On December 31, Watson Company receives a utility bill in the mail for $620. Wat

Question

On December 31, Watson Company receives a utility bill in the mail for $620. Watson Company intends to pay the bill in early January of next year. If the appropriate adjusting entry is not made at the end of the year, what will be the effect on:

On November 1, Price Company received $26,100 for six months of rent in advance. Price credited Unearned Rent. If the appropriate adjusting entry is not made at the end of the year, what will be the effect on:

(a) Income statement accounts (overstated, understated, or no effect)?

(b) Net income (overstated, understated, or no effect)?

(c) Balance sheet accounts (overstated, understated, or no effect)?

Explanation / Answer

a Income statement accounts , 1 Utility expense account on expense side understated by $620 2 Rent Income account on Income side (2 months rent) understated by $8700 b Net Income will be understated by = $8700 - $620 = understated by $8080 c Balance sheet accounts 1 Expense payable account on liability side understated by $620 2 Unearned Rent accont on liability side overstated by $8700 3 Retained earning account understated by $8080

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