Question

Selected account balances before adjustment for Alantic Coast Realty at July 31, 2016, the end of the current year, are as follows:
Debits Credits
Accounts Receivable $ 75,000
Equipment 345,700
Accumulated Depreciation—Equipment $112,500
Prepaid Rent 9,000
Supplies 3,350
Wages Payable –
Unearned Fees 12,000
Fees Earned 660,000
Wages Expense 325,000
Rent Expense –
Depreciation Expense –
Supplies Expense –
Data needed for year-end adjustments are as follows:
a. Unbilled fees at July 31, $11,150.
b. Supplies on hand at July 31, $900.
c. Rent expired, $6,000.
d. Depreciation of equipment during year, $8,950.
e. Unearned fees at July 31, $2,000.
f. Wages accrued but not paid at July 31, $4,840.
Required:
1. Journalize the six adjusting entries required at July 31, based on the data presented. Refer to the Chart of Accounts for exact wording of account titles.
2. What would be the effect on the income statement if adjustments (a) and (f) were omitted at the end of the year?
3. What would be the effect on the balance sheet if adjustments (a) and (f) were omitted at the end of the year?
4. What would be the effect on the "Net increase or decrease in cash" on the statement of cash flows if adjustments (a) and (f) were omitted at the end of the year?

Answer 1

Answer:

Required 1.

a.

Trade Receivables $11,150 (debit)

Deferred Revenue $11,150 (credit)

b.

Supplies  $900 (debit)

Income Statement  $900 (credit)

c.

Rent Expense $6,000 (debit)

Prepaid Rent $6,000 (credit)

d.

Depreciation $8,950 (debit)

Accumulated Depreciation $8,950 (credit)

e.

Trade Receivables $2,000 (debit)

Deferred Revenue $2,000 (credit)

f.

Wages Expense $4,840 (debit)

Wages Payable $4,840 (credit)

Required 2.

a. No Effect

b. Income is Overstated by $4,840

Required 3.

a. Decrease in Assets $11,150 and Decrease in Liabilities $11,150

b. Decrease in Liabilities $4,840

Required 4.

a. No Effect

b. Net  Increase in Cash $4,840

Explanation:

Journal a.

We recognized the Assets of  Trade Receivable at $11,150 and Liability : Deferred Revenue $11,150. Both entries do not affect the Income statement.

Journal b.

We recognized the Expense : Wages Expense at $4,840 and a Liability Wages Payable at $4,840. The Wage Expense increases the expenses in income statement to correct an Overstated Profit.