Question

Lei Company accumulates the following adjustment data at December 31. 1. Services provided but not recorded total $1,000. 2. Supplies of $300 have been used. 3. Utility expenses of $225 are unpaid. 4. Services related to Unearned service revenue of $260 were performed 5. Salaries of $800 are unpaid. 6. Prepaid insurance totaling $350 has expired. For each of the above items indicate the following. (Enter answers in alphabetical order.) (a) The type of adjustment (prepaid expenses, unearned revenues, accrued revenues, or accrued expenses). (b) The status of accounts before adjustment (overstatement or understatement).

Answer 1

Answer:

Type of adjustment (prepaid expenses, unearned revenues, accrued revenues, or accrued expenses)

1. Services provided but not recorded total $1,000. accrued revenues

2. Supplies of $300 have been used. accrued expenses

3. Utility expenses of $225 are unpaid. accrued expenses

4. Services related to Unearned service revenue of $260 were performed. accrued revenues

5. Salaries of $800 are unpaid. accrued expenses

6. Prepaid insurance totaling $350 has expired. accrued expenses

Status of Each Account before adjustment

1. Services provided but not recorded total $1,000. Revenue understated and cash/account receivable account understated

2. Supplies of $300 have been used. Supplies account overstated and supplies expense account understated

3. Utility expenses of $225 are unpaid. utility expense account understated and Liability account understated

4. Services related to Unearned service revenue of $260 were performed. Revenue understated and Unearned revenue overstated

5. Salaries of $800 are unpaid. Salaries Expense account understated and Liability account understated

6. Prepaid insurance totaling $350 has expired. Insurance expense account understated and Prepaid insurance overstated.

Explanation:

1. Revenue should be recorded when services are performed.

2. Used supplies should be transferred to supplies expenses account.

3. Utility expense should be recorded when it's been accrued.

4. Sales expense should be recorded when it's been accrued.

5. Prepaid Insurance should be transferred to Prepaid expense account when its been expired.