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, $450. Payments for insurance during the period, $1,600. Prepaid insurance, ending, $500.

b. Interest revenue accrued, $2,700.

c. Unearned service revenue, beginning, $1,400. Unearned service revenue, ending $300

d. Depreciation, $5,400.

e. Employees' salaries owed for three days of a five-day work week; weekly payroll, $25,000.

f. Income before income tax, $26,000. Income tax rate is $35%.

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

JOURNAL ENTRIES :-

a. Prepaid insurance, beginning, $450.

PROFIT/LOSS ACCOUNT A/C ----DR.

TO PREPAID EXPENSES A/C

450

Payments for insurance during the period, $1,600

INSURANCE EXPENSE A/C -----DR.

TO BANK A/C

1600

Prepaid insurance, ending, $500.

PREPAID INSURANCE EXPENSE A/C ----DR.

TO INSURANCE EXPENSE A/C

500

b. Interest revenue accrued, $2,700.

ACCRUED INTEREST A/C ---- DR.

TO INTEREST A/C

2700

PROFIT/LOSS A/C----DR

TO UNEARNED REVENUE A/C

1400

Unearned service revenue, ending $300

UNEARNED REVENUE A/C --- DR.

TO SERVICE REVENUE A/C

300

d. Depreciation, $5,400.

DEPRECIATION A/C---- DR.

TO ASSETS A/C

5400

e. Employees' salaries owed for three days

SALARIES A/C---- DR.

TO OUTSTANDING SALARIES A/C

15000

Income tax (26000X35%)=9100

INCOME TAX A/C--- DR.

TO BANK A/C

9100

9100

2) PROFIT AFTER TAX (AFTER ADJUSTMENT OF GIVEN TRANSACTION)

PROFIT AFTER TAX (BEFORE ADJUSTMENT OF GIVEN TRANSACTION)

PARTICULARS DEBIT CREDIT 1)

a. Prepaid insurance, beginning, $450.

PROFIT/LOSS ACCOUNT A/C ----DR.

TO PREPAID EXPENSES A/C

450

450

2)

Payments for insurance during the period, $1,600

INSURANCE EXPENSE A/C -----DR.

TO BANK A/C

1600

1600

3)

Prepaid insurance, ending, $500.

PREPAID INSURANCE EXPENSE A/C ----DR.

TO INSURANCE EXPENSE A/C

500

500

b. Interest revenue accrued, $2,700.

ACCRUED INTEREST A/C ---- DR.

TO INTEREST A/C

2700

2700

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

PROFIT/LOSS A/C----DR

TO UNEARNED REVENUE A/C

1400

1400

Unearned service revenue, ending $300

UNEARNED REVENUE A/C --- DR.

TO SERVICE REVENUE A/C

300

300

d. Depreciation, $5,400.

DEPRECIATION A/C---- DR.

TO ASSETS A/C

5400

5400

e. Employees' salaries owed for three days

SALARIES A/C---- DR.

TO OUTSTANDING SALARIES A/C

15000

15000

Income tax (26000X35%)=9100

INCOME TAX A/C--- DR.

TO BANK A/C

9100

9100

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