Question

Question :Griffin Fishing Charters has collected the following data for the December 31 adjusting entries: a. The company received its electric bill on December 31 for $375butwillnotpayituntilJanuary5.(UsetheUtilitiesPayableaccount.)b.Griffinpurchasedathree-monthboatinsurancepolicyonNovember1for$1,200. Griffin recorded a debit to Prepaid Insurance. c. As of December 31, Griffin had earned $3,000ofcharterrevenuethathasnotbeenrecordedorreceived.d.Griffi{n}^{\prime }sfishingboatwaspurchasedonJanuary1atacostof$33,500. Griffin expects to use the boat for 10 years and that it will have a residual value of $3,500.Determineannualdepreciationassumingthestraight-linedepreciationmethodisused.e.OnOctober1,Griffinreceived$9,000 prepayment for a deep-sea fishing charter to take place in December. As of December 31, Griffin has completed the charter. Requirements 1. Journalize the adjusting entries needed on December 31 for Griffin Fishing Charters. Assume Griffin records adjusting entries only at the end of the year. 2. If Griffin had not recorded the adjusting entries, indicate which specific category of accounts on the financial statements would be misstated and if the misstatement is overstated or understated. Use the following table as a guide

Short answer

Adjusting entries are as follows:

	Journal entry
Transactions	Accounts and Explanation	Debit	Credit
(a)	UtilitiesExpense	$375
	UtilitiesPayable		$375
	To record accrued electricity expense
(b)	Insurance Expense	$800
	Prepaid Insurance		$800
	To record insurance expense
(c)	Accounts Receivable	$3,000
	Service Revenue		$3,000
	To record the service revenue earned
(d)	Depreciation Expense—Boat	$3,000
	Accumulated Depreciation—Boat		$3,000
	To record depreciation on boat
(e)	Unearned Revenue	$9,000
	Service Revenue		$9,000
	To record service revenue earned that was collected in advance

Step-by-step solution

Step-by-Step-SolutionStep1: Calculation of Insurance Expense

Insurance expense is calculated as follows:

$$\begin{gathered} \mathbf{InsuranceExpense}\mathbf{=}\mathbf{AmountPaid}\mathbf{\times }\frac{\mathbf{NumberofMonthsExpired}}{\mathbf{TotalMonthsofInsurancePaid}} \\ \mathbf{=}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{200}\mathbf{\times }\frac{\mathbf{2}}{\mathbf{3}} \\ \mathbf{=}\mathbf{\$}\mathbf{800} \end{gathered}$$

Calculation of Depreciation Expense

Depreciation expenseis calculated as follows:

$$\begin{gathered} \mathbf{DepreciationExpense}\mathbf{=}\frac{\mathbf{Cost}-\mathbf{ResidualValue}}{\mathbf{UsefulLife}} \\ \mathbf{=}\frac{\mathbf{\$}\mathbf{33}\mathbf{,}\mathbf{500}-\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{500}}{\mathbf{10}} \\ \mathbf{=}\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{000} \end{gathered}$$