Effects of adjusting entries on financial statements Problem type 1.docx

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QUESTION On January 2, Brooks Company paid $27,200 to purchase equipment that has a useful life of 8 years. The equipment will be depreciated equally over the 8-year period as depreciation expense . The cost of $27,200 is divided by the useful life of 8 years to determine the amount of the yearly depreciation expense of $3,400. If the appropriate adjusting entry is not made at the end of the year, what will be the effect on: (a) Income statement accounts (overstated, understated, or no effect)? (b) Net income (overstated, understated, or no effect)? (c) Balance sheet accounts (overstated, understated, or no effect)? EXPLANATION To answer this question correctly, first write down the "appropriate adjusting entry." If you are not sure how to do that, review the dictionary link for adjusting entry. Each adjusting entry affects at least 2 accounts - an income statement account (revenue/expense) and a balance sheet account (asset/liability). If adjusting entries are not made, there will be overstatements and understatements in the financial

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