Concept Introduction:
The business activity for each type of adjusting entry is explained as follows:
- Accrued revenue: The adjusting entry for Accrued revenue is prepared to record the revenue earned during the period.
- Accrued Expense: The adjusting entry for Accrued expense is prepared to record the expenses incurred during the period.
- Deferred Revenue: The adjusting entry for Deferred revenue is prepared to defer the revenue that belong to next period.
- Deferred expenses: The adjusting entry for Deferred expense is prepared to defer the expense that belong to next period.
- Depreciation: The adjusting entry for depreciation expense is prepared to record the depreciation expense that belong to current period. Requirement-1:
To prepare:
The
Answer to Problem 49E
The journal entries for the cash receipts and payments are as follows:
Greensboro Properties Inc. | |||
Journal Entries | |||
For the year 2019 | |||
Date | Account Title | Debit | Credit |
Mar. 1 | Prepaid Insurance | $ 10,500 | |
Cash | $ 10,500 | ||
May. 1 | Cash | $ 30,000 | |
Unearned Rent Revenue | $ 30,000 | ||
July. 31 | Cash | $ 240,000 | |
Unearned Rent Revenue | $ 240,000 | ||
Nov. 1 | Prepaid Security services | $ 4,500 | |
Cash | $ 4,500 |
Explanation of Solution
The journal entries for the cash receipts and payments are explained as follows:
Greensboro Properties Inc. | |||
Journal Entries | |||
For the year 2019 | |||
Date | Account Title | Debit | Credit |
Mar. 1 | Prepaid Insurance | $ 10,500 | |
Cash | $ 10,500 | ||
(Being amount paid for insurance in advance) | |||
May. 1 | Cash | $ 30,000 | |
Unearned Rent Revenue | $ 30,000 | ||
(Being amount received in advance) | |||
July. 31 | Cash | $ 240,000 | |
Unearned Rent Revenue | $ 240,000 | ||
(Being amount received in advance) | |||
Nov. 1 | Prepaid Security services | $ 4,500 | |
Cash | $ 4,500 | ||
(Being amount paid in advance) |
Concept Introduction:
Adjusting entries are required to adjust the accounts according to the accrual basis of accounting at the end of the every accounting period. For example: Recording the depreciation expense on depreciable assets at the end of each accounting year.
The business activity for each type of adjusting entry is explained as follows:
To prepare:
The adjusting entries at the end of the year.
Answer to Problem 49E
The adjusting entries at the end of the year are as follows:
Greensboro Properties Inc. | |||
Adjusting entries | |||
For the year 2019 | |||
Date | Account Title | Debit | Credit |
Dec. 31 | Insurance Expense | $ 8,750 | |
Prepaid Insurance | $ 8,750 | ||
Dec. 31 | Unearned Rent Revenue | $ 20,000 | |
Rent Revenue | $ 20,000 | ||
Dec. 31 | Unearned Rent Revenue | $ 200,000 | |
Rent Revenue | $ 200,000 | ||
Dec. 31 | Security Service Expense | $ 3,000 | |
Prepaid Security services | $ 3,000 |
Explanation of Solution
The adjusting entries at the end of the year are explained as follows:
Greensboro Properties Inc. | |||
Adjusting entries | |||
For the year 2019 | |||
Date | Account Title | Debit | Credit |
Dec. 31 | Insurance Expense (10500*10/12) | $ 8,750 | |
Prepaid Insurance | $ 8,750 | ||
(Being adjustment made for accrued expense) | |||
Dec. 31 | Unearned Rent Revenue | $ 20,000 | |
Rent Revenue (30000*8/12) | $ 20,000 | ||
(Being adjustment made for accrued revenue) | |||
Dec. 31 | Unearned Rent Revenue | $ 200,000 | |
Rent Revenue (240000*5/6) | $ 200,000 | ||
(Being adjustment made for accrued revenue) | |||
Dec. 31 | Security Service Expense (4500*2/3) | $ 3,000 | |
Prepaid Security services | $ 3,000 | ||
(Being adjustment made for accrued expense) |
Concept Introduction:
Adjusting entries are required to adjust the accounts according to the accrual basis of accounting at the end of the every accounting period. For example: Recording the depreciation expense on depreciable assets at the end of each accounting year.
The business activity for each type of adjusting entry is explained as follows:
- Accrued revenue: The adjusting entry for Accrued revenue is prepared to record the revenue earned during the period.
- Accrued Expense: The adjusting entry for Accrued expense is prepared to record the expenses incurred during the period.
- Deferred Revenue: The adjusting entry for Deferred revenue is prepared to defer the revenue that belong to next period.
- Deferred expenses: The adjusting entry for Deferred expense is prepared to defer the expense that belong to next period.
- Depreciation: The adjusting entry for depreciation expense is prepared to record the depreciation expense that belong to current period. Requirement-3:
To Indicate:
The effect of omission of adjusting entries on the Income statement and balance sheet for the year.
Answer to Problem 49E
The effect of omission of adjusting entries on the Income statement and balance sheet for the year is as follows:
# | Effect of Omission | |||
a | Understatement of Expenses by $8750 | |||
Overstatement of assets by $8750 | ||||
b | Overstatement of Liabilities by $20,000 | |||
Understatement of revenue by $20,000 | ||||
c | Overstatement of Liabilities by $200,000 | |||
Understatement of revenue by $200,000 | ||||
d | Understatement of Expenses by $3000 | |||
Overstatement of assets by $3000 | ||||
Explanation of Solution
The effect of omission of adjusting entries on the Income statement and balance sheet for the year is explained as follows:
Greensboro Properties Inc. | |||||
Adjusting entries | |||||
For the year 2019 | |||||
# | Date | Account Title | Debit | Credit | Effect of Omission |
a | Dec. 31 | Insurance Expense (10500*10/12) | $ 8,750 | Understatement of Expenses by $8750 | |
Prepaid Insurance | $ 8,750 | Overstatement of assets by $8750 | |||
(Being adjustment made for accrued expense) | |||||
b | Dec. 31 | Unearned Rent Revenue | $ 20,000 | Overstatement of Liabilities by $20,000 | |
Rent Revenue (30000*8/12) | $ 20,000 | Understatement of revenue by $20,000 | |||
(Being adjustment made for accrued revenue) | |||||
c | Dec. 31 | Unearned Rent Revenue | $ 200,000 | Overstatement of Liabilities by $200,000 | |
Rent Revenue (240000*5/6) | $ 200,000 | Understatement of revenue by $200,000 | |||
(Being adjustment made for accrued revenue) | |||||
d | Dec. 31 | Security Service Expense (4500*2/3) | $ 3,000 | Understatement of Expenses by $3000 | |
Prepaid Security services | $ 3,000 | Overstatement of assets by $3000 | |||
(Being adjustment made for accrued expense) |
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Chapter 3 Solutions
Cornerstones of Financial Accounting
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