Reference no: EM132143824
Question: 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 ends 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
Calculations:
(B) Refer to (A) above. Record the entry Hetrick should have made, if any, to adjust the books before the close of the year ended December 31, 2017, to record rent revenue earned in December.
Date
Account Names
Debits
Credits
31-Dec-17
Calculations:
(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 have made, 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
Debits
Credits
31-Dec-17
Calculations:
(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
Calculations:
(E) Refer to (D) above. Record the entry Frear should have made, 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
Calculations:
(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 have made, 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
Calculations:
(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?
(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 have made for the month of November 2017, if any, for interest expense incurred for the loan.
Date
Account Names
Debits
Credits
30-Nov-17
Calculations:
(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 have made for the month of December 2017, if any, for interest expense earned for the loan.
Date
Account Names
Debits
Credits
31-Dec-17
Calculations:
(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?
(K) On September 1, 2018, 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, signing a promissory note. Record the entry Hetrick should have made for the acquisition of the equipment.
Date
Account Names
Debits
Credits
01-Sep-18
Calculations:
(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 2018, if any, for depreciation expense.
Date
Account Names
Debits
Credits
31-Dec-18
Calculations:
(M) On June 1, 2018, Frear Company secured an insurance policy, for eighteen months of coverage, beginning August 1, 2018. 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 September 2018?
Date
Account Names
Debits
Credits
30-Sep-18
Calculations:
(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, 2018 for accrued interest, if any?
Date
Account Names
Debits
Credits
31-Dec-18
Calculations:
(O) Refer to (N) above. How much total interest expense will Hetrick pay for the loan? Enter your answer here:
Calculations:
For each of the noted items from above, indicate by writing in the box the type of adjusting entry required, from these options (the first one is given as an example):
Accrued Expense, Accrued Revenue, Deferred Expense, Deferred Revenue, Account for Estimate
B
Deferred Revenue
C
E
F
H
I
L
M
N