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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Adjusting entries and errors

At the end of August, the first month of operations, the following selected data were taken from the financial statements of Tucker Jacobs, an attorney:

Net income for August $112,500
Total assets at August 31 650,000
Total liabilities at August 31 225,000
Total owner's equity at August 31 425,000

In preparing the financial statements, adjustments for the following data were overlooked:

  • Unbilled fees earned at August 31, $31,900.
  • Depreciation of equipment for August, $7,500.
  • Accrued wages at August 31, $5,200.
  • Supplies used during August, $3,000.

Instructions

1    Journalize the entries to record the omitted adjustments.

2.    Determine the correct amount of net income for August and the total assets, liabilities and owner's equity at August 31. In addition to indicating the corrected amounts, indicate the effect of each omitted adjustment by setting up and completing a columnar table similar to the following. The first adjustment is presented as an example.

Chapter 3, Problem 3.6BPR, Adjusting entries and errors At the end of August, the first month of operations, the following

(1)

To determine

Adjusting entries:

Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle.  All adjusting entries affect at least one income statement account (revenue or expense), and one balance sheet account (asset or liability).

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

Ø Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and owners’ equities.

Ø Credit, all increase in liabilities, revenues, and owners’ equities, all decrease in assets, expenses.

To prepare: The adjusting entries in the books of Company TJ at the end of the year.

Explanation

  • Account receivable is an asset, and it increased the value of asset by $31,900, hence debit the accounts receivable for $31,900. 
  • Fees earned increased the value of owner’s equity by $31,900; hence credit the fees earned for $31,900.

An adjusting entry for depreciation expenses-Equipment:

In this case, Company TJ recognized the depreciation expenses on equipment at the end of the year. So, the necessary adjusting entry that the Company TJ should record to recognize the accrued expense is as follows:

Date Description

Post

Ref.

Debit ($) Credit ($)
August 31 Depreciation expenses –Equipment   7,500  
          Accumulated depreciation-Equipment     7,500
  (To record the depreciation expenses incurred at the end of the year)      

Table (2)

Explanation:

  • Depreciation expense decreased the value of owner’s equity by $7,500; hence debit the depreciation expenses for $7,500.
  • Accumulated depreciation is a contra-asset account, and it decreased the value of asset by $7,500, hence credit the accumulated depreciation for $7,500.  

An adjusting entry for wages expenses:

In this case, Company TJ recognized the wages expenses at the end of the year. So, the necessary adjusting entry that the Company TJ should record to recognize the accrued expense is as follows:

Date Description

Post

Ref...

(2)

To determine
The correct amount of net income for August 31, and the total assets, liabilities and owner’s equity of Company TJ.

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