Question

Wang Company accumulates the following adjustment data at December 31. For each item, indicate the:

Answer 1

Answer:

Wang Company

1. Type of adjustment (prepaid expense, unearned revenue, accrued revenue, or accrued expense)

2. The status of the accounts before adjustment (overstated or understated).

a. Services performed but unbilled totals $600.

Accrued Revenue

Service Revenue was understated by $600

Accounts Receivable understated by $600

b. Store supplies of $160 are on hand. The supplies account shows a $1,900 balance.

Prepaid Expense

Supplies Expense understated by $1,740.

Supplies overstated by the same amount.

c. Utility expenses of $275 are unpaid.

Accrued Expense

Utility Expense understated by $275.

Utility Payables understated by $275.

d. Service performed of $490 collected in advance.

Accrued Revenue

Unearned Revenue overstated by $490

And Service Revenue understated by $490

e. Salaries of $620 are unpaid.

Accrued Expense

Salaries Expense understated by $620

Salaries Payable understated by $620

f. Prepaid insurance totaling $400 has expired.

Prepaid Expense

Insurance Expense understated by $400.

Prepaid Insurance overstated by $400.

Explanation:

Wang Company must adjust prepaid expense, unearned revenue, accrued revenue, or accrued expense is the items in order to arrive at financial statement elements are agree with the accrual basis of accounting.  The accrual concept is that these mentioned items must be recognized without regard to when or whether cash exchanges hands between the parties to the transactions.