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# Intermediate Accounting II Problem Set Sea Cat, Inc.

, operates a large catamaran sailboat which takes tourists at several island resorts on diving and sailing excursions. The company adjusts and closes its accounts at the end of each month. Selected account balances appearing on the June 30th adjusted trial balance are as follows: Prepaid rent, \$4,500 debit Unexpired insurance, \$900 debit Catamaran, \$42,000 debit Accumulated depreciationcatamaran, \$7,700 credit Unearned passenger revenue, \$180 credit Four months rent had been prepaid on June 1st. The unexpired insurance is a 12-month fire insurance policy purchased on January 1st. The catamaran is being depreciated straight-line over a 10-year estimated useful life, with no residual value. The unearned passenger revenue represents tickets good for future rides sold to a resort hotel for \$12 per ticket on June 1st. During June, 35 of the tickets were used. Complete the requirements below: 1. Monthly rent expense in dollars. 2. Original cost of the 12-month fire insurance policy in dollars. 3. Age of the catamaran in months. 4. How many \$12 tickets for future rides were sold to the resort hotel on June 1st? 5-8. Prepare the adjusting entries which were made on June 30th. 9. Dollar amount of current assets on June 30th. 10. Dollar amount of current liabilities on June 30th.

REQUIREMENT 1 Monthly rent expense in dollars. Information: o Prepaid rent, \$4,500 debit from the adjusted trial balance o Four months rent had been prepaid on June 1st Computations: o (\$4,500 prepaid rent) / (3 months)* = \$1,500 o (\$1,500) x (4 months of prepaid rent) = \$6,000 which is the amount of prepaid rent that was paid on June 1st o (\$6,000) / (4 months of prepaid rent) = \$1,500 which is the monthly rent expense in dollars OR I could do it as (\$6,000) x (1/4)** = \$1,500

* June rent has already been paid, so 3 months are remaining. ** One month out of the 4 months has been paid, which gives you 1/4. Answer: \$1,500 is the monthly rent expense

REQUIREMENT 2 Original cost of the 12-month fire insurance policy in dollars. Information: o Unexpired insurance, \$900 debit from the adjusted trial balance o The unexpired insurance is a 12-month fire insurance policy purchased on January 1st. Computations: o (\$900 unexpired insurance) / (6 months remaining)* = \$150 which is the monthly insurance expense o (\$150) x (12 months) = \$1,800 which is the original cost of the 12-month fire insurance policy in dollars * January, February, March, April, May, and June has been paid, which means 6 months out of the 12 months that has been paid, so 6 months are remaining. Answer: \$1,800 is the original cost of the 12-month fire insurance policy

REQUIREMENT 3 Age of the catamaran in months. Information: o Catamaran, \$42,000 debit from the adjusted trial balance o Accumulated depreciationcatamaran, \$7,700 credit from the adjusted trail balance o The catamaran is being depreciated straight-line over a 10-year estimated useful life, with no residual value. Computations: o Formula: (Cost - Salvage Value) / (Estimated Useful Life) = Depreciation Charged Per Year o (\$42,000 cost of catamaran - \$0 salvage value) / (10 years) = \$4,200 which is the amount of depreciation per year o (\$4,200) / (12 months) = \$350 which is the amount of depreciation per month o (\$350) x (120 months)* = \$42,000 which is the cost of the catamaran, I did this just to check my previous computations o Another way: (\$42,000 cost of catamaran - \$0 salvage value) / (120 months)* = \$350 which is the amount of depreciation per month o (\$7,700 accumulated depreciation) / (\$350) = 22 months which is the age of the catamaran in months *10 years x 12 months in a year

## Answer: 22 months is the age of the catamaran in months

REQUIREMENT 4 How many \$12 tickets for future rides were sold to the resort hotel on June 1St? Information: o Unearned passenger revenue, \$180 credit from the adjusted trail balance o The unearned passenger revenue represents tickets good for future rides sold to a resort hotel for \$12 per ticket on June 1st. Computations: o (\$180 unearned passenger revenue) / (\$12 cost per ticket) = 15 which is the remaining tickets left that has been sold but not used o (35 tickets used during June) + (15 remaining tickets left) = 50 tickets which is the total amount of \$12 tickets that were sold to the resort hotel on June 1st Answer: 50 tickets is the amount of \$12 tickets for future rides that were sold to the resort hotel on June 1st

REQUIREMENT 5 - 8 Prepare the adjusting entries, which were made on June 30th. General Journal Account Titles and Explanation Rent Expense (\$4,200 / 3 months remaining) Prepaid Rent To record monthly rent expense Insurance Expense (\$900 / 6 months remaining) Unexpired Insurance To record insurance expired Depreciation Expense (\$4,200 / 12 months) Accumulated Depreciation - Catamaran To record monthly depreciation Unearned Passenger Revenue (35 tickets x \$12) Passenger Revenue To record passenger ticket revenue earned

Date June 30

Debit 1,500

Credit

1,500

June 30

150 150

June 30

350 350

June 30

420 420

REQUIREMENT 9 Dollar amount of current assets on June 30th. Computation: Current Assets: Prepaid Rent Unexpired Insurance Total current assets

## Answer: \$5,400 is the amount of current assets on June 30th

REQUIREMENT 10 Dollar amount of current liabilities on June 30th. Computation: Current Liabilities: Unearned Passenger Revenue Total current liabilities

\$180 \$180