Telephone expense ..................................................................................$2,550 Rent expense ...........................................................................................$ 11,000 Miscellaneous expenses ............................................................................$4,200 $185,750$185,750

a.For the first 11 months of the year, office rent had been charged to the Rent Expense account at a rate of $1,000 per month. On December1, however, the company signed a new rental agreement and paid three month rent in advance at a rate of $1,100 per month. This advance payment was debited to the prepaid office rent account. b. Dues and subscription expired during the year in the total amount of $710. c.An estimate of supplies on hand was made at December 31; the estimated cost of the unused supplies was $450. d. The useful life of the equipment has been estimated at 10 years from date to acquisition. (Remember no depreciation expense has been recorded in the accounting records for the current year). e.Accrued interest on notes payable accounted $ 100 at the year-end. (Set up accounts for Interest expense and for Interest Payable0. f.Consulting services valued at $32,550 were rendered during the year for clients who had made payments in advance. g. It is the custom of the firm to bill clients only when consulting work is completed or, in the case of prolonged engagements, at six month intervals. At December 31, engineering services valued $3000 had been rendered to clients but not yet billed. No advance payments had been received from these clients. h. Reed Geophysical has only one salaried employee. The salary owed to this individual as of December 31 amounted to $1200.