Watson Technical Institute (WTI): A School Owned By Tom Wats ✓ Solved

Watson Technical Institute Wti A School Owned By Tom Watson Provid

Watson Technical Institute (WTI), a school owned by Tom Watson, provides training to individuals who pay tuition directly to the school. WTI also offers training to groups in off-site locations. Its unadjusted trial balance as of December 31, 2011, follows. WTI initially records prepaid expenses and unearned revenues in balance sheet accounts. Descriptions of items a through h that require adjusting entries on December 31, 2011, follow.

Additional Information Items a. An analysis of WTI's insurance policies shows that $2,807 of coverage has expired. b. An inventory count shows that teaching supplies costing $2,433 are available at year-end 2011. c. Annual depreciation on the equipment is $11,227. d. Annual depreciation on the professional library is $5,614. e. On November 1, WTI agreed to do a special six-month course (starting immediately) for a client. The contract calls for a monthly fee of $2,700, and the client paid the first five months' fees in advance. When the cash was received, the Unearned Training Fees account was credited. The fee for the sixth month will be recorded when it is collected in 2012. f. On October 15, WTI agreed to teach a four-month class (beginning immediately) for an individual for $2,819 tuition per month payable at the end of the class. The class started on October 15, but no payment has yet been received. The accruals are applied to the nearest half-month; for example, October recognizes one-half month accrual. g. WTI's two employees are paid weekly. As of the end of the year, two days' salaries have accrued at the rate of $100 per day for each employee. h. The balance in the Prepaid Rent account represents rent for December.

Unadjusted Trial Balance as of December 31, 2011:

- Cash: 26,340

- Accounts receivable: 0

- Teaching supplies: 10,129

- Prepaid insurance: 15,197

- Prepaid rent: 2,027

- Professional library: 30,391

- Accumulated depreciation—Professional library: 9,119

- Equipment: 70,903

- Accumulated depreciation—Equipment: 16,210

- Accounts payable: 34,112

- Salaries payable: 0

- Unearned training fees: 13,500

- T. Watson, Capital: 64,431

- T. Watson, Withdrawals: 40,523

- Tuition fees earned: 103,332

- Training fees earned: 38,496

- Depreciation expense—Professional library: 0

- Depreciation expense—Equipment: 0

- Salaries expense: 48,628

- Insurance expense: 0

- Rent expense: 22,297

- Teaching supplies expense: 0

- Advertising expense: 7,092

- Utilities expense: 5,673

Required:

- Prepare the necessary adjusting journal entries for items a through h. Assume that adjusting entries are made only at year-end (December 31, 2011). Round to the nearest dollar. Omit "$" in your responses.

- Post the unadjusted balances and adjusting entries into T-accounts.

- Prepare an adjusted trial balance.

- Prepare the income statement, statement of owner’s equity, and balance sheet for the year ending December 31, 2011.

Sample Paper For Above instruction

Introduction

Watson Technical Institute (WTI), owned by Tom Watson, plays a significant role in providing specialized training programs to individuals and groups. Accurate financial reporting for WTI requires the preparation of various adjusting journal entries at year-end to reflect the true financial position and performance of the institute. This paper outlines the necessary adjusting entries, the posting process into T-accounts, and the preparation of financial statements, including the income statement, statement of owner’s equity, and balance sheet.

Adjusting Journal Entries

The first step involves adjusting for expired insurance coverage. The analysis reveals $2,807 of insurance has expired. Therefore, the journal entry decreases Prepaid Insurance and recognizes Insurance Expense:

Debit: Insurance Expense 2,807


Credit: Prepaid Insurance 2,807

Next, the inventory of teaching supplies indicates $2,433 worth of supplies is still available at year-end. The initial balance for supplies was $10,129, and the supplies used during the year amounted to $7,696. The adjusting entry records the supplies used:

Debit: Teaching Supplies Expense 7,696


Credit: Teaching Supplies 7,696

Annual depreciation is calculated on both equipment and the professional library. For equipment, annual depreciation is $11,227; thus, the depreciation expense is:

Debit: Depreciation Expense—Equipment 11,227


Credit: Accumulated Depreciation—Equipment 11,227

Similarly, depreciation for the professional library is $5,614:

Debit: Depreciation Expense—Professional Library 5,614


Credit: Accumulated Depreciation—Professional Library 5,614

Regarding the special course started November 1, and charging $2,700 per month, five months were paid in advance, covering November through March, with the sixth month in 2012. An adjusting entry recognizes the revenue earned in December:

Debit: Unearned Training Fees 8,100


Credit: Training Fees Earned 8,100

For the October 15 class, a four-month course at $2,819 monthly tuition started, with no payments received yet. The accrual for the two months (half of October and full November and December) is:

October (half month): 2,819 × 0.5 = 1,410


November: 2,819


December: 2,819


Total accrued revenue: 1,410 + 2,819 + 2,819 = 6,048


Debit: Accounts Receivable 6,048


Credit: Tuition Fees Earned 6,048

Two employees are paid weekly; two days’ salaries per employee at $100/day amount to:

2 employees × 2 days × $100 = $400


Debit: Salaries Expense 400


Credit: Salaries Payable 400

The prepaid rent for December needs no adjustment as it represents rent for that month, but if any accrued rent existed, it would be adjusted similarly.

Posting to T-Accounts

Following the adjustment entries, the balances from the unadjusted trial balance as well as the journal entries are posted into T-accounts. For example, the Teaching Supplies account initially had a balance of $10,129; after adjusting for supplies used ($7,696), the ending balance is $2,433. Similarly, the Prepaid Insurance account decreases by $2,807 to reflect the expired coverage. The equipment and library are depreciated by the amounts calculated, and the unearned training fees are reduced based on the revenue earned. These postings ensure that the account balances accurately reflect the financial position at year-end.

Preparation of Financial Statements

Using the adjusted balances, the income statement summarizes total revenues and expenses, resulting in net income or loss. Revenues include Tuition Fees Earned and Training Fees Earned, while expenses comprise depreciation, salaries, insurance, rent, supplies, and advertising. The net income is calculated as total revenues minus total expenses.

The statement of owner’s equity begins with the beginning capital balance, adds net income, and subtracts withdrawals, resulting in the ending owner’s equity balance.

Finally, the balance sheet lists assets in order of liquidity: cash, accounts receivable, supplies, prepaid insurance, prepaid rent, equipment, and the professional library, less accumulated depreciation. Liabilities include accounts payable, salaries payable, and unearned training fees. Equity reflects the ending owner’s capital balance. This comprehensive approach ensures the financial statements accurately depict WTI's financial health at year-end.

Conclusion

The preparation of adjusting entries, posting to T-accounts, and compiling financial statements at year-end guarantees that Watson Technical Institute's financial reports are accurate and compliant with accounting principles. These steps are essential for providing stakeholders with reliable information for decision-making and demonstrating transparency.

References

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  3. Revsine, L., Collins, D., Wiegel, B., & Johnson, M. (2015). Financial Reporting & Analysis (3rd ed.). Pearson.
  4. Weygandt, J. J., Kieso, D. E., & Kimmel, P. D. (2020). Accounting Principles (24th ed.). Wiley.
  5. AccountingCoach. (2023). Adjusting Entries. Retrieved from https://www.accountingcoach.com/adjusting-entries/explanation
  6. Investopedia. (2023). Depreciation. Retrieved from https://www.investopedia.com/terms/d/depreciation.asp
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  9. American Institute of CPAs. (2022). Generally Accepted Accounting Principles (GAAP). Retrieved from https://www.aicpa.org
  10. Hilton, R. W., & Platt, D. E. (2019). Managerial Accounting. McGraw-Hill Education.

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