Reference no: EM131389240

Exercise #1

Southeast Corporation made sales of $825 million during 2014. Of this amount, Southeast collected cash for all but $27 million. The company's cost of goods sold was $255 million, and all other expenses for the year totaled $325 million. Also during 2014, Southeast paid $350 million for its inventory and $255 million for everything else. Beginning cash was $75 million. Southeast's top management is interviewing you for a job and they ask two questions:

a. How much was Southeast's net income for 2014?
b. How much was Southeast's cash balance at the end of 2014?

You will get the job only if you answer both questions correctly.

Exercise #2

Answer the following questions about prepaid expenses:

a. On October 1, Paradise Travel prepaid $6,000 for six months' rent. Give the adjusting entry to record rent expense at October 31. Include the date of the entry and an explanation. Then post all amounts to the two accounts involved, and show their balances at October 31. Paradise Travel adjusts the accounts only at October 31, the end of its fiscal year.

b. On October 1, Paradise Travel paid $950 for supplies. At October 31, Paradise Travel has $270 of supplies on hand. Make the required journal entry at October 31. Then post all amounts to the accounts and show their balances at October 31.

Exercise #3

Red Truck Rentals Company faced the following situations. Journalize the adjusting entry needed at December 31, 2014, for each situation. Consider each fact separately.

a. The business has interest expense of $3,600 that it must pay early in January 2015.

b. Interest revenue of $4,100 has been earned but not yet received.

c. On July 1, 2014, when the business collected $16,000 rent in advance, it debited Cash and credited Unearned Rent Revenue. The tenant was paying for two years' rent.

d. Salary expense is $6,000 per day-Monday through Friday-and the business pays employees each Friday. This year, December 31 falls on a Thursday.

e. The unadjusted balance of the Supplies account is $3,200. The total cost of supplies on hand is $1,650.

f. Equipment was purchased at the beginning of this year at a cost of $60,000. The equipment's useful life is five years. There is no residual value. Record depreciation for this year and then determine the equipment's book value.

Exercise #4

Valley Company faced the following situations. Journalize the adjusting entry needed at December 31, 2014, for each situation. Consider each fact separately.

a. The business has interest expense of $2,100 that it must pay early in January 2015.

b. Interest revenue of $3,900 has been earned but not yet received.

c. On July 1, 2014, when the business collected $14,000 rent in advance, it debited Cash and credited Unearned Rent Revenue. The tenant was paying for two years' rent.

d. Salary expense is $2,300 per day-Monday through Friday-and the business pays employees each Friday. This year, December 31 falls on a Wednesday.

e. The unadjusted balance of the Supplies account is $3,110. The total cost of supplies on hand is $1,600.

f. Equipment was purchased at the beginning of this year at a cost of $120,000. The equipment's useful life is five years. There is no residual value. Record depreciation for this year and then determine the equipment's book value.