Answer:
Quinlan-Cohen, Inc.
1-a. Adjusting journal entry made:
d. Debit Interest Expense $21,000
Credit Interest Expense Payable $21,000
Which recorded the full year of accrued expense.
1-b. Adjusting journal entry that should have been made:
a. Debit Rent Receivable $1,000
Credit Rent Revenue $1,000
To accrue rent.
b. Debit Depreciation Expense - Equipment $15,000
Credit Accumulated Depreciation - Equipment $15,000
To record depreciation expense for the period.
c. Debit Unearned Fee Revenue $1,500
Credit Fee Revenue $1,500
To record Earned Fee Revenue for the year.
d. Debit Interest Expense $3,500
Credit Interest Expense Payable $3,500
To accrue interest expense for the year (2 months).
e. Debit Insurance Expense $620
Credit Prepaid Insurance $620
To record insurance expense for the year.
2. Indication of the effect of each error and the amount of the effect:
Assets = Liabilities + Stockholders' Equity; Revenues - Expenses = Net Income
a. Assets $1,000 U = Liabilities + Stockholders' Equity $1,000 U
b. Assets $15,000 O = Liabilities + Stockholders' Equity $15,000 O
c. Assets = Liabilities $1,500 O + Stockholders' Equity $1,500 U
d. Assets = Liabilities $17,500 O + Stockholders' Equity $17,500 U
e. Assets $620 O = Liabilities + Stockholders' Equity $620 O
Explanation:
The accounting equation shows that with each transaction, Assets are always equal to Liabilities + Stockholders' Equity. This is illustrated with the above adjustments made.
