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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Cornerstone Exercise 3-23 Financial Statement Effects of Adjusting Entries

When adjusting entries were made at the end of the year, the accountant for Parker Company did not make the following adjustments.

  1. Wages of $2,900 had been earned by employees but were unpaid.
  2. $3,750 Of performance obligations had satisfied but no cash uncollected nor any revenue recorded.
  3. $2,400 performance obligations had satisfied. The customer had prepaid for this service and the amount was originally recorded in the Unearned Sales Revenue account.
  4. $1,200 of insurance coverage had expired. Insurance had been initially recorded in the Prepaid Insurance account.

Required:

Identify the effect on the financial statements of the adjusting entries that were omitted.

Chapter 3, Problem 23CE, Cornerstone Exercise 3-23 Financial Statement Effects of Adjusting Entries When adjusting entries

To determine

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.
  • To indicate:

The effect of the omitted journal entries.

Explanation

The effect of the omitted journal entries is explained as follows:

    Adjusting entry Effect of Omission
    a.Understatement of expenses and liabilities by $2900The omission of recording the accrued wages will result in Understatement of expenses and liabilities by $2900
    b...

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