Question

Quinlan-Cohen, Inc., publishers of movie and song trivia books, made the following errors in adjusting the accounts at year-end (December 31):______.
a. Did not accrue $1,000 owed to the company by another company renting part of the building as a storage facility.
b. Did not record $15,000 depreciation on the equipment costing $121,000.
c. Failed to adjust the Unearned Fee Revenue account to reflect that $1,500 was earned by the end of the year.
d. Recorded a full year of accrued interest expense on a $21,000, 11 percent note payable that has been outstanding only since November 1.
e. Failed to adjust Prepaid Insurance to reflect that $620 of insurance coverage had been used.
Required:
1-a. Prepare the adjusting journal entry that was made, if any at year-end. (If no entry is made for a transaction/event, select "No journal entry made" in the first account field.)
1-b. Prepare the adjusting journal entry that should have been made at year-end. (Do not round intermediate calculations. If no entry is made for a transaction/event, select "No journal entry made" in the first account field.)
2. Using the following headings, indicate the effect of each error and the amount of the effect (that is, the difference between the entry that was or was not made and the entry that should have been made). Use O if the effect overstates the item, U if the effect understates the item. (Reminder: Assets = Liabilities + Stockholders' Equity; Revenues - Expenses = Net Income, and Net Income accounts are closed to retained Earnings, a part of Stockholders' Equity.)

Answer 1

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.