Ogonquit Enterprises prepares annual financial statements and adjusts its accoun

Question

Ogonquit Enterprises prepares annual financial statements and adjusts its accounts only at the end of the year. The following information is available for the year ended December 31, 2016:

Required:

a. Ogonquit purchased office furniture last year for $25,000. The furniture has an estimated useful life of seven years and an estimated salvage value of $4,000. b. The Supplies account had a balance of $1,200 on January 1, 2016. During 2016, Ogonquit added $12,900 to the account for purchases of supplies during the year. A count of the supplies on hand at the end of December 2016 indicates a balance of $900. c. On July 1, 2016, Ogonquit credited a liability account, Customer Deposits, for $8,800. This sum represents an amount that a customer paid in advance and that will be recognized evenly by Ogonquit over an eight-month period. d. Ogonquit rented some warehouse space on September 1, 2016, at a rate of $4,000 per month. On that date, Ogonquit debited Prepaid Rent for six months’ rent paid in advance. e. Ogonquit took out a 90-day, 6%, $30,000 note on November 1, 2016, with interest and principal to be paid at maturity. f. Ogonquit operates five days per week with an average weekly payroll of $4,150. Ogonquit pays its employees every Thursday. December 31, 2016, is a Saturday.

Explanation / Answer

a Date General Journal Debit Credit Dec 31, 2016 Depreciation expense $        3,000 Accumulated Depreciation - Furniture $        3,000 (25000-4000) ÷ 7 yrs Dec 31, 2016 Supplies expense $     13,200 Supplies $     13,200 (1200+12900-900) Dec 31, 2016 Customer deposits $        6,600 Service Revenue $        6,600 (8800*6/8) Dec 31, 2016 Rent expense $     16,000 Prepaid rent $     16,000 (4000 x 4 months) Dec 31, 2016 Interest expense $           300 Interest payable $           300 (30000 x 6% x 2/12) Dec 31, 2016 Wages expense $        1,186 Wages Payable $        1,186 (4150 x 2/7) b Expenses increases by $     33,686 (3000+13200+16000+300+1186) Revenue increases by $        6,600 Net Income decrease by $     27,086 That means if adjusting entries is not recorded, its net income will be overstated by $27086

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