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Chapter 3: Q.3-5TI-b (page 144)

Identify the impact on the income statement and balance sheet if adjusting entries for the following situations were not recorded. a. Office Supplies used, $800. b . A c c r u e d s e r v i c e r e v e n u e,$ 4,000. c. Depreciation on building, $3, 500. d . P r e p a i d I n s u r a n c e e x p i r e d,$ 650. e. Accrued salaries expense, $2, 750. f . S e r v i c e r e v e n u e t h a t w a s c o l l e c t e d i n a d v a n c e h a s n o w b e e n e a r n e d,$ 130

Short Answer

Expert verified

In the balance sheet, accounts receivable and equity will be understated, and in the income statement, service revenue and net income will be understated.

Step by step solution

01

Impact on Income Statement

Accrued service revenue are the earned revenues of the business, not recording the adjusting entries will reduce the service revenues, and also will lead to reduction in the net income

02

Impact on Balance Sheet

Accrued service revenue increase the accounts receivable balance as cash is not received for the revenue earned, not recording the adjusting entry will decrease accounts receivable in asset section. Also as net income is decreased, it will decrease equity (Retained earnings) also.

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Most popular questions from this chapter

Question :What does accumulated depreciation represent?

On October 1, Orlando Gold Exchange paid cash of $57,600 for computers that are expected to remain useful for three years. At the end of three years, the value of the computers is expected to be zero. Requirements 1. Calculate the amount of depreciation for the month of October using the straightline depreciation method. 2. Record the adjusting entry for depreciation on October 31. 3. Post the purchase of October 1 and the depreciation on October 31 to T-accounts for the following accounts: Computer Equipment, Accumulated Depreciation— Computer Equipment, and Depreciation Expense—Computer Equipment. Show their balances at October 31. 4. What is the computer equipment’s book value on October 31?

Question :In recording adjusting entries, Reagan Financial Advisors failed to record the adjusting entries for the following situations: a. Office supplies on hand, $100. b . A c c r u e d r e v e n u e s,$ 5,000. c. Accrued interest expense, $250. d . D e p r e c i a t i o n,$ 800. e. Unearned revenue that has been earned, $550. Determine the effects on the income statement and balance sheet by identifying whether assets, liabilities, equity, revenue, and expenses are either overstated or understated. Use the following table. Adjustment a has been provided as an example.Adjustment Not Recorded (a) Overstated Overstated Understated Assets Liabilities Equity Revenue Expenses Balance Sheet Income Statement

Question :What is a deferred expense? Provide an example.

Question :Austin Acoustics recorded the following transactions during October: a. Received $2, 500 c a s h f r o m c u s t o m e r f o r t h r e e m o n t h s o f s e r v i c e b e g i n n i n g O c t o b e r 1 a n d e n d i n g D e c e m b e r 31. T h e c o m p a n y r e c o r d e d a$ 2,500 debit to Cash and a $2, 500 c r e d i t t o U n e a r n e d R e v e n u e . b . E m p l o y e e s a r e p a i d$ 3,000 on Monday following the five-day workweek. October 31 is on Friday. c. The company pays $440 o n O c t o b e r 1 f o r i t s s i x - m o n t h a u t o i n s u r a n c e p o l i c y . T h e c o m p a n y r e c o r d e d a$ 440 debit to Prepaid Insurance and a $440 c r e d i t t o C a s h . d . T h e c o m p a n y p u r c h a s e d o f f i c e f u r n i t u r e f o r$ 8,300 on January 2. The company recorded a $8, 300 d e b i t t o O f f i c e F u r n i t u r e a n d a n$ 8,300 credit to Accounts Payable. Annual depreciation for the furniture is $1, 000. e . T h e c o m p a n y b e g a n O c t o b e r w i t h$ 50 of office supplies on hand. On October 10, the company purchased office supplies on account of $100. T h e c o m p a n y r e c o r d e d a$ 100 debit to Office Supplies and a $100 c r e d i t t o A c c o u n t s P a y a b l e . T h e c o m p a n y u s e d$ 120 of office supplies during October. f. The company received its electric bill on October 31 for $325 b u t d i d n o t p a y i t u n t i l N o v e m b e r 10. g . T h e c o m p a n y p a i d N o v e m b e r^{'} s r e n t o f$ 2,500 on October 30. On October 30, the company recorded an $2, 500 d e b i t t o R e n t E x p e n s e a n d a$ 2,500 credit to Cash. Indicate if an adjusting entry is needed for each item on October 31 for the month of October. Assuming the adjusting entry is not made, indicate which specific category or categories of accounts on the financial statements are misstated and if they are overstated or understated. Use the following table as a guide. Item a is completed as an example:used.

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