. The Adjusting Company, which opened business on June 1, 2014, have given you a
ID: 2337094 • Letter: #
Question
. The Adjusting Company, which opened business on June 1, 2014, have given you a portion of their first adjusted trial balance as of June 30, 2014.
Adjusting Company
Unadjusted Trial Balance
June 30, 2014
Debit Balance Credit Balance
Prepaid Insurance $ 3,600
Supplies 2,450
Unearned Revenue $3,600
a.Regarding; Prepaid Insurance
i.In your own words create an adjusting transaction that will require an adjusting journal entry
ii.Based on your adjusting transaction, prepare the correct journal entry
iii.Based on your journal entry explain how the income statement was effected
b. Regarding; Supplies
i.In your own words create an adjusting transaction that will require an adjusting journal entry
ii.Based on your adjusting transaction, prepare the correct journal entry
iii.Based on your journal entry explain how the balance sheet was effected
c. Regarding; Unearned Revenue
i.In your own words create an adjusting transaction that will require an adjusting journal entry
ii. Assume that the company forgot to prepare an adjusting journal entry for the transaction, explain what is wrong with the balance sheet.
Explanation / Answer
a Prepaid Insurance Adjusting Transaction Insurance of $ 1200 has expired during the year Journal Entry 30-Jun Insurance Expense $1,200 To Prepaid Insurance $1,200 Impact on Income Statement The Insurance expense will be shown as expense in the income statement leading to decrease in profits b Supplies Adjusting Transaction The Supplies on hand as on 30th June 2014 is $ 450 Journal Entry Supplies Expense $2,000 To Supplies $2,000 (2450-450) Impact on Income Statement Here the supplies has reduced due to its utilization, this leads to expensing the supplies to the income statement which decreases the profit c Unearned Revenue Adjusting Transaction Services of $ 600 was provided during the year for which advance was received earlier and was shown in unearned revenue If the company forgets to prepare the adjusting entry for this transaction while the balance sheet would tally but it would not show the correct picture as current liabilities would be overstated and retained earnings would be understated
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