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 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?

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

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
Wages expense
Net income

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
Total assets
Wages payable
Total liabilities
Owner’s capital
Total liabilities and owner’s equity

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?

Answer 1

1.

Transaction	Account Titles and Explanation	Debit	Credit
a.	Accounts receivable	11150
	Fees earned		11150
	(To record unbilled fees)
b.	Supplies expense ($3350 - $900)	2450
	Supplies		2450
	(To record supplies expense)
c.	Rent expense	6000
	Prepaid rent		6000
	(To record rent expired)
d.	Depreciation expense	8950
	Accumulated depreciation-office equipment		8950
	(To record depreciation expense)
e.	Unearned fees	10000
	Fees earned		10000
	(To record fees earned)
f.	Wages expense	4840
	Wages payable		4840
	(To record wages accrued but not paid)

2.

	Over/Understated	Amount
Fees earned	Understated	11150
Wages expense	Understated	4840
Net income	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. There would be no effect on the "net increase or decrease in cash" on the statement of cash flows if adjustments (a) and (f) were omitted since the adjusting entries do not affect the cash account.