An accountant made the following adjustments at December 31, the end of the acco

Question

An accountant made the following adjustments at December 31, the end of the accounting period:

a. Prepaid insurance, beginning, $500. Payments for insurance during the period, $1,500. Prepaid insurance, ending, $1,000.

b. Interest revenue accrued, $1,100.

c. Unearned service revenue, beginning, $1,200. Unearned service revenue, ending $400

d. Depreciation, $4,900.

e. Employees' salaries owed for three days of a five-day work week; weekly payroll, $14,000.

f. Income before income tax, $22,000. Income tax rate is $25%.

Requirements

1. Journalize the adjusting entries.

2. Suppose the adjustments were not made. Compute the overall overstatement or understatement of net income as a result of the omission of these adjustments.

-Thanks

Explanation / Answer

A.) Debit Insurance Expense 1000 Credit Prepaid Insurance 1000 B.) Debit Interest Receivable 1100 Credit Interest Revenue C.) Debit Unearned Revenue 800 Credit Revenue 800 D.) Debit Depreciation Expense 4900 Credit Accumulated Depreciation 4900 E.) Debit Salary expense $14,000 Credit Salary Payable $14,000 F.) Debit Income Tax Expense 5,500 Credit Income Tax Payable 5,500 2.) 500 + 1100 + 800 - 4000 - 14000 - 5500 = -21100 Income would be overstated by 21,100

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