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, $400. Payments for insurance during the period, $1,200. Prepaid insurance, ending, $700.

b. Interest revenue accrued, $1,600.

c. Unearned service revenue, beginning, $1,100. Unearned service revenue, ending $500

d. Depreciation, $4,800.

e. Employees' salaries owed for three days of a five-day work week; weekly payroll, $18,000.

f. Income before income tax, $21,000. 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.

Thank you!!

Explanation / Answer

A.)
Debit Insurance Expense 800
Credit Prepaid Insurance 800

B.)
Debit Interest Receivable 1600
Credit Interest Revenue 1600

C.)
Debit Unearned Revenue 600
Credit Revenue 600

D.)
Debit Depreciation Expense 4800
Credit Accumulated Depreciation 4800

E.)
Debit Salary expense $18,000
Credit Salary Payable $18,000

F.)
Debit Income Tax Expense 5,250
Credit Income Tax Payable 5,250

2.)
800 + 1600 + 600 - 4800 - 18000 - 5250 = -25050
Income would be overstated by 25,050

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