Question

E3-28 Journalizing adjusting entries and analyzing their effect on the income statement

Learning Objectives 3, 5 The following data at July 31, 2018, are given for RCO:

Depreciation, $600.

Prepaid rent expires, $200.

Interest expense accrued, $700.

Employee salaries owed for Monday through Thursday of a five-day workweek; weekly payroll, $8,000.

Unearned revenue earned, $1,000.

Office supplies used, $150.

Requirements Journalize the adjusting entries needed on July 31, 2018. Suppose the adjustments made in Requirement 1 were not made. Compute the overall overstatement or understatement of net income as a result of the omission of these adjustments.

Answer 1

• All working forms part of the answer
• Adjusting entries are provided along with the effect of those entries on Net Income for understanding purpose.
• Adjusting Journal Entries, requiring no explanations

Date - July 31, 2018	General Journal	Debit ($)	Credit ($)	Net Income Increases (Decreases)
1	Depreciation expense	$        600.00		$     (600.00)
	Accumulated Depreciation		$        600.00
2	Rent expenses	$        200.00		$     (200.00)
	Prepaid Rent		$        200.00
3	Interest expense	$        700.00		$     (700.00)
	Interest payable		$        700.00
4	Salaries expense	$    8,000.00		$ (8,000.00)
	Salaries Payable		$    8,000.00
5	Revenue	$    1,000.00		$    1,000.00
	Unearned Revenue		$    1,000.00
6	Supplies expense	$        150.00		$     (150.00)
	Supplies		$        150.00
	TOTAL	$ 10,650.00	$ 10,650.00	$ (8,650.00)

• Hence, if the above adjusting entries are not passed, the Net Income would be Over-Stated by $8,650.