Brokeback Towing Company is at the end of its accounting year, December 31, 2021. The following data that must be considered were developed from the company’s records and related documents: On July 1, 2021, a two-year insurance premium on equipment in the amount of $840 was paid and debited in full to Prepaid Insurance on that date. Coverage began on July 1. At the end of 2021, the unadjusted balance in the Supplies account was $1,000. A physical count of supplies on December 31, 2021, indicated supplies costing $400 were still on hand. On December 31, 2021, YY’s Garage completed repairs on one of Brokeback’s trucks at a cost of $900. The amount is not yet recorded. It will be paid during January 2022. On December 31, 2021, the company completed a contract for an out-of-state company for $8,450 payable by the customer within 30 days. No cash has been collected and no journal entry has been made for this transaction. On July 1, 2021, the company purchased a new hauling van. Depreciation for July–December 2021, estimated to total $3,250, has not been recorded. As of December 31, the company owes interest of $600 on a bank loan taken out on October 1, 2021. The interest will be paid when the loan is repaid on September 30, 2022. No interest has been recorded yet. Assume the income after the preceding adjustments but before income taxes was $40,000. The company’s federal income tax rate is 20%. Compute and record income tax expense.   Required: Give the adjusting journal entry required for each item at December 31, 2021. If adjustments were not made each period, the financial results could be materially misstated. Determine the amount by which Brokeback's net income would have been understated, or overstated, had the adjustments in requirement 1 not been made.

Financial Accounting
15th Edition
ISBN:9781337272124
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Carl Warren, James M. Reeve, Jonathan Duchac
Chapter4: Completing The Accounting Cycle
Section: Chapter Questions
Problem 4PB: The unadjusted trial balance of Recessive Interiors at January 31, 2019, the end of the year,...
icon
Related questions
Question

Brokeback Towing Company is at the end of its accounting year, December 31, 2021. The following data that must be considered were developed from the company’s records and related documents:

  1. On July 1, 2021, a two-year insurance premium on equipment in the amount of $840 was paid and debited in full to Prepaid Insurance on that date. Coverage began on July 1.
  2. At the end of 2021, the unadjusted balance in the Supplies account was $1,000. A physical count of supplies on December 31, 2021, indicated supplies costing $400 were still on hand.
  3. On December 31, 2021, YY’s Garage completed repairs on one of Brokeback’s trucks at a cost of $900. The amount is not yet recorded. It will be paid during January 2022.
  4. On December 31, 2021, the company completed a contract for an out-of-state company for $8,450 payable by the customer within 30 days. No cash has been collected and no journal entry has been made for this transaction.
  5. On July 1, 2021, the company purchased a new hauling van. Depreciation for July–December 2021, estimated to total $3,250, has not been recorded.
  6. As of December 31, the company owes interest of $600 on a bank loan taken out on October 1, 2021. The interest will be paid when the loan is repaid on September 30, 2022. No interest has been recorded yet.
  7. Assume the income after the preceding adjustments but before income taxes was $40,000. The company’s federal income tax rate is 20%. Compute and record income tax expense.


 


Required:

  1. Give the adjusting journal entry required for each item at December 31, 2021.
  2. If adjustments were not made each period, the financial results could be materially misstated. Determine the amount by which Brokeback's net income would have been understated, or overstated, had the adjustments in requirement 1 not been made.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 2 images

Blurred answer
Similar questions
Recommended textbooks for you
Financial Accounting
Financial Accounting
Accounting
ISBN:
9781337272124
Author:
Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:
Cengage Learning
Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Principles of Accounting Volume 1
Principles of Accounting Volume 1
Accounting
ISBN:
9781947172685
Author:
OpenStax
Publisher:
OpenStax College
Century 21 Accounting General Journal
Century 21 Accounting General Journal
Accounting
ISBN:
9781337680059
Author:
Gilbertson
Publisher:
Cengage
Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
Accounting
ISBN:
9781337690881
Author:
Jay Rich, Jeff Jones
Publisher:
Cengage Learning
SWFT Individual Income Taxes
SWFT Individual Income Taxes
Accounting
ISBN:
9780357391365
Author:
YOUNG
Publisher:
Cengage