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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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Brief Exercise 3-32 Adjusting Entries-Deferrals

Tyndal Company had the following items that required adjustment at December 31, 2019.

  1. Purchased equipment for $40,000 on January 1, 2019. Tyndal estimates annual depreciation to be $3,100.
  2. Paid $2,400 for a 2-year insurance policy on July 1, 2019. The amount was debited to Pre-paid Insurance when paid.
  3. Collected $1,200 rent for the period December 1, 2019 to March 30, 2020. The amount was credited to Unearned Service Revenue when received.

Required:

  1. Prepare the adjusting entries needed at December 31.
  2. CONCEPTUAL CONNECTION What is the effect on the financial statements if these adjusting entries were not made?

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.
  • Requirement-1:

To prepare:

The adjusting entries needed at December 31.

Explanation

The adjusting entries needed at December 31are explained as follows:

    Tyndal Company
    Adjusting entries
    As on Dec. 31, 2019
    #Date Account titlesDebit Credit
    a.Dec. 31Depreciation Expense- Equipment $ 3,100
    Accumulated Depreciation- Equipment $ 3,100
    (Being adjustment made for the expenses accrued)
    b...
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.
  • Requirement-2:

To indicate:

The effect of the omission of adjusting entries on the financial statement.

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