Question

E3-33B. (Learning Objectives 1, 3: Journalizing adjusting entries and analyzing their

Answer 1

The act of logging any transaction, whether or not it is an economic one, is known as a journal entry. Transactions are listed in an accounting journal that shows a company's debit and credit balances.

Give a brief account on adjusting journal entries.

An adjusting journal entry is one that is made at the end of an accounting period in the general ledger of a business to record any unrealized income or expenses that occurred during the period. An adjusting journal entry is necessary to accurately account for a transaction that happens between two accounting periods.

To solve the question :

1. Adjusting journal entries are as follows :

Particulars                                                                  Debit.                Credit

a. Insurance expense A/c

($800 + $2,500 - $2,400)                                          $600

To prepaid insurance A/c                                                             $600

(entry for expired portion of

prepaid insurance)  

b. Interest receivable A/c                                           $1,200

To interest revenue A/c                                                             $1,200

(adjusting entry for

accrued interest revenue)  

c. Unearned service revenue A/c ($1,500 - $600)    $900

To service revenue A/c                                                                       $900

(entry for earned portion of

unearned service revenue)  

d. Depreciation expense A/c                                           $4,700

To accumulated depreciation A/c                                             $4,700

(To record depreciation expenses)  

e. Salaries Expense A/c

($24,000 / 5 days × 3 days)                                             $14,400

To Salaries payable A/c                                                           $14,400

(To record accrued salaries expenses)  

f. Income tax expense A/c

($21,000 × 25%)                                                          $5,250

To income tax payable A/c                                                            $5,250

(To record income tax expenses)

2. Calculating whether these omitted adjustments resulted in an overstatement or underestimate of net income

a. Adjusting Entry for Insurance Expense of $600 : Overstated

b. Adjusting Entry for accrued revenue of $1,200 : Understated

c. Adjusting entry for Service Revenue Earned of $900 : Understated

d. Adjusting Entry for Depreciation Expense of $4,700 : Overstated

e. Adjusting Entry for Salaries Expense for

three day of $14,400 : Overstated

f. Adjusting Entry for Income Tax Expense of $5,250 : Overstated

Impact on Net Income without Adjusting Entries of $22,850 : Overstated

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