The data for the three adjusting entries were 1

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Financial Reporting, Financial Statement Analysis and Valuation
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Chapter 9 / Exercise 9.5
Financial Reporting, Financial Statement Analysis and Valuation
Wahlen
Expert Verified
stockholders’ equity, $70,000.The data for the three adjusting entries were:(1)Depreciation of $7,000 was not recorded on equipment.(2)Wages amounting to $10,000 for the last two days in December were not paid and not recorded. The next payroll will be in January.(3)Rent of $9,000 was paid for two months in advance on December 1. The entire amount was debited to Prepaid Rent when paid.Instructions:Complete the following tabulation to correct the financial statement amounts shown (indicate deductions with parentheses):ItemNet IncomeTotal AssetsTotal LiabilitiesStockholders’ EquityIncorrect balances$ 40,000$130,000$ 60,000$ 70,000Effects of:Depreciation WagesRentCorrect BalancesSolution 256(10 min.)ItemNet IncomeTotal AssetsTotal LiabilitiesStockholders’ EquityIncorrect balances$40,000$130,000$60,000$70,000Effects of:Depreciation(7,000)(7,000)(7,000)Wages(10,000)10,000(10,000)Rent (4,500)(4,500)(4,500)Correct Balances$18,500$118,500$70,000$48,500Ans: N/A, SO 4 & 5, BT: AP, Difficulty: Hard, TOT: 10 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem SolvingFOR INSTRUCTOR USE ONLY4-63
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Financial Reporting, Financial Statement Analysis and Valuation
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Chapter 9 / Exercise 9.5
Financial Reporting, Financial Statement Analysis and Valuation
Wahlen
Expert Verified
Test Bank for Financial Accounting: Tools for Business Decision Making, Sixth EditionEx. 257The Downtown Company accumulates the following adjustment data at December 31.1.Revenue of $1,100 collected in advance has been earned.2.Salaries of $600 are unpaid.3.Prepaid rent totaling $450 has expired.4.Supplies of $550 have been used.5.Revenue earned but unbilled totals $750.6.Utility expenses of $300 are unpaid.7.Interest of $250 has accrued on a note payable.Instructions:(a)For each of the above items indicate:1.The type of adjustment (prepaid expense, unearned revenue, accrued revenue, or accrued expense).2.The account relationship (asset/liability, liability/revenue, etc.).3.The status of account balances before adjustment (understatement or overstatement).4.The adjusting entry.(b)Assume net income before the adjustments listed above was $24,500. What is the adjusted net income?Prepare your answer in the tabular form presented below.Account BalancesBefore AdjustmentIncome EffectType ofAccount(UnderstatementIncreaseAdjustmentRelationshipor Overstatement)Adjusting Entry(Decrease)Solution 257(20 min.)FOR INSTRUCTOR USE ONLY4-64
Accrual Accounting Concepts(a)Account BalancesBefore AdjustmentIncome EffectType ofAccount(UnderstatementIncreaseAdjustmentRelationshipor Overstatement)Adjusting Entry(Decrease)1.Unearned revenueL/RLiab. OUnearned Revenue Rev. UService Revenue 1,1002.Accrued expenseE/LExp. USalary Expense Liab. USalaries Payable(600)3.Prepaid expenseE/AExp. URent ExpenseAsset OPrepaid Rent(450)4.Prepaid expenseE/AExp. USupplies ExpenseAsset OSupplies(550)5.Accrued revenueA/RAsset UAccounts ReceivableRev. UService Revenue7506.Accrued expenseE/LExp. UUtilities ExpenseLiab. UAccounts Payable(300)7.Accrued expenseE/LExp. UInterest ExpenseLiab. UInterest Payable(250)Codes:A=AssetR=RevenueL=LiabilityO=OverstatementE=ExpenseU=Understatement(b)Net income before adjustments ....................................................$24,500Add:Unearned revenue (1) .......................................................$1,100Accrued revenue (5)..........................................................7501,85026,350Less:Accrued salaries (2) ...........................................................600Prepaid rent expired (3) .....................................................450Supplies used (4) ...............................................................550Accrued utilities (6) ............................................................300Accrued interest (7) ...........................................................2502,150Adjusted net income ......................................................................$24,200

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