2. Suppose you are the newly appointed accountant in National Trading LLC, Oman. The Company received...

2. Suppose you are the newly appointed accountant in National Trading LLC, Oman. The Company received interest on investment OMR 60000 on 1, 4 2020 for one year till 31.03 2021. The Company follows calendar year of accounting. Answer the following Questions (1 mark each) a. Name the adjusting entry related to this transaction and pass entry to record the transaction? b. How will you define this adjusting entry in a single sentence? c. Which accounting concept is most applicable to this adjusting entry? d. How this amount is to be shown in balance sheet/ Income statement? How it will affect the financial statements if this entry is not passed?

Expert Solution

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National Trading LLC, Oman

a. Name the adjusting entry related to this transaction and pass entry to record the transaction?

This is the adjusting entry for unearned interest.

b. How will you define this adjusting entry in a single sentence?

This is the adjusting entry for unearned interest. Interest earned from 1st April 2020 to 31st March 2021 but as company follows calendar year so interest for 3 months from 1st Jan 2021 to 31st March 2021 will be shown as unearned interest.

c. Which accounting concept is most applicable to this adjusting entry?

Accrual concept.

d. How this amount is to be shown in balance sheet/ Income statement?

Workings	OMR
Interest received	60,000.00
Months received	12.00
Interest income (9 months)	45,000.00
Unearned Interest (3 months)	15,000.00

So OMR 45,000 is to be shown in Income statement as interest income.

So OMR 15,000 is to be shown in Balance Sheet as unearned interest under current liability.

e. How it will affect the financial statements if this entry is not passed?

If this entry is no posted then income for the current year will be overstated by OMR 15,000.

ekkarill92 answered 1 year ago

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