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?

B.

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

Answer 1

				working
Trans	Accounts Title	Dr	Cr	Income statement	Balance sheet
a	Accounts Receivable	$11,150			Increase
	Fees earned		$11,150	Increase
b	Supplies expenses	2450		Decrease
	Supplies (3350-900)		2450		Decrease
c	Rent expenses	6000		Decrease
	Prepiad Rent		6000		Decrease
d	Depreciation expense	$2,000		Decrease
	Accumulated Depreciation—Equipment		$2,000		Decrease
e	Unearned Fees (12000-2000)	$10,000			Decrease
	Fees earned		$10,000	Increase
f	Wages expenses	$4,840		Decrease
	Wages paybale		$4,840		Decrease
ans 2
			Amount
	Fees earned	Understated	$21,150	(11150+10000)
	Wages expense	Understated	$4,840
	Net income	Understated	5860
	(21150-4840-2000-6000-2450)
ans 3	Balance sheet		amt
	Accounts receivable	Understated	$11,150
	Total assets (11150-2450-2000-6000)	Understated	700
	Wages payable	Understated	$4,840
	Total liabilities (10000-4840)	Overstated	5160
	Retained earnings	Understated	5860
	Total liabilities and stockholders’ equity	Understated	700
	(5860-5160)
ans 4	There is no effect on cash flow as these are adjusting entries
	which do not require cash