Question

In: Accounting

. The Adjusting Company, which opened business on June 1, 2014, have given you a portion...

. The Adjusting Company, which opened business on June 1, 2014, have given you a portion of their      first adjusted trial balance as of June 30, 2014.

Adjusting Company

Unadjusted Trial Balance

June 30, 2014

                                                                      Debit Balance          Credit Balance

Prepaid Insurance                                 $ 3,600

Supplies                                                   2,450

Unearned Revenue                                                                         $3,600

a.Regarding; Prepaid Insurance

i.In your own words create an adjusting transaction that will require an adjusting journal entry

ii.Based on your adjusting transaction, prepare the correct journal entry

iii.Based on your journal entry explain how the income statement was effected

b. Regarding; Supplies

i.In your own words create an adjusting transaction that will require an adjusting journal entry

ii.Based on your adjusting transaction, prepare the correct journal entry

iii.Based on your journal entry explain how the balance sheet was effected

c. Regarding; Unearned Revenue

i.In your own words create an adjusting transaction that will require an adjusting journal entry

ii. Assume that the company forgot to prepare an adjusting journal entry for the transaction, explain what is wrong with the balance sheet.

Solutions

Expert Solution

a Prepaid Insurance
Adjusting Transaction
Insurance of $ 1200 has expired during the year
Journal Entry
30-Jun Insurance Expense $1,200
To Prepaid Insurance $1,200
Impact on Income Statement
The Insurance expense will be shown as expense in the income statement leading to decrease in profits
b Supplies
Adjusting Transaction
The Supplies on hand as on 30th June 2014 is $ 450
Journal Entry
Supplies Expense $2,000
To Supplies $2,000
(2450-450)
Impact on Income Statement
Here the supplies has reduced due to its utilization, this leads to expensing the supplies to the income statement which decreases the profit
c Unearned Revenue
Adjusting Transaction
Services of $ 600 was provided during the year for which advance was received earlier and was shown in unearned revenue
If the company forgets to prepare the adjusting entry for this transaction while the balance sheet would tally but it would not show the correct picture as current liabilities would be overstated and retained earnings would be understated

ekkarill92 answered 1 year ago
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