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Chapter 9 P9-4 Pg. 503

Chapter 9 P9-4 Pg. 503. Jeff Wilson Annie Sarah. Question. During 2007, Riverside Company completed the following two transactions. The annual accounting period ends December 31.

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Chapter 9 P9-4 Pg. 503

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  1. Chapter 9P9-4Pg. 503 Jeff Wilson Annie Sarah

  2. Question During 2007, Riverside Company completed the following two transactions. The annual accounting period ends December 31. a. Paid and recorded wages of $130,000 during 2007; however, at the end of December 2007, three days’ wages are unpaid and unrecorded because the weekly payroll will not be paid until January 6, 2008. Wages for the three days are $3,600. b. Collected rent revenue on December 10, 2007, of $2,400 for office space that Riverside rented to another party. The rent collected was for 30 days from December 10, 2007, to January 10, 2008, and was credited in full to Rent Revenue.

  3. Requirement • Give (a) the adjusting entry required on December 31, 2007, and (b) the January 6, 2008, journal entry for payment of any unpaid wages from December 2007. • Give (a) the journal entry for the collection of rent on December 10, 2007, and (b) the adjusting entry on December 31, 2007. • Show how any liabilities related to these transactions should be reported on the company’s balance sheet at December 31, 2007 • Explain why the accrual method of accounting provides more relevant information to financial analysts than the cash method.

  4. Requirement 1 #1 Dec 31, 2007 Wage Expense $3,600 Wage Payable $3,600 Jan 6, 2008 Wage Payable $3,600 Cash $3,600

  5. Requirement 2 #2 Dec. 10, 2007 Cash $2,400 Revenue $2,400 Dec. 31, 2007 Revenue $800 Deferred Revenue $800

  6. Requirement 3 #3 Liabilities related transactions: 1. Accrued Payable 2. Deferred Revenue • Both Transactions above are considered a liability for the company. Accrued Wage Payable is a liability that the company holds for unpaid wages. Deferred Revenue is revenue that the company has not earned yet. Liabilities      Unpaid wage payable                          $3,600      Unearned rent revenue                   $ 800

  7. Requirement 4 #4 The accrual method of accounting would provide more relevant information to financial analysts in Riverside Company's transactions as it accurately shows the company's financial standings as of revenues earned and expenses incurred. The cash method would not fully represent to financial analysts the company's current standings because their rent service has not been incurred by the user and wages haven't been paid for the period between the end of December 2007 and January 2008. Financial analysts could see what has actually been earned and incurred by and from the company.

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