Execution and Control with Risk

| June 7, 2016

Question
Following is the unadjusted trial balance for Alcorn Institute as of December 31, 2011, which initially records prepaid expenses and unearned revenues in balance sheet accounts. The Institute provides one-on one training to individuals who pay tuition directly to the business and offers extension training to groups in off-site locations. Shown after the trial balance are items a through h that require adjusting entries as of December 31, 2011.

ALCORN INSTITUTE
Unadjusted Trial Balance
December 31, 2011

Debit

Credit

Cash

$ 50,000

Accounts receivable

0

Teaching supplies

60,000

Prepaid insurance

18,000

Prepaid rent

2,600

Professional library

10,000

Accumulated depreciation—Professional library

$ 1,500

Equipment

30,000

Accumulated depreciation—Equipment

16,000

Accounts payable

12,200

Salaries payable

0

Unearned training fees

27,600

M. Alcorn, Capital

68,500

M. Alcorn, Withdrawals

20,000

Tuition fees earned

105,000

Training fees earned

62,000

Depreciation expense—Professional library

0

Depreciation expense—Equipment

0

Salaries expense

43,200

Insurance expense

0

Rent expense

28,600

Teaching supplies expense

0

Advertising expense

18,000

Utilities expense

12,400

Totals

$ 292,800

$292,800

Additional Information Items

a. An analysis of the Institute’s insurance policies shows that $6,400 of coverage has expired.

b. An inventory count shows that teaching supplies costing $2,500 are available at year-end 2011.

c. Annual depreciation on the equipment is $4,000.

d. Annual depreciation on the professional library is $2,000.

e. On November 1, the Institute agreed to do a special four-month course (starting immediately) for a client. The contract calls for a $4,600 monthly fee, and the client paid the first two months’ fees in advance. When the cash was received, the Unearned Training Fees account was credited. The last two month’s fees will be recorded when collected in 2012.

f. On October 15, the Institute agreed to teach a four-month class (beginning immediately) to an individual for $2,200 tuition per month payable at the end of the class. The class started on October 15, but no payment has yet been received. (Alcorn’s accruals are applied to the nearest half month; for example, October recognizes one-half month accrual.)

g. The Institute’s only employee is paid weekly. As of the end of the year, three days’ salaries have accrued at the rate of $180 per day.

h. The balance in the Prepaid Rent account represents rent for December.

Required

1. Prepare T-accounts (representing the ledger) with balances from the unadjusted trial balance.

2. Prepare the necessary adjusting journal entries for items a through h, and post them to the T-accounts. Assume that adjusting entries are made only at year-end.

3. Update balances in the T-accounts for the adjusting entries and prepare an adjusted trial balance.

4. Prepare the company’s income statement and statement of owner’s equity for the year 2011, and prepare its balance sheet as of December 31, 2011.

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