Question

Selected account balances before adjustment for Alantic Coast Realty at July 31, 2016, the end of the current year, are as follows:

	Debits	Credits
Accounts Receivable	$ 75,000
Equipment	345,700
Accumulated Depreciation—Equipment		$112,500
Prepaid Rent	9,000
Supplies	3,350
Wages Payable		–
Unearned Fees		12,000
Fees Earned		660,000
Wages Expense	325,000
Rent Expense	–
Depreciation Expense	–
Supplies Expense	–

Data needed for year-end adjustments are as follows:

a.	Unbilled fees at July 31, $11,150.
b.	Supplies on hand at July 31, $900.
c.	Rent expired, $6,000.
d.	Depreciation The systematic periodic transfer of the cost of a fixed asset to an expense account during its expected useful life. of equipment during year, $8,950.
e.	Unearned fees at July 31, $2,000.
f.	Wages accrued but not paid at July 31, $4,840.

	Required:
1.	Journalize the six adjusting entries required at July 31, based on the data presented. Refer to the Chart of Accounts for exact wording of account titles.
2.	What would be the effect on the income statement if adjustments (a) and (f) were omitted at the end of the year?
3.	What would be the effect on the balance sheet if adjustments (a) and (f) were omitted at the end of the year?
4.	What would be the effect on the “Net increase or decrease in cash” on the statement of cash flows if adjustments (a) and (f) were omitted at the end of the year?

none

X

Chart of Accounts

CHART OF ACCOUNTS
Alantic Coast Realty
General Ledger
ASSETS 11 Cash 12 Accounts Receivable 13 Supplies 14 Prepaid Rent 15 Land 16 Equipment 17 Accumulated Depreciation-Office Equipment 19 Accumulated Depreciation-Automobiles LIABILITIES 21 Accounts Payable 22 Unearned Fees 23 Wages Payable 24 Taxes Payable EQUITY 31 Owner, Capital 32 Owner, Drawing	REVENUE 41 Fees Earned 42 Rent Revenue EXPENSES 51 Advertising Expense 52 Insurance Expense 53 Rent Expense 54 Wages Expense 55 Supplies Expense 56 Utilities Expense 57 Depreciation Expense 59 Miscellaneous Expense

none

X

Journal

1. Journalize the six adjusting entries required at July 31, based on the data presented. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 10

JOURNAL

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1		Adjusting Entries
2
3
4
5
6
7
8
9
10
11
12
13

Solution

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1		Adjusting Entries
2
3
4
5
6
7
8
9
10
11
12
13

Points:

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Explanation

none

X

Final Questions

2. What would be the effect on the income statement if adjustments (a) and (f) were omitted at the end of the year?

	Over/Understated	Amount
Fees earned	selector 1 Understated Overstated No effect
Wages expense	selector 2 Understated Overstated No effect
Net income	selector 3 Understated Overstated No effect

Points:

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Explanation

3. What would be the effect on the balance sheet if adjustments (a) and (f) were omitted at the end of the year?

	Over/Understated	Amount
Accounts receivable	selector 1 Understated Overstated No effect
Total assets	selector 2 Understated Overstated No effect
Wages payable	selector 3 Understated Overstated No effect
Total liabilities	selector 4 Understated Overstated No effect
Owner’s capital	selector 5 Understated Overstated No effect
Total liabilities and owner’s equity	selector 6 Understated Overstated No effect

Points:

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Explanation

4. What would be the effect on the “Net increase or decrease in cash” on the statement of cash flows if adjustments (a) and (f) were omitted at the end of the year? selector 1

Understated

Overstated

No effect

Points:

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Explanation

Answer 1

1	Date	Description	Debit	Credit
a.	Jul. 31	Accounts receivable	11150
		Fees earned		11150
		(To record unbilled fees)
b.	Jul. 31	Supplies expense ($3350 - $900)	2450
		Supplies		2450
		(To record supplies expense)
c.	Jul. 31	Rent expense	6000
		Prepaid rent		6000
		(To record rent expired)
d.	Jul. 31	Depreciation expense	8950
		Accumulated depreciation-office equipment		8950
		(To record depreciation expense)
e.	Jul. 31	Unearned fees	10000
		Fees earned ($12000 - $2000)		10000
		(To record fees earned)
f.	Jul. 31	Wages expense	4840
		Wages payable		4840
		(To record accrued wages)

2.

	Over/Understated	Amount
Fees earned	Understated	$11150
Wages expense	Understated	$4840
Net income ($11150 - $4840)	Understated	$6310

3.

	Over/Understated	Amount
Accounts receivable	Understated	$11150
Total assets	Understated	$11150
Wages payable	Understated	$4840
Total liabilities	Understated	$4840
Owner's capital	Understated	$6310
Total liabilities and owner's equity	Understated	$11150

4. No effect

Since no cash is involved.