Concept explainers
Concept Introduction:
The business activity for each type of adjusting entry is explained as follows:
- Accrued revenue: The adjusting entry for Accrued revenue is prepared to record the revenue earned during the period.
- Accrued Expense: The adjusting entry for Accrued expense is prepared to record the expenses incurred during the period.
- Deferred Revenue: The adjusting entry for Deferred revenue is prepared to defer the revenue that belong to next period.
- Deferred expenses: The adjusting entry for Deferred expense is prepared to defer the expense that belong to next period.
- Depreciation: The adjusting entry for depreciation expense is prepared to record the depreciation expense that belong to current period. Requirement-1:
To prepare:
The adjusting entries as on Dec. 31 for the given transactions.
Answer to Problem 53E
The adjusting entries as on Dec. 31 for the given transactions are as follows:
Reynold Computer Service | |||||
Adjusting entries | |||||
As on Dec. 31, 2019 | |||||
# | Date | Account titles | Debit | Credit | |
a. | Dec. 31 | Depreciation Expense- Equipment | $ 132,500 | ||
$ 132,500 | |||||
b. | Dec. 31 | Insurance Expense | $ 2,040 | ||
Prepaid Insurance | $ 2,040 | ||||
c. | Dec. 31 | $ 5,450 | |||
Service Revenue | $ 5,450 | ||||
c. | Dec. 31 | Rent Expense | $390 | ||
Rent Payable | $390 | ||||
d. | Dec. 31 | Unearned Rent Revenue | $ 1,810 | ||
Rent Revenue | $ 1,810 |
Explanation of Solution
The adjusting entries as on Dec. 31 for the given transactions are explained as follows:
Reynold Computer Service | |||||
Adjusting entries | |||||
As on Dec. 31, 2019 | |||||
# | Date | Account titles | Debit | Credit | |
a. | Dec. 31 | Depreciation Expense- Equipment | $ 132,500 | ||
Accumulated Depreciation- Equipment | $ 132,500 | ||||
(being adjustment made for the expense accrued) | |||||
b. | Dec. 31 | Insurance Expense (12240*4/24) | $ 2,040 | ||
Prepaid Insurance | $ 2,040 | ||||
(being adjustment made for the expense accrued) | |||||
c. | Dec. 31 | Accounts Receivables | $ 5,450 | ||
Service Revenue | $ 5,450 | ||||
(being adjustment made for the revenue accrued) | |||||
c. | Dec. 31 | Rent Expense (12*65/2) | $390 | ||
Rent Payable | $390 | ||||
(being adjustment made for the expense accrued) | |||||
d. | Dec. 31 | Unearned Rent Revenue | $ 1,810 | ||
Rent Revenue | $ 1,810 | ||||
(being adjustment made for the revenue accrued) |
Concept Introduction:
Adjusting entries are required to adjust the accounts according to the accrual basis of accounting at the end of the every accounting period. For example: Recording the depreciation expense on depreciable assets at the end of each accounting year.
The business activity for each type of adjusting entry is explained as follows:
- Accrued revenue: The adjusting entry for Accrued revenue is prepared to record the revenue earned during the period.
- Accrued Expense: The adjusting entry for Accrued expense is prepared to record the expenses incurred during the period.
- Deferred Revenue: The adjusting entry for Deferred revenue is prepared to defer the revenue that belong to next period.
- Deferred expenses: The adjusting entry for Deferred expense is prepared to defer the expense that belong to next period.
- Depreciation: The adjusting entry for depreciation expense is prepared to record the depreciation expense that belong to current period. Requirement-2:
To Indicate:
The effect of omission of the above adjusting entry on balance sheet and income statement.
Answer to Problem 53E
The effect of omission of the above adjusting entry on balance sheet and income statement is as follows:
# | Effect of Omission |
a. | Understatement of Expense |
Overstatement of Assets | |
b. | Understatement of Expense |
Overstatement of Assets | |
c. | Understatement of Assets |
Understatement of Revenue | |
c. | Understatement of Expenses |
Understatement of Liabilities | |
d. | Overstatement of Liabilities |
Understatement of Revenue | |
Explanation of Solution
The effect of omission of the above adjusting entry on balance sheet and income statement is explained as follows:
Reynold Computer Service | ||||||
Adjusting entries | ||||||
As on Dec. 31, 2019 | ||||||
# | Date | Account titles | Debit | Credit | Effect of Omission | |
a. | Dec. 31 | Depreciation Expense- Equipment | $ 132,500 | Understatement of Expense | ||
Accumulated Depreciation- Equipment | $ 132,500 | Overstatement of Assets | ||||
(being adjustment made for the expense accrued) | ||||||
b. | Dec. 31 | Insurance Expense (12240*4/24) | $ 2,040 | Understatement of Expense | ||
Prepaid Insurance | $ 2,040 | Overstatement of Assets | ||||
(being adjustment made for the expense accrued) | ||||||
c. | Dec. 31 | Accounts Receivables | $ 5,450 | Understatement of Assets | ||
Service Revenue | $ 5,450 | Understatement of Revenue | ||||
(being adjustment made for the revenue accrued) | ||||||
c. | Dec. 31 | Rent Expense (12*65/2) | $390 | Understatement of Expenses | ||
Rent Payable | $390 | Understatement of Liabilities | ||||
(being adjustment made for the expense accrued) | ||||||
d. | Dec. 31 | Unearned Rent Revenue | $ 1,810 | Overstatement of Liabilities | ||
Rent Revenue | $ 1,810 | Understatement of Revenue | ||||
(being adjustment made for the revenue accrued) |
Want to see more full solutions like this?
Chapter 3 Solutions
Cornerstones of Financial Accounting
- The balance in Ashwood Companys accounts payable account at December 31, 2019, was 1,200,000 before any necessary year-end adjustment relating to the following: Goods were in transit from a vendor to Ashwood on December 31, 2019. The invoice cost was 85,000, and the goods were shipped FOB shipping point on December 29, 2019. The goods were received on January 2, 2020. Goods shipped FOB shipping point on December 20, 2019, from a vendor to Ashwood were lost in transit. The invoice cost was 40,000. On January 5, 2020, Ashwood filed a 40,000 claim against the common carrier. Goods shipped FOB destination on December 22, 2019, from a vendor to Ashwood were received on January 6, 2020. The invoice cost was 20,000, What amount should Ashwood report as accounts payable on its December 31,2019, balance sheet? a. 1,260,000 b. 1,285,000 c. 1,325,000 d. 1,345,000arrow_forwardSALES RETURNS AND ALLOWANCES ADJUSTMENT At the end of year 1, MCs estimates that 2,400 of the current years sales will be returned in year 2. Prepare the adjusting entry at the end of year 1 to record the estimated sales returns and allowances and customer refunds payable for this 2,400. Use accounts as illustrated in the chapter.arrow_forwardJournalize this transactions for 2024, before starting the company for the journal entries uses the allowance method I added more imformation in the image for the background data and imformation. Transactions for 2024 1-Sales revenue on account, $113,600 (ignore Cost of Goods Sold). 2-Collections on account, $92,895 3-Write-offs of uncollectibles, $760. 4- The Company accepted a 90-day, 9%, $13,500 note receivable from a customer in exchange for 4 his account receivable. a Journalize the issuance of the note. b Journalize the collection of the principal and interest at maturity. (use 360 days) 5 Bad debts expense of $?? was recorded. (Refer to requirement 3)(about the write off) -attached is an image to the context the journal entries should be placed inarrow_forward
- PROBLEMS Problem 1- Pertinent accounts gathered from the records of Karla Company for the year 2019 are given below: Purchases Purchase returns and allowances 5,250,000 150,000 Rental income 250,000 Selling expenses: Freight out Salesmen's commission 175,000 650,000 Depreciation- store equipment 125,000 Merchandise inventory- January 1 Merchandise inventory- December 31 Sales 1,000,000 1,500,000 7,650,000 Sales returns and allowances 140,000 Sales discount 10,000 Administrative expenses: Officers' salaries 500,000 Depreciation- office equipment 300,000 Freight in Income tax 500,000 250,000 Loss on sale of equipment Purchase discounts 50,000 100,000 Dividend revenue 150,000 50,000 Loss on sale of investment Required: Prepare an income statement for the year 2019 using the functional method with supporting notes.arrow_forwardThe beginning balance represented the unexpired portion of a one-year policy On Nov. 30, 2019, the end of fiscal year, the following information is available to enable year were P45,260. The ending inventory revealed supplies on hand of P 13,970. Preparing the Adjusting Entries at Year-End a. The Supplies account showed a beginning balance of P21,740. Purchases during the you you to prepare Edgar Detoya Research and Development adjusting entries: b. The Prepaid Insurance account showed the following on November 30. Beginning balance July 1 P35,800 42,000 October 1 72,720 The beginning balance represented the unexpired portion of a one-yeal pand purchased in September 2018. The July 1 entry represented a new one-year policy, eme the Oct. 1 entry is additional coverage in the form of a three-year policy. c. The following table contains the cost and annual depreciation for buildings ana equipment, all of which the entity purchased before the current year: Annual Depreciation P145,000…arrow_forwardAdjusting entries and adjusted trial balances Reece Financial Services Co., which specializes in appliance repairservices, is owned and operated by Joni Reece. Reece Financial Services accounting clerk prepared the following unadjusted trial balance at July31, 2019: (attached) The data needed to determine year-end adjustments are as follows:. Depreciation of building for the year, $6,400.. Depreciation of equipment for the year, $2,800.. Accrued salaries and wages at July 31, $900. . Unexpired insurance at July 31, $1,500.. Fees earned but unbilled on July 31, $10,200.. Supplies on hand at July 31, $615.. Rent unearned at July 31, $300. Instructions1. Journalize the adjusting entries using the following additionalaccounts: Salaries and Wages Payable, Rent Revenue, InsuranceExpense, Depreciation Expense-Building, Depreciation Expense- Equipment, and Supplies Expense.2. Determine the balances of the accounts affected by the adjustingentries and prepare an adjusted trial balance.arrow_forward
- Asset Cost: Less: Residual Value Depreciable Amount Depreciation method Depreciation p.a: Date 30/06/2018 30/06/2019 30/06/2020 Computers Depreciation Worksheet - Snow Lake Pty Ltd $66,000 $ N/A $66,000 Reducing Balance (Diminishing Balance) 30% Asset Cost $66,000 46,200 32,340 Depreciation $19,800 13,860 9,702 Accumulated Depreciation $19,800 33,660 43,362 Carrying Amount at the end $46,200 32,340 22,638 20 2014 2015 14200 1444arrow_forwardProblem 1-20 (AICPA Adapted) Marr Company sells products with reusable and expensive containers. The customer is charged a deposit for each container delivered and receives a refund for each container returned within two years after the year of delivery. Containers held by customers on January 1, 2022 from deliveries in: 2020 2021 Containers delivered in 2022 Containers returned in 2022 from deliveries in: 2020 2021 2022 a. 494,000 b. 584,000 150,000 430,000 c. 674,000 d. 734,000 90,000 250,000 286,000 What amount should be reported as liability for container deposits on December 31, 2022? 580,000 780,000 626,000 Problem 1-21 (IAA) Diversified Company sells perishable electronic products that are shipped in reusable containers. Customers pay a deposit for each container. The deposit is equal to the container cost. Customers receive a refund when the container is returned. a. 595,000 b. 620,000 c. 645,000 d. 290,000 During the current year, deposits collected on containers shipped…arrow_forwardPreparing Adjusting Entries The Sang Tae Company presented the following information pertaining to accounts that will need adjustments for its November 30, 2019 year-end financial statements. On Oct. 1,2019 Sang Tae paid P10, 800 for 6 month's insurance premiums 2. The balance in the leger account Office Supplies amounted to P32,000. A count of the supplies on November 30, 2019 totaled P12,800. 1. 3. Sang Tae received P22,800 on November 1, 2019 from a customer for services to be rendered during the months of November, December, January and February 2020. 4. Sang Tae acquired Office Equipment costing P352,800 on April 1, 2019, the equipment is expected to last 5 years after which it will be worthless. The scrap value is 10,500. 5. Assume that November 30, 2019 is a Friday and that Sang Tae pays its employees a total of P87,500 on Saturday. Requirements: 1. Prepare the adjusting entries as of November 30,2019 2. Prepare ihe Dec. 1, 2019 entry to record the paymeni of the salaries. 43arrow_forward
- Refer to RE22-2. Assume the pretax cumulative effect adjustment is 50,000. Prepare the journal entry that Heller Company would make at the beginning of 2020 to record the cumulative effect of the change from LIFO to FIFO. RE22-2 Heller Company began operations in 2019 and used the LIFO method to compute its 300,000 cost of goods sold for that year. At the beginning of 2020, Heller changed to the FIFO method. Heller determined that its cost of goods sold under FIFO would have been 250,000 in 2019. For 2020, Hellers cost of goods sold under FIFO was 360,000, while it would have been 410,000 under LIFO. Heller is subject to a 21% income tax rate. Compute the cumulative effect of the retrospective adjustment on prior years income (net of taxes) that Heller would report on its retained earnings statement for 2020.arrow_forwardEND-OF-PERIOD SPREADSHEET, ADJUSTING, CLOSING, AND REVERSING ENTRIES Vickis Fabric Store shows the trial balance on page 601 as of December 31, 20-1. At the end of the year, the following adjustments need to be made: (a, b)Merchandise inventory as of December 31, 31,600. (c, d, e)Vicki estimates that customers will be granted 2,500 in refunds of this years sales next year and the merchandise expected to be returned will have a cost of 1,800. (f)Unused supplies on hand, 350. (g)Insurance expired, 2,400. (h)Depreciation expense for the year on building, 20,000. (i)Depreciation expense for the year on equipment, 4,000. (j)Wages earned but not paid (Wages Payable), 520. (k)Unearned revenue on December 31, 20-1, 1,200. PROBLEM 15-10A CONT. REQUIRED 1. Prepare an end-of-period spreadsheet. 2. Prepare adjusting entries and post adjusting entries to an Income Summary T account. 3. Prepare closing entries and post to a Capital T account. There were no additional investments this year. 4. Prepare a post-closing trial balance. 5. Prepare reversing entry(ies).arrow_forwardService Revenue Softball Magazine Company received advance payments of $75,000 from customers during 2019. At December 31, 2019, $20,000 of the advance payments still had not been earned. Required: After the adjustments are recorded and posted at December 31, 2019, calculate what the balances will be in the Unearned Magazine Revenue and Magazine Revenue accounts. Use the following information for Cornerstone Exercises 5-23 and 5-24: Bolton sold a customer service contract with a price of S37 000 to Sammys Wholesale Company. Bolton offered terms of 1/10, n/30 and expects Sammy to pay within the discount period.arrow_forward
- Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
- College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,Century 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:Cengage