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Chapter 3: 14SE (page 160)

Question :In recording adjusting entries, Reagan Financial Advisors failed to record the adjusting entries for the following situations: a. Office supplies on hand, \(100. b. Accrued revenues, \)5,000. c. Accrued interest expense, \(250. d. Depreciation, \)800. e. Unearned revenue that has been earned, $550. Determine the effects on the income statement and balance sheet by identifying whether assets, liabilities, equity, revenue, and expenses are either overstated or understated. Use the following table. Adjustment a has been provided as an example.Adjustment Not Recorded (a) Overstated Overstated Understated Assets Liabilities Equity Revenue Expenses Balance Sheet Income Statement

Short Answer

Expert verified

Balance Sheet

Income Statement

Adjustment Not Recorded

Assets

Liabilities

Equity

Revenue

Expenses

(a)

Overstated

Overstated

Understated

(b)

Understated

Understated

Understated

(c)

Understated

Overstated

Understated

(d)

Overstated

Overstated

Understated

(e)

Overstated

Understated

Understated

Step by step solution

01

Step-by-Step-SolutionStep1: Explanation on Office Supplies

If adjusting entry for ending supplies is not record, then supplies expense will be reduced, and net income will be increased, which will increase equity. Also it will increase the supplies balance in asset section.

02

Explanation on Accrued Revenues

If accrued revenues are not recorded, then it will decrease revenue, which will decrease equity. Also it will decrease the accounts receivable under asset section.

03

Explanation on Accrued Interest Expense

If accrued expense is not recorded, it will reduce the expenses and will increase the net income. As net income is increased it will increase equity. Also it will decrease expense payable under liabilities section.

04

Explanation on Depreciation

If depreciation expense is not recorded, it will reduce the expenses and will increase the net income. As net income is increased it will increase equity. Also it will increase assets balance in balance sheet.

05

Explanation on Unearned Revenue

If revenue is not recognized out of unearned revenues, then it will decrease revenue, which will decrease equity. Also it will increase the unearned revenue under liabilities section of balance sheet.

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Most popular questions from this chapter

Question :The worksheet of Best Jobs Employment Service follows but is incomplete.The following data at April 30, 2018, are given for Best Jobs Employment Service: a. Service revenue accrued, \(700. b. Office supplies used, \)300. c. Depreciation on equipment, \(1,300. d. Salaries owed to employees, \)1,400. Requirements 1. Calculate and enter the adjustment amounts directly in the Adjustments columns. Use letters a through d to label the four adjustments. 2. Calculate and enter the adjusted account balances in the Adjusted Trial Balance columns. 3. Prepare each adjusting journal entry calculated in Requirement 1. Date the entries, and include explanations

Question: Total Pool Services earned \(130,000 of service revenue during 2018. Of the \)130,000 earned, the business received \(105,000 in cash. The remaining amount, \)25,000, was still owed by customers as of December 31. In addition, Total Pool Services incurred \(85,000 of expenses during the year. As of December 31, \)10,000 of the expenses still needed to be paid. In addition, Total Pool Services prepaid $5,000 cash in December 2018 for expenses incurred during the next year. 1. Determine the amount of service revenue and expenses for 2018 using a cash basis accounting system. 2. Determine the amount of service revenue and expenses for 2018 using an accrual basis accounting system.

Question :Momentous Occasions is a photography business that shoots videos at college parties. The freshman class pays \(1,000 in advance on March 3 to guarantee services for its party to be held on April 2. The sophomore class promises a minimum of \)2,800 for filming its formal dance and actually pays cash of \(4,100 on February 28 at the dance. Answer the following questions about the correct way to account for revenue under the accrual basis: a. Considering the \)1,000 paid by the freshman class, on what date was revenue recognized? Did the recognition occur on the same date cash was received? b. Considering the $4,100 paid by the sophomore class, on what date was revenue recognized? Did the recognition occur on the same date cash was received?

Identify the impact on the income statement and balance sheet if adjusting entries for the following situations were not recorded. a. Office Supplies used, \(800. b. Accrued service revenue, \)4,000. c. Depreciation on building, \(3,500. d. Prepaid Insurance expired, \)650. e. Accrued salaries expense, \(2,750. f. Service revenue that was collected in advance has now been earned, \)130

On October 1, Orlando Gold Exchange paid cash of $57,600 for computers that are expected to remain useful for three years. At the end of three years, the value of the computers is expected to be zero. Requirements 1. Calculate the amount of depreciation for the month of October using the straightline depreciation method. 2. Record the adjusting entry for depreciation on October 31. 3. Post the purchase of October 1 and the depreciation on October 31 to T-accounts for the following accounts: Computer Equipment, Accumulated Depreciation鈥� Computer Equipment, and Depreciation Expense鈥擟omputer Equipment. Show their balances at October 31. 4. What is the computer equipment鈥檚 book value on October 31?
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