Analysis Of WTI's Insurance Policies Shows 3,000 Claims

An Analysis Of Wtis Insurance Policies Shows That 3000 Of Cover

A comprehensive set of accounting adjustments is required based on the provided details for Watson Technical Institute (WTI) as of December 31, 2011. These adjustments ensure that revenues and expenses are accurately matched with the appropriate period, reflecting the true financial position and performance of WTI. The following are the necessary adjusting journal entries to record the events from items a through h, considering accruals, deferrals, depreciation, and allocations pertinent to year-end financial statements.

Paper For Above instruction

a. Insurance coverage expired: WTI's insurance policy indicates that $3,000 of coverage has expired. Since the Prepaid insurance account initially recorded a balance of $15,000, and part of it has now expired, an adjustment reduces the asset and records insurance expense accordingly.

Debit: Insurance Expense 3000

Credit: Prepaid Insurance 3000

b. Teaching supplies on hand: An inventory count shows $2,600 worth of teaching supplies are available, implying that supplies expense needs to be adjusted to reflect supplies used during the period. The supplies account has a balance of $10,000, so the used supplies should be recognized as an expense, and the remaining supplies valued at $2,600 is adjusted.

Debit: Teaching Supplies Expense 7,400

Credit: Teaching Supplies 7,400

(Calculated as: $10,000 - $2,600)

c. Depreciation on equipment: Annual depreciation expense for equipment amounts to $12,000. The equipment account balance is $70,000, along with accumulated depreciation of $16,000. The annual depreciation should be recorded as an expense to reflect usage of the equipment during the year.

Debit: Depreciation Expense—Equipment 12,000

Credit: Accumulated Depreciation—Equipment 12,000

d. Depreciation on professional library: The professional library has an annual depreciation of $6,000, with accumulated depreciation at $9,000. Since the entire year's depreciation is to be recorded, the following entry applies:

Debit: Depreciation Expense—Professional Library 6,000

Credit: Accumulated Depreciation—Professional Library 6,000

e. Recognition of revenue for training fee received in advance: WTI received five months' fees in advance for a six-month course, with monthly fee of $2,200. Since payment was received and deferred revenue was credited initially, five months' revenue ($2,200 x 5 = $11,000) should now be recognized as earned, leaving one month unearned.

Debit: Unearned Training Fees 11,000

Credit: Tuition Fees Earned 11,000

f. Accrual of tuition revenue for class starting October 15: A four-month class began on October 15, with tuition of $3,000 per month payable at the end. For the period from October 15 to December 31, approximately 2.5 months are relevant; the half-month accruals are applied to the nearest half-month, so the accrued revenue is for 2.5 months (October 15 to December 31). This accrual should recognize the revenue earned but not yet billed or received.

Number of days from October 15 to December 31 = 78 days. Half-month periods are considered; approximately 2.5 months worth of revenue is $7,500 (2.5 x $3,000).

Debit: Accounts Receivable 7,500

Credit: Tuition Fees Earned 7,500

g. Accrued salaries for two employees at year-end: Each employee earns $100 per day, and two days’ salaries have accrued for each employee. The total accrued salaries are computed as: 2 employees x 2 days x $100 = $400.

Debit: Salaries Expense 400

Credit: Salaries Payable 400

h. Prepaid rent for December: The prepaid rent account reflects rent paid for December, which should be recognized as rent expense for the period. Assuming the rent for December is prepaid, this amount needs to be adjusted from the Prepaid Rent to Rent Expense.

Debit: Rent Expense 2,000

Credit: Prepaid Rent 2,000

Summary

The above journal entries ensure that the financial statements accurately reflect the costs incurred and revenues earned during the period, adhering to Generally Accepted Accounting Principles (GAAP). These adjustments provide a foundation for preparing the corrected trial balance, income statement, and balance sheet for WTI as of December 31, 2011. Proper recognition of expenses, revenues, and depreciation is essential for stakeholders to assess the financial health and operational efficiency of the institution.

References

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  • Financial Accounting Standards Board (FASB). (2016). Accounting Standards Codification (ASC). FASB.
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