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Cornerstones of Financial Accounti...

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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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Adjusting Entries

Exercise 3-52

Allentown Services Inc. is preparing adjusting entries for the year ending December 31, 2019.

The following data are available:

  1. Interest is owed at December 31, 2019, on a 6-month, 8% note. Allentown borrowed $120,ooo from NBD on September 1, 2019.
  2. Allentown provides daily building maintenance services to Mack Trucks for a quarterly fee of $2,700 payable on the fifteenth of the month following the end of each quarter. No entries have been made for the services provided to Mack Trucks during the quarter ended December 31, and the related bill will not be sent until January 15, 2020.
  3. At the beginning of 2019, the cost of office supplies on hand was $1,220. During 2019, office supplies with a total cost of $6,480 were purchased from Office Depot and debited to office supplies inventory. On December 31, 2019, Allentown determined the cost of office supplies on hand to be $970.
  4. On September 23, 2019, Allentown received a $7,650 payment from Bethlehem Steel for 9 months of maintenance services beginning on October 1, 2019. The entire amount was credited to unearned service revenue when received.

Required:

  1. Prepare the appropriate adjusting entries at December 31, 2019.
  2. 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?

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 as on Dec. 31 for the given transactions.

Explanation

The adjusting entries as on Dec. 31 for the given transactions are explained as follows:

    Allentown Services Inc.
    Adjusting entries
    As on Dec. 31, 2019
    #Date Account titlesDebit Credit
    a.Dec. 31Interest Expense (120000*8%*4/12) $ 3,200
    Interest Payable $ 3,200
    (being adjustment made for the expense accrued)
    b.Dec...
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 omission of the above adjusting entry on balance sheet and income statement.

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