Question

Selected account balances before adjustment for Atlantic Coast Realty at July 31, the end of the current year, are as follows: Debits CreditsAccounts Receivable $ 79,500 Equipment 342,700 Accumulated Depreciation—Equipment $102,700Prepaid Rent 9,300 Supplies 3,180 Wages Payable –Unearned Fees 14,100Fees Earned 670,200Wages Expense 329,600 Rent Expense – Depreciation Expense – Supplies Expense – Data needed for year-end adjustments are as follows:• Unbilled fees at July 31, $10,250.• Supplies on hand at July 31, $930.• Rent expired, $5,800.• Depreciation of equipment during year, $8,750.• Unearned fees at July 31, $2,100.• Wages accrued but not paid at July 31, $4,900. 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 the adjustments for unbilled fees and accrued wages were omitted at the end of the year?3. What would be the effect on the balance sheet if the adjustments for unbilled fees and accrued wages 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 the adjustments for unbilled fees and accrued wages were omitted at the end of the year?Chart of AccountsCHART OF ACCOUNTSAlantic Coast RealtyGeneral Ledger ASSETS11 Cash12 Accounts Receivable13 Supplies14 Prepaid Rent15 Land16 Equipment17 Accumulated Depreciation-Equipment LIABILITIES21 Accounts Payable22 Unearned Fees23 Wages Payable24 Taxes Payable EQUITY31 Owner’s Equity32 Withdrawals REVENUE41 Fees Earned42 Rent Revenue EXPENSES51 Advertising Expense52 Insurance Expense53 Rent Expense54 Wages Expense55 Supplies Expense56 Utilities Expense57 Depreciation Expense59 Miscellaneous ExpenseJournal1. 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.PAGE 10JOURNALACCOUNTING EQUATIONDATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY1 Adjusting Entries2345678910111213Final Questions2. What would be the effect on the income statement if the adjustments for unbilled fees and accrued wages were omitted at the end of the year? Over/Understated AmountFees earned Wages expense Net income 3. What would be the effect on the balance sheet if the adjustments for unbilled fees and accrued wages were omitted at the end of the year? Over/Understated AmountAccounts receivable Total assets Wages payable Total liabilities Owner’s equity Total liabilities and owner’s equity 4. What would be the effect on the "Net increase or decrease in cash" on the statement of cash flows if the adjustments for unbilled fees and accrued wages were omitted at the end of the year?

Answer 1

Answer:

Atlantic Coast Realty

1. Adjusting Journal Entries:

Debit 12 Accounts Receivable $10,250

Credit 41 Fees Earned $10,250

To record the unbilled fees at July 31.

Debit 55 Supplies Expense $2,250

Credit 13 Supplies $2,250

To record supplies used during the period.

Debit 53 Rent Expense $5,800

Credit 14 Prepaid Rent $5,800

To record expired rent.

Debit 57 Depreciation Expense $8,750

Credit 17 Accumulated Depreciation-Equipment $8,750

To record depreciation expense for the year.

Debit 41 Fees Earned $2,100

Credit 22 Unearned Fees $2,100

To record unearned fees.

Debit 54 Wages Expense $4,900

Credit 23 Wages Payable $4,900

To record accrued wages.

2. The effect on the income statement if the adjustments for unbilled fees and accrued wages were omitted at the end of the year:

Income will be understated by $10,250.

Income will be overstated by $4,900.

3. The effect on the income statement if the adjustments for unbilled fees and accrued wages were omitted at the end of the year:

Income will be understated by $10,250.

Income will be overstated by $4,900.

4. The effect on the "Net increase or decrease in cash" on the statement of cash flows if the adjustments for unbilled fees and accrued wages were omitted at the end of the year:

a. Net increase in cash will be less by $4,900 (if the indirect method is used).

b. Net decrease in cash  will be more by $10,250 (if the indirect method is used).

Explanation:

a) Data and Calculations:

Unadjusted account balances at July 31:

                                                     Debits          Credits

Accounts Receivable                $ 79,500

Prepaid Rent                                  9,300

Supplies                                          3,180

Equipment                                 342,700

Accumulated Depreciation—Equipment $102,700

Wages Payable –Unearned Fees                14,100

Fees Earned                            670,200

Wages Expense                      329,600

Rent Expense                               –

Depreciation Expense                 –

Supplies Expense                        –

Analysis of Adjustments:

12 Accounts Receivable $10,250 41 Fees Earned $10,250

55 Supplies Expense $930 13 Supplies $2,250

53 Rent Expense $5,800 14 Prepaid Rent $5,800

57 Depreciation Expense $8,750 17 Accumulated Depreciation-Equipment $8,750

41 Fees Earned $2,100 22 Unearned Fees $2,100

54 Wages Expense $4,900 23 Wages Payable $4,900

CHART OF ACCOUNTS

Atlantic Coast Realty

General Ledger

ASSETS

11 Cash

12 Accounts Receivable

13 Supplies

14 Prepaid Rent

15 Land

16 Equipment

17 Accumulated Depreciation-Equipment

LIABILITIES

21 Accounts Payable

22 Unearned Fees

23 Wages Payable

24 Taxes Payable

EQUITY

31 Owner’s Equity

32 Withdrawals

REVENUE

41 Fees Earned

42 Rent Revenue

EXPENSES

51 Advertising Expense

52 Insurance Expense

53 Rent Expense

54 Wages Expense

55 Supplies Expense

56 Utilities Expense

57 Depreciation Expense

59 Miscellaneous Expense