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Chapter 3: 28E_2 (page 166)

Question :The following data at July 31, 2018, are given for RCO: a. Depreciation, \(600. b. Prepaid rent expires, \)200. c. Interest expense accrued, \(700. d. Employee salaries owed for Monday through Thursday of a five-day workweek; weekly payroll, \)8,000. Unearned revenue earned, \(1,000. f. Office supplies used, \)150. Requirements 1. Journalize the adjusting entries needed on July 31, 2018. 2. Suppose the adjustments made in Requirement 1 were not made. Compute the overall overstatement or understatement of net income as a result of the omission of these adjustments

Short Answer

Expert verified

Net income will be overstated by $7,050.

Step by step solution

01

Step-by-Step-SolutionStep1: Explanation on Adjusting Entries

Adjustries entries are used to record the accrued revenues and expenses at the end of the period.

02

Calculation of Overstatement of Net Inocme

Overstatement is calculated as follows:Overstatement=Depreciation+RentExpense+InterestExpense+SalariesExpense+SuppliesExpense-RevenueEarned=$600+$200+$700+$6,400+$150-$1,000=$7,050

Thus, overstatement equals $7,050. Overstatement=Depreciation+RentExpense+InterestExpense+SalariesExpense+SuppliesExpense-RevenueEarned=$600+$200+$700+$6,400+$150-$1,000=$7,050

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Most popular questions from this chapter

Question :Chef 鈥檚 Catering completed the following selected transactions during May 2018: Learning Objectives 1, 2 Learning Objectives 1, 2 > Exercises May 1 Prepaid rent for three months, \(2,400. 5 Received and paid electricity bill, \)700. 9 Received cash for meals served to customers, \(2,600. 14 Paid cash for kitchen equipment, \)3,000. 23 Served a banquet on account, \(2,800. 31 Made the adjusting entry for rent (from May 1). 31 Accrued salary expense, \)1,600. 31 Recorded depreciation for May on kitchen equipment, \(50. Date May 1 \)(2,400) $0 Cash Basis Amount of Revenue (Expense) Accrual Basis Amount of Revenue (Expense) Amount of Revenue (Expense) for May Requirements 1. Show whether each transaction would be handled as a revenue or an expense using both the cash basis and accrual basis accounting systems by completing the following table. (Expenses should be shown in parentheses.) Also, indicate the dollar amount of the revenue or expense. The May 1 transaction has been completed as an example. 2. After completing the table, calculate the amount of net income or net loss for Chef 鈥檚 Catering under the accrual basis and cash basis accounting systems for May. 3. Considering your results from Requirement 2, which method gives the best picture of the true earnings of Chef 鈥檚 Catering? Why?

Question :Just Right Hair Stylists has begun the preparation of its worksheet as follows:


Year-end data include the following: a. Office supplies on hand, \(300. b. Depreciation, \)700. c. Accrued interest expense, $800. Complete Just Right鈥檚 worksheet through the adjusted trial balance section. In the adjustments section, mark each adjustment by letter

Question:Seth鈥檚 Tax Services had the following accounts and account balances after adjusting entries. Assume all accounts have normal balances.Cash Land Accounts Payable Utilities Payable Accumulated Depreciation鈥擡quipment Service Revenue Supplies Expense Dividends \( ? 26,000 150 3,700 1,800 75,000 1,100 14,000 Equipment Accounts Receivable Common Stock Office Supplies Utilities Expense Unearned Revenue Depreciation Expense鈥擡quipment Salaries Expense \) 11,000 4,950 700 22,600 1,650 900 1,900 5,600Prepare the adjusted trial balance for Seth鈥檚 Tax Services as of December 31, 2018.

Question :Griffin Fishing Charters has collected the following data for the December 31 adjusting entries: a. The company received its electric bill on December 31 for \(375 but will not pay it until January 5. (Use the Utilities Payable account.) b. Griffin purchased a three-month boat insurance policy on November 1 for \)1,200. Griffin recorded a debit to Prepaid Insurance. c. As of December 31, Griffin had earned \(3,000 of charter revenue that has not been recorded or received. d. Griffin鈥檚 fishing boat was purchased on January 1 at a cost of \)33,500. Griffin expects to use the boat for 10 years and that it will have a residual value of \(3,500. Determine annual depreciation assuming the straight-line depreciation method is used. e. On October 1, Griffin received \)9,000 prepayment for a deep-sea fishing charter to take place in December. As of December 31, Griffin has completed the charter. Requirements 1. Journalize the adjusting entries needed on December 31 for Griffin Fishing Charters. Assume Griffin records adjusting entries only at the end of the year. 2. If Griffin had not recorded the adjusting entries, indicate which specific category of accounts on the financial statements would be misstated and if the misstatement is overstated or understated. Use the following table as a guide

Question :The unadjusted trial balance for All Mopped Up Company, a cleaning service, is as follows:ALL MOPPED UP COMPANY Unadjusted Trial Balance December 31, 2018 Account Title Prepaid Insurance Cash Debit Credit Office Supplies Equipment Accumulated Depreciation鈥擡quipment Accounts Payable Salaries Payable Unearned Revenue Common Stock Dividends Service Revenue Salaries Expense Supplies Expense Depreciation Expense鈥擡quipment Insurance Expense Total Balance \( 800 \) 45,400 \( 45,400 \) 2,000 15,300 25,000 2,000 600 30,000 2,400 700 5,000 7,000 A, During the 12 months ended December 31, 2018, All Mopped Up: a. used office supplies of \(1,700. b. used prepaid insurance of \)580. c. depreciated equipment, \(500. d. accrued salaries expense of \)310 that hasn鈥檛 been paid yet. e. earned $400 of unearned revenue. Requirements 1. Open a T-account for each account using the unadjusted balances. 2. Journalize the adjusting entries using the letter and December 31 date in the date column. 3. Post the adjustments to the T-accounts, entering each adjustment by letter. Show each account鈥檚 adjusted balance.
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