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Chapter 2: Q 1FC-1 (page 117)

Roy Akins was the accounting manager at Zelco, a tire manufacturer, and he played golf with Hugh Stallings, the CEO, who was something of a celebrity in the community. The CEO stood to earn a substantial bonus if Zelco increased net income by year-end. Roy was eager to get into Hugh鈥檚 elite social circle; he boasted to Hugh that he knew some accounting tricks that could increase company income by simply revising a few journal entries for rental payments on storage units. At the end of the year, Roy changed the debits from 鈥渞ent expense鈥� to 鈥減repaid rent鈥� on several entries. Later, Hugh got his bonus, and the deviations were never discovered.

Requirements 1. How did the change in the journal entries affect the net income of the company at year-end?

Short Answer

Expert verified

The net income is the difference between revenue and expenses. A change in the journal entry will result in an increase in the net income.

Step by step solution

01

Step-by-Step SolutionStep 1: Definition of net income

The net income is defined as the income generated by the company after deducting all the expenses from the revenue of the company.

02

Change in the journal entry

In this case, the accounting manager of the company changed the journal entry. Earlier the accounting manager debited the rent expense but in the revised entry the accounting manager debited the prepaid expense. This will increase the net income as the rent expense is not recorded.

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Most popular questions from this chapter

Before you begin this assignment, review the Tying It All Together feature in the chapter. Part of the Fry鈥檚 Electronics, Inc.鈥檚 experience involves providing technical support to its customers. This includes in-home installations of electronics and also computer support at their retail store locations.

Requirements

  1. Suppose Fry鈥檚 Electronics, Inc. provides $10,500 of computer support at the Dallas-Fort Worth store during the month of November. How would Fry鈥檚 Electronics record this transaction? Assume all customers paid in cash. What financial statement(s) would this transaction affect?

Question:The following transactions occurred for Lawrence Engineering:

Jul. 2 Received \(14,000 contribution from Brett Lawrence in exchange for common stock.

4 Paid utilities expense of \)370.

5 Purchased equipment on account, \(1,600.

10 Performed services for a client on account, \)2,900.

12 Borrowed \(7,100 cash, signing a notes payable.

19 Cash dividends of \)200 were paid to stockholders.

21 Purchased office supplies for $840 and paid cash.

27 Paid the liability from July 5.

Requirements 1. Open the following T-accounts for Lawrence Engineering: Cash; Accounts Receivable; Office Supplies; Equipment; Accounts Payable; Notes Payable; Common Stock; Dividends; Service Revenue; and Utilities Expense.

What is a T-account? On which side is the debit? On which side is the credit? Where does the account name go on a T-account?

Question:Courtney Meehan has trouble keeping her debits and credits equal. During a recent month, Courtney made the following accounting errors:

a. In preparing the trial balance, Courtney omitted a \(5,000 Notes Payable. The debit to Cash was correct.

b. Courtney posted a \)1,000 Utilities Expense as \(100. The credit to Cash was correct.

c. In recording a \)600 payment on account, Courtney debited Furniture instead of Accounts Payable.

d. In journalizing a receipt of cash for service revenue, Courtney debited Cash for \(50 instead of the correct amount of \)500. The credit was correct.

e. Courtney recorded a \(210 purchase of office supplies on account by debiting Office Supplies for \)120 and crediting Accounts Payable for $120.

Requirements 1. For each of these errors, state whether total debits equal total credits on the trial balance.

What is the purpose of the chart of accounts? Explain the numbering typically associated with the accounts.
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