Reynolds Computer Service offers data processing services to retail clothing stores. The following data have been collected to aid in the preparation of adjusting entries for Reynolds Computer Service for the current year: Computer equipment was purchased from IBM 3 years ago at a cost of $540,000. Annual depreciation is $132,500. A fire insurance policy for a 2-year period beginning on September 1 was purchased from Good Hands Insurance Company for $12,240 cash. The entire amount of the prepayment was debited to prepaid insurance. (Assume that the beginning balance of prepaid insurance was $0 and that there were no other debits or credits to that account during the year.) Reynolds has a contract to perform the payroll accounting for Dayton’s Department Stores. On December 31, $5,450 of services have been performed under this contract but are unbilled. Reynolds rents 12 computer terminals for $65 per month per terminal from Extreme Terminals Inc. At December 31, Reynolds owes Extreme Terminals for half a month’s rent on each terminal. The amount owed is unrecorded. Perry’s Tax Service prepays rent for time on Reynolds’ computer. When payments are received from Perry’s Tax Service, Reynolds credits unearned rent revenue. At December 31, Reynolds has earned $1,810 for computer time used by Perry’s Tax Service during December. Required: 1. Prepare adjusting entries for each of the transactions. If an amount box does not require an entry, leave it blank. Conceptual Connection: What would be the effect on the balance sheet and the income statement if the accountant failed to make the above adjusting entries? Income Statement Balance Sheet a. Computer equipment purchased b. Prepaid insurance c. Unearned service revenue d. Rent owed is unrecorded e. Unearned rent revenue
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
Reynolds Computer Service offers data processing services to retail clothing stores. The following data have been collected to aid in the preparation of
- Computer equipment was purchased from IBM 3 years ago at a cost of $540,000. Annual
depreciation is $132,500. - A fire insurance policy for a 2-year period beginning on September 1 was purchased from Good Hands Insurance Company for $12,240 cash. The entire amount of the prepayment was debited to prepaid insurance. (Assume that the beginning balance of prepaid insurance was $0 and that there were no other debits or credits to that account during the year.)
- Reynolds has a contract to perform the payroll accounting for Dayton’s Department Stores. On December 31, $5,450 of services have been performed under this contract but are unbilled.
- Reynolds rents 12 computer terminals for $65 per month per terminal from Extreme Terminals Inc. At December 31, Reynolds owes Extreme Terminals for half a month’s rent on each terminal. The amount owed is unrecorded.
- Perry’s Tax Service prepays rent for time on Reynolds’ computer. When payments are received from Perry’s Tax Service, Reynolds credits unearned rent revenue. At December 31, Reynolds has earned $1,810 for computer time used by Perry’s Tax Service during December.
Required:
1. Prepare adjusting entries for each of the transactions. If an amount box does not require an entry, leave it blank.
Conceptual Connection: What would be the effect on the balance sheet and the income statement if the accountant failed to make the above adjusting entries?
Income Statement Balance Sheet
a. Computer equipment purchased
b. Prepaid insurance
c. Unearned service revenue
d. Rent owed is unrecorded
e. Unearned rent revenue
Journal Entry :- The act of logging any transaction, whether or not it is an economic one, is known as a journal entry. Transactions are recorded in an accounting journal that shows the debit and credit balances of a company. The journal entry contains multiple records, each of which is either a debit or a credit. The purpose of preparing the journal entry to segregate the transaction which are incurred to the debit and credit basis. Debit all expenses related transaction and credit all income related transaction.
Adjusting Journal entries are required for Accrued revenues, Accrued expenses, Outstanding payable etc.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
