At December 31, 2017, Hazelnut Corp.’s unadjusted trial balance was as follows:

Cash................................................$ 39,590

Accounts Receivable...................................69,000

Allowance for Doubtful Accounts..........................$    500

Merchandise Inventory..................................54,720

Prepaid Rent..........................................24,000

Investment in Pecan Corp. Bonds.........................70,000

Plant and Equipment...................................156,000

Accumulated Depreciation...............................14,740

Accounts Payable......................................11,370

Bonds Payable........................................90,000

Common Shares.......................................170,000

Retained Earnings.....................................97,180

Sales Revenue........................................222,000

Cost of Goods Sold.....................................154,400

Transportation-Out.....................................11,000

Salaries and Wages Expense............................32,000

Interest Expense.......................................2,040

Rent Revenue.........................................14,400

Miscellaneous Expense.................................890

Insurance Expense.....................................      6,550      

$620,190$620,190

Additional data:

1.The balance in the Insurance Expense account contains the premium costs of three policies:
Policy 1, remaining cost of $2,550, 1-yr. term, effective May 1, 2016;
Policy 2, original cost of $2,700, 3-yr. term, effective Oct. 1, 2017;
Policy 3, original cost of $1,300, 1-yr. term, effective Jan. 1, 2017.

2.On September 30, 2017, Hazelnut received $14,400 rent from a lessee for an eighteen-month lease beginning on that date, which was credited to the Rent Revenue account.

3.All depreciable assets are depreciated at 10% per year. However, any acquisitions and disposals during the year are depreciated at half this rate. There were no acquisitions of PPE during 2017. On December 31, 2017, the balance in the Plant and Equipment account was $230,000.

4.On December 28, 2017, the bookkeeper incorrectly credited Sales Revenue for a receipt on account from a regular customer of $10,000.

5.At December 31, 2017, salaries accrued but unpaid were $4,200.

6.Based upon an aging of the accounts, Hazelnut estimates that 5% of the Accounts Receivable balance on December 31, 2017will become uncollectible.

7.On August 1, 2017, Hazelnut purchased, as a temporary investment, $70,000, 6% bonds of Pecan Corp. at par. The bonds mature on August 1, 2020.Interest payment dates are July 31 and January 31.

8.On April 30, 2017, Hazelnut rented a warehouse for $2,000 per month, paying $24,000 in advance.

Instructions

a.Record the necessary correcting and adjusting entries.

b.Indicate which of the adjusting entries may be reversed at the beginning of 2018.

Problem A-3Definitions and Key Concepts

Provide clear, concise answers for the following:

1.Explain the difference between permanent accounts and temporary accounts?

2.Identify the 5-step process that companies should use to ensure that revenue is measured and reported correctly under the asset-liability approach.

3.How should unusual gains and losses be disclosed in the income statement?

4.Explain the merits of classified financial statements.

5.Explain the concept of free cash flow.

6.Explain the conceptual difference between the earnings and asset-liability (contract-based) approaches to accounting for revenues.

Answer rating: 100% (QA)

a Lets go through the necessary correcting and adjusting entries based on the provided information 1 Correct the incorrect credit to Sales Revenue Debit Sales Revenue 10000 Credit Accounts Receivable ... View the full answer