Question

Question :The following data at July 31, 2018, are given for RCO: a. Depreciation, \(600. b. Prepaid rent expires, \)200. c. Interest expense accrued, \(700. d. Employee salaries owed for Monday through Thursday of a five-day workweek; weekly payroll, \)8,000. Unearned revenue earned, \(1,000. f. Office supplies used, \)150. Requirements 1. Journalize the adjusting entries needed on July 31, 2018. 2. Suppose the adjustments made in Requirement 1 were not made. Compute the overall overstatement or understatement of net income as a result of the omission of these adjustments

Short answer

Adjusting entries are as follows:

	Journal entry
Transactions	Accounts and Explanation	Debit	Credit
(a)	Depreciation Expense—Equipment	$600
	Accumulated Depreciation—Equipment		$600
	To record depreciation on equipment
(b)	Insurance Expense	$200
	Prepaid Rent		$200
	To record insurance expense
(c)	Interest Expense	$700
	Interest Payable		$700
	To record accrued salaries expense
(d)	Salaries Expense	$6,400
	Salaries Payable		$6,400
	To record accrued salaries expense
(e)	Unearned Revenue	$1,000
	Service Revenue		$1,000
	To record service revenue earned
(f)	Supplies Expense	$150
	Office Supplies		$150
	To record office supplies used

Step-by-step solution

Step-by-Step-SolutionStep1: Explanation on Adjusting Entries

Adjustries entries are used to record the accrued revenues and expenses at the end of the period.

Calculation of Salaries Expense

Salaries expense is calculated as follows:

$$\begin{gathered} \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{SalariesExpense}\mathbf{=}\mathbf{SalariesPerWeeklyPayroll}\mathbf{\times }\frac{\mathbf{NumberofDaysExpired}}{\mathbf{NumberofDaysPerPayrollWeek}} \\ \mathbf{=}\mathbf{\$}\mathbf{8}\mathbf{,}\mathbf{000}\mathbf{\times }\frac{\mathbf{4}}{\mathbf{5}} \\ \mathbf{=}\mathbf{\$}\mathbf{6}\mathbf{,}\mathbf{400} \end{gathered}$$