Accounting I   © 2008 Tibebe S. Mengistu

Assignments for Principles of Accounting I Chapter 5

Assignment 1

ABC Company, a retail hardware store, pays quarterly rent on its store at the beginning of each quarter. The rent per quarter
is $15,000. The owner of the building in which the stores is located is the XYZ Corporation.

By using the balance sheet equation format (Asset = Liability + Equity), analyze the effects of the following on the tenant's
and the landlord's financial position:
1. ABC pays $15,000 rent on July 1.
2. Adjustment for July.
3. Adjustment for August.
4. Adjustment for September. Also prepare the journal entries for ABC and XYZ for September.

Assignment 2
Delta Airlines had the following as a current liability on its balance sheet, Dec 31, 20X7:

Accrued salaries and vacation pay $1,170,000,000

Under the accrual basis of accounting, vacation pay is ordinarily accrued throughout the year as workers are regularly paid.
For example, suppose a Delta baggage handler earns $800 per week for 50 weeks and also gets paid $1,600 for two weeks vacation.
Accrual accounting requires that the obligation for the $1,600 be recognized as it is earned instead of when the payment is
disbursed. Thus, in each of the 50 weeks Delta would recognize a wage expense (or vacation pay expense) of $1,600/50 = $32.

1. Prepare the weekly Delta adjusting journal entry called for by the $32 example.
2. Prepare the entry for the $1,600 payment of vacation pay.

Assignment 3
ABC Bank lent XYZ Company $1,000,000 on April 1, 20X1. The loan plus interest of 12% is payable on April 1, 20X2.
1. By using the balance sheet equation format (Asset = Liability + Equity), prepare an analysis of the impact of the
transaction on both ABC Bank and XYZ's financial position on April 1, 20X1. Show the summary adjustments on December 31, 20X1,
for the period April to December 31.
2. Prepare adjusting journal entries for ABC Bank and XYZ Company on December 31, 20X1.