Jackson Consulting Unadjusted Trial Balance – December 31, 2018 Debits Credits C

Question

Jackson Consulting

Unadjusted Trial Balance – December 31, 2018

                                                                                                          Debits                                          Credits

Cash                                                                                               $ 11,500    

Accounts Receivable                                                                        3,500

Supplies                                                                                           1,200

Prepaid Rent                                                                                  24,000

Equipment                                                                                   14,000

Accumulated Depreciation                                                                                                                $1,400

Accounts Payable                                                                                                                             1,900    

Unearned Service Revenue                                                                                                             2,800

Common Stock                                                                                                                             10,300

Retained Earnings                                                                                                                            7,500

Dividends                                                                                       4,500

Service Revenue                                                                                                                              91,350

Salaries Expense                                                                        55,000

Advertising Expense                                                                         900      

Utilities Expense                                                                               650                                                                    

Total: Debits =$115,250 Credits total = $115,250

Additional Information:

1.) The equipment was purchased on January 1, 2017. The useful life is estimated to be 10 years.

2.) As of December 31, 2018, the company had accrued salaries of $950.

3.) Of the balance in the unearned revenue account, $500 had not been earned by year -end.

4.) On December 1, 2018, the company paid $900 for four months of advertising.

5.) A count of supplies on December 31, 2018 showed $400 of supplies had been used during the year.

6.) On May 1, 2018, the company rented an office building for one year and paid $24,000 in cash.

What would the effect on Jackson's balance sheet be if adjusting entry ( c ) is not recorded?

Liabilities overstated and stockholders' equity understated

Assets overstated and liabilities understated

Assets overstated and stockholders' equity understated

Assets understated and stockholders' equity overstated

There will be no effect on Jackson's balance sheet.

Liabilities overstated and stockholders' equity understated

Assets overstated and liabilities understated

Assets overstated and stockholders' equity understated

Assets understated and stockholders' equity overstated

There will be no effect on Jackson's balance sheet.

Explanation / Answer

Unearned revenue account includes that amount which is not revenue but adjusting entry says 500 had not been earned it means (2800-500) = 2300 is earned by the year end

So if we not record adjusting entry then liabilities will be overstated and net income (Stockholder's equity) will be understated

So answer is a) Liabilities overstated and stockholders' equity understated

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