Question

ABC Company has the following liabilities at year-end: Notes Payable $50,000 Accounts Payable $25,000 Wages Payable...

ABC Company has the following liabilities at year-end:

Notes Payable $50,000

Accounts Payable $25,000

Wages Payable $9,000

Interest Payable $1,000

Unearned Service Revenue $3,400

a. Which of these account(s) probably was/were created at the end of the fiscal year as a result of an accrual? Which account(s) probably was/were not adjusted at year-end? Explain your answer.

b. Which adjustments probably reduced net income, and which adjustments probably increased net income? Explain your answers.

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Answer #1

a.
Accounts created at end of year as result of an accrual
Wages Payable
Interest Payable

The above accounts are created as result of accrual to record Wages accrued but not paid and interest accrued but not paid.

Accounts not adjusted at year end
Notes Payble
Accounts Payable

The accounts are accounts used throughout the year for day to day transactions.

b.
Wages Payable and interest payable adjustment reduces the net income due to increase of wages expense and interest expense.

Unearned Service Revenue adjustment increases the net income since with adjustment revenue is recorded as earned.

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