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Chapter 3: 40PGB-2 (page 175)

Harrison Fishing Charters has collected the following data for the December 31 adjusting entries: a. The company received its electric bill on December 31 for \(375 but will not pay it until January 5. (Use the Utilities Payable account.) b. Harrison purchased a three-month boat insurance policy on November 1 for \)3,600. Harrison recorded a debit to Prepaid Insurance. c. As of December 31, Harrison had earned \(1,000 of charter revenue that has not been recorded or received. d. Harrison鈥檚 fishing boat was purchased on January 1 at a cost of \)56,500. Harrison expects to use the boat for five years and that it will have a residual value of \(6,500. Determine annual depreciation assuming the straight-line depreciation method is used. e. On October 1, Harrison received \)5,000 prepayment for a deep-sea fishing charter to take place in December. As of December 31, Harrison has completed the charter. Requirements 1. Journalize the adjusting entries needed on December 31 for Harrison Fishing Charters. Assume Harrison records adjusting entries only at the end of the year. 2. If Harrison 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:

Short Answer

Expert verified

Adjusting Entry

Specific Category of Accounts on the Balance Sheet

Over / Understated

Specific Category of Accounts on the Income Statement

Over / Understated

(a)

Liability

Under

Expense

Under

Equity

Over

(b)

Asset

Over

Expense

Under

Equity

Over

(c)

Assets

Under

Revenue

Under

Equity

Under

(d)

Asset

Over

Expense

Under

Equity

Over

(e)

Liability

Over

Revenue

Under

Equity

Under

Step by step solution

01

Explanation on Adjusting Entry

Adjusting entry is year end entries, which is recorded to record accrued revenues and expenses for the period

02

Effect of Ommission of Adjusting Entries

In case adjusting entry of accrued expense is not recorded, then it results in understatement of expenses and results in overstatement of net income. In balance sheet, equity will be overstated and liabilities will be understated.

In case adjusting entry of accrued revenue is not recorded, then it results in understatement of revenues and results in understatement of net income. In balance sheet, equity will be understated and assets will be understated.

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Most popular questions from this chapter

What is a deferred revenue? Provide an example.

On November 1, Carlisle Equipment had a beginning balance in the Office Supplies account of \(600. During the month, Carlisle purchased \)2,300 of office supplies. At November 30, Carlisle Equipment had $500 of office supplies on hand. Requirements 1. Open the Office Supplies T-account, and enter the beginning balance and purchase of office supplies. 2. Record the adjusting entry required at November 30. 3. Post the adjusting entry to the two accounts involved, and show their balances at November 30.

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What is an accrued revenue? Provide an example
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