Question

On December 31, 2018, Alan and Company prepared an income statement and balance sheet but failed to take into account four adjusting journal entries. The income statement, prepared on this incorrect basis, reported income before income tax of $31,000. The balance sheet (before the effect of income taxes) reflected total assets, $92,000; total liabilities, $41,000; and stockholders’ equity, $51,000. The data for the four adjusting journal entries follow:

1. Effect of Amortization of $8,200 for the year on software was not recorded.
2. Salaries and Wages amounting to $17,200 for the last three days of December 2018 were not paid and not recorded (the next payroll will be on January 10, 2019).
3. Rent revenue of $5,100 was collected on December 1, 2018, for office space for the three-month period December 1, 2018, to February 28, 2019. The $5,100 was credited in full to Deferred Revenue when collected.
4. Income taxes were not recorded and not paid. The income tax rate for the company is 20%.

Required:

Complete the following table to show the effects of the four adjusting journal entries. (Negative amounts should be indicated by a minus sign.)

Answer 1

We can calculate the desired result in excel sheet as follows:

Formulas used in the excel sheet are:

We can calculate the desired result in excel sheet as follows:

Formulas used in the excel sheet are:

A) In the first point the amortization of asset will impact the net income which will impact the shareholders balance and it also impacts the assets balance .

B) In the second point wages and salaries will impact the net income balance as it will decrease the net income and shareholders balance, also due to wages payable account the total liabilities also increase.

C) In the third point rent income for the current year which includes 1 month balance till 31 December of $ 1,700 ( 5100 / 3 ) will increase the net income and shareholders balance and unearned income under total liabilities will also be impacted.

D) In the fourth point due to Income tax payable the net income and shareholders balance will decrease and income tax payable will increase the balance of total liabilities.

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