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 $3,000 of coverage
has expired.
b. An inventory count shows that teaching supplies costing $2,600 are
available at the end of 2011.
c. Annual depreciation on the equipment is $12,000.
d. Annual depreciation on the professional library is $6,000.
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 $2,200, 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 $3,000 tuition per month payable at
the end of the class. The class started on October 15, but no payment
has yet been received. (WTI’s 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.
Debit Credit
Cash 26,000
Accounts receivable -
Teaching supplies 10,000
Prepaid insurance 15,000
Prepaid rent 2,000
Professional library 30,000
Accumulated depreciation—Professional library 9,000
Equipment 70,000
Accumulated depreciation—Equipment 16,000
Accounts payable 36,000
Salaries payable -
Unearned training fees 11,000
T. Watson, Capital 63,600
T. Watson, Withdrawals 40,000
Tuition fees earned 102,000
Training fees earned 38,000
Depreciation expense—Professional library -
Depreciation expense —Equipment
Salaries expense 48,000
Insurance expense -
Rent expense 22,000
Teaching supplies expense -
Advertising expense 7,000
Utilities expense 5,600
Totals 275,600 275,600
Required
1. Prepare T-accounts (representing the ledger) with balances from the
unadjusted trial balance.
2. Prepare the necessary adjusting journal entries for items a through h
and post them to the T-accounts. Assume that adjusting entries are
made only at year-end.
3. Update balances in the T-accounts for the adjusting entries and
prepare an adjusted trial balance.
4. Prepare Watson Technical Institute’s income statement and
statement of owner’s equity for the year 2011 and prepare its balance
sheet as of December 31, 2011.
