Hello in this lecture we're going to work some short multiple choice. Hello, in this lecture, we're going to work some test type problems are gonna be short multiple choice type problems. These we're not going to use the ABC selection, but we will have these smaller types of questions that could be in a multiple choice format. So first we have the company purchased a new delivery band at a cost of 60,000. On July 1, the delivery van is estimated to have a useful life of six years and a salvage value of 4800. The company uses the straight line method of depreciation, how much depreciation expense will be recorded for the van during the first year ended December 31.

Alright, so I'm going to pull this on this side and take a look at our trial balance just so we can see what we are talking about real quick. And what we're talking about is the fact that when we bought the van it's going to be on there as an asset, not equipment, but similar to an asset over here like equipment up in the asset section. We're then going to depreciate it that's going to be a recording that contra asset which is going to decrease the value as we go. So we need to know how much we're going to depreciate it by how much we're going to reduce it by given the timeframe and whatnot using the straight line method. So generally we start off with the cost, I'm going to start off with the cost, the cost means 60,000, we're going to subtract from that this salvage value is going to call it salvage value.

And the salvage value is what we believe we could sell the van for at the end of the useful life feel useful. I've been six years here, at the end of that useful life, we think we could sell it for 4800. Therefore, the amount that we need to depreciate, depreciate over the life of succeed will be amount to be depreciated will be the equals the 60,000 minus 4800. So 60,000 minus 4800 is 55,200. That's what we need to bring the cost down by to get it to the salvage value at the end of six years because that's what we believe it's still worth because we can scrap it for that amount. Money, then if we want to get a yearly total, we're going to divide it by the number of years that we believe that useful life is.

So in this case, we have six years, we're gonna divide by six years. So that means that if we had the 55,200, that we need to depreciate over six years divided by 55,200 divided by six years, that will give us the amount that we need to depreciate per year. So that is the depreciation per year. Now, the problem here is that we didn't buy it in January, that would be the depreciation per year if we bought it on January 1, but we bought it on July 1. So many times we're basically the most the problems will actually break it down to find it in the beginning of the end of a month. Therefore, we don't really have to break it down by days.

In this case, we can break it down kind of by month. So we could say how many months in a year we have 12 months in a year. So I could divide this by 12. This is one way that will basically always work that we could do this we can figure out a fraction but if we divide by 12 that would be How much we need to depreciate per month. So if we take the 9002 per year divided by 12, that would be how much to depreciate per month. That's the depreciation per month, then we need to figure out the number of months not you gotta be kind of careful because it says July 1, so that would be the seventh month but it's July 1, so we didn't have it for July.

So it'll be January, February, March, April, May, June and not July, which is six months. So the number of months plus the number of months would be only six months. So if it's 7007 67 is our depreciation per month 767 times the number of months that have been expired, which would be six that would give us the 4600 next one says a company has 10 employees who earn a total of 2900 in salaries each working day. They are paid on Monday for five day working Indian on the previous Friday. I assume that year ended December 31, is on Wednesday, and all employees have been paid salaries for five full days on the following Monday, the adjusting entry needed on December 31 is so first let's just think about what the debits and credits are. And then talk about the dollar amounts and what we're talking about wages here.

So if you look at the trial balance, the rules for the adjusting entry, there's going to be one balance sheet account above the equity section above the blue line, one income statement account below the equity section. And the income statement accounts generally only go up because the revenue and expenses only go one way. So in this case, we're going to talk about something like wages expense or salaries expense. So that's going to be one of the accounts that are going to be affected below the line. And above the line. It's going to be something up here and we could see it's going to be something How about wages payable because we're talking about payroll.

So I'm going to go ahead and those are the two accounts that we're going to be using. We know that expenses have debit balances and they only go up. Therefore we're going to debit the expense. I'm going to debit the expense. And if there's only two accounts affected, that means that of course, we're going to To credit, the other account effected, which will be the liability account. So we can kind of see which accounts are going to be debited and credited without even really getting too deep into the why.

And the rest of this problem now we need to think about the number that's going to be on the debit and credit side. For that we need to think about this a bit more deeply. And if we think about why we're going to do this, what we're saying is that we have to cut off date as of December 31. And we want to make the financial statements correct as of December 31. Now the problem is we the the payday happens the following year. So that means that normally we kind of do payroll more on like a cash basis, because it would be too difficult to really be in a pure accrual basis.

However, we want to be on a pure accrual basis when we report the financial statements. So what we're going to do is we're going to say, well, there's three days of that we're going to they pay 2900 salaries each working day, and that means that there's three days that have passed so they have earned three days worth of wages, even though They're not going to get paid till Monday, which is going to be following the close of the week. So that means they got paid out, they should earn 2900 times three. And so that's how much they have earned. And so we need to recognize the expense of eight seven here as an expense in the time period. And we had to recognize that we owe it and, and that's going to be the credit.

So remember the revenue, it's kind of like if we earned the money under the revenue recognition principle, even if we had not been paid, we would recognize our revenue. And we are on the flip side, under the matching principle, we're recognizing this expense that we owe to the employee. Because the employee has earned it we've consumed their services, even though we have not yet paid them. Next on April 1 company received 2001 78 from customer for 36 months magazine subscription in the future. So what is the amount of revenue that should be recorded by the first year of subscription assuming the company uses a calendar reporting period. So what we're saying here is we sell, we sell magazines in this case, and that's going to be the exception to the rule of a norm of most businesses who do the work.

And then they get paid. We do lawn care, we did the work, and then we get paid. In this case for magazines, we get paid, and then we do the work. So we kind of have the opposite of cruel problem here, we got to say, Okay, we got paid 2001 78, what would be the journal entry to record that we would had to have debited cash, and then we couldn't credit revenue because we didn't earn it. Therefore, we put it into something called unearned revenue. So in this problem, basically, we can imagine that we have unearned revenue, not of 11,000, but of 2001 78.

That's what's in unearned revenue. So if we're going to highlight the two accounts that are affected in an adjusting entry, in this case, remember the rules is going to be one balance sheet accounts. One income statement accounts, and the income statement accounts only go up in terms of an adjusting entry. Then we're going to say that one's going to be revenues, we're gonna have to see we're trying to figure out how much of this magazine subscription is going to be recorded in revenue, and the other will be unearned revenue. And we have to know that basically what we're saying here is that 2009 78 got recorded as unearned revenue, and we need to decide how much of it should now be earned. So what we're having is we have unearned revenue at this point.

So I'm just gonna say at this point, we're imagining we have unearned revenue. And that amount is 2178. And that's for 36 months, so we're going to earn that over the next 36 months. So we're going to say divided by 36 months that the number of months that we are going to earn this revenue, that means we're going to earn 2001 78 divided by 36 months. So we're going to 2001 38 divided by 36. So that's revenue per month.

That's how much we're going to earn each month of this. And now we just got to figure out well how many months are in this year. I would just count this basically on my fingers. Right? We got April. And the there's always a question Do we include April or not?

If they said April 31, we would not include April, if they say April 1, then that is included that we we have that whole month in this time period. So, April, May, June, July, August, September, October, November, December, I counted on my fingers, that's nine months. And then we're going to say that we have equal the amount of per month times nine months. So that's, that's the revenue earned in this year, so that would be 545 revenue earned this year. So of the money we received, we've got we got a total of two of 2001 78 we've really only earned 545 of it. Now note also that sometimes we get these problems that have rounding problems.

So note that if I look at Excel, really this cell if I was to have dead decimal places in it would actually be 60.5 $60 and 50 cents, some problems if there might be a rounding error. So if you're off by a couple dollars, it might be that they rounded this to $60 times nine, and that would come up with a slightly different answer. And so just be aware of that or it might have been rounded to 61 More likely, and that would give you a slightly different answer than if we had rounded it. So just be aware of or if we had rounded it versus having not rounded it, so be aware of that. Next one says that on October 1 company rented space to a tenant for 3900 per month and received 19,500 for my five month's rent in advance on that date. The collection was credited to unearned rent account, the company's annual accounting period ends December 31.

The unearned rent account balance at the end of December adjusting adjust after adjustment should be what? Okay, so same idea here except now we're talking about rent What happened? we're renting something out, but we got the money before we they use the the, the rental area. So what that means is we debit when we got the money, we debited cash at that time in the amount of in this case 19. Five, but and so we debited cash, and we would like to have credited rental income, but we couldn't credit rental income because we had not yet earned it. We can only do it under the revenue recognition principle when it has been earned.

Therefore, we had to credit unearned rent in this case rather than unearned revenue would be unearned rent. So that's what we had, we had a similar problem, but now it's rent we got paid before. Now we need to figure out how much of that rent had been earned. So that's going to be our adjusting entry. So once again, if we look at our accounts, what's going to be the balance sheet account? Well, it's going to be under not revenue, but unearned rent, same concept.

It's a liability. What's gonna be the income statement account, what's gonna be revenue and we could call it rental revenue, but it's gonna be the same It can be some kind of income, we know income only goes up. So what happens is we're going to credit income and debit unearned rent. So what we have to imagine is that an unearned, an unearned rent. So I've got unearned revenue, it's the same thing here, but we're just going to call it unearned rent. In this case, because rental revenue is what we are earning.

We're saying that we put in there, this 119, five, that's how much went into the unearned rent account. And now we're saying that we rented it out for 3900 per month for five months. So you'll notice that the number of months is five, that's how many months and therefore if we took the 19 five, divided by the number of months, that means that there's going to be 9300 per month with which they gave us here, right? So amount, so rent per month. That's what we have here. Now Now we just need to figure out how many months have expired.

So of this 19 five, how much how Have we earned and well, it was it was rented. It's they gave it to us in October. So they were renting it in October, November, December, that's three months. So three months have passed. We're gonna say three months here. That's the number of months passed, tell, we make the reports.

So we got three, nine times three. That's the rents earned. And you got to be careful here because we might think, well, we need to stop there. That's the rent earned. However, it didn't ask us for the rent that we earned throughout the period. In which case that would be the answer.

They asked us for what is still left in unearned rent. So if we basically had unearned rent of 19, five, and 11, seven of it was earned. If we subtract those two out, we've got 19. Five is how much was in there, minus the amount earned 11 seven. That means the amount that's still in under rent is the 7800 So the answers here, I guarantee that this answer is going to be on one of the multiple choice answers just to trick you. And the only trickery that happened there.

The only reason you'd fall for that trick is just because you read the question too quickly, and looked for the amount that was earned rather than the amount that's still in honor