On December 31, 2022, Monty Company prepared an income statement and balance sheet and failed to take into account three adjusti
ng entries. The incorrect income statement showed net income of $44,000. The balance sheet showed total assets, $166,400; total liabilities, $66,000; and stockholders’ equity, $100,400. The data for the three adjusting entries were: (1) Depreciation of $9,720 was not recorded on equipment. (2) Salaries and wages amounting to $10,720 for the last two days in December were not paid and not recorded. The next payroll will be in January. (3) Rent of $7,520 was paid for two months in advance on December 1. The entire amount was debited to Prepaid Rent when paid.
1 answer:
Answer:
Salaries and Wages are owed so they are now liabilities. They are also expenses and will reduce the Net Income.
Rent Revenue was in advance for 2 months meaning one of those months will be December which is in the current period so;
= 7,520/2
= $3,760 will be added to net income for the year
The same amount will be removed from Liabilities as the revenue has now been recognized.
Depreciation reduces the value of Fixed assets so will be deducted from Assets.
It is also an expense so it will reduce Net Income.
Whatever happens to Net Income will happen to Stockholders' equity as well because Net Income is an Equity account.
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Answer:
See attached file
Explanation:
Accounting Equation Formula:
Assets = Liabilities + Stockholders' Equity
The equation shows that Assets are increased by Debits and decreased by Credits, instead, Liabilities and Stockholders´ Equity decreased by Debits and increased by Credits. In the file, Debits and Credits are represented by the word increased and decreased according to if the transaction has a positive or negative effect on each element.
