The Effect of Adjustments
Assume you are the accountant for Austin Industries. Ellis Austin, the owner of the company, is in a hurry to receive the financial statements for the year ended December 31, 2019, and asks you how soon they will be ready. You tell him you have just completed the
If the income statement were prepared using trial balance amounts, the net income would be $95,560. A review of the company's records reveals the following information:
- 1. Rent of $42,000 was paid on July 1, 2019, for 12 months.
- 2. Purchases of supplies during the year totaled $8,000. An inventory of supplies taken at year-end showed supplies on hand of $2,720.
- 3. The building was purchased three years ago and has an estimated life of 30 years.
- 4. No adjustments have been made to any of the accounts during the year.
Write a memo to Mr. Austin explaining the effect on the financial statements of omitting the adjustments. Indicate the change to net income that results from the adjusting entries.
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- Adjusting Entries At the end of 2019, Richards Company prepared a trial balance, recorded and posted its adjusting entries, and then prepared an adjusted trial balance. Selected accounts and account balances from the trial balance and adjusted trial balance are as follow: Required: 1. Next Level By comparing the partial trial balance to the partial adjusted trill balance, determine the adjusting; entries that the company made on December 31, 2019 Prepare your answer in general journal form. 2. Assuming that the company uses reversing entries, indicate which adjusting entries should be reversed.arrow_forwardKelly Pitney began her consulting business, Kelly Consulting, on April 1, 2019. The accounting cycle for Kelly Consulting for April, including financial statements, was illustrated in this chapter. During May, Kelly Consulting entered into the following transactions: Instructions 1. The chart of accounts for Kelly Consulting is shown in Exhibit 9, and the post-closingtrial balance as of April 30, 2019, is shown in Exhibit 17. For each account in the post-closing trial balance, enter the balance in the appropriate Balance column of a four-column account. Date the balances May 1, 2019, and place a check mark () in the Posting Reference column. Journalize each of the May transactions in a twocolumn journal starting on Page 5 of the journal and using Kelly Consultings chart of accounts. (Do not insert the account numbers in the journal at this time.) 2. Post the journal to a ledger of four-column accounts. 3. Prepare an unadjusted trial balance. 4. At the end of May, the following adjustment data were assembled. Analyze and use these data to complete parts (5) and (6). a. Insurance expired during May is 275. b. Supplies on hand on May 31 are 715. c. Depreciation of office equipment for May is 330. d. Accrued receptionist salary on May 31 is 325. e. Rent expired during May is 1,600. f. Unearned fees on May 31 are 3,210. 5. (Optional) Enter the unadjusted trial balance on an end-of-period spreadsheet and complete the spreadsheet. 6. Journalize and post the adjusting entries. Record the adjusting entries on Page 7 of the journal. 7. Prepare an adjusted trial balance. 8. Prepare an income statement, a statement of owners equity, and a balance sheet. 9. Prepare and post the closing entries. Record the closing entries on Page 8 of the journal. Indicate closed accounts by inserting a line in both Balance columns opposite the closing entry. 10. Prepare a post-closing trial balance.arrow_forwardWe-Sell Realty, organized August 1, 2019, is owned and operated by Omar Farah. How many errors can you find in the following statements for We-Sell Realty, prepared after its first month of operations?arrow_forward
- After the adjusting entries are recorded and posted and the financial statements have been prepared, you are ready to record the closing entries. Closing entries zero out the temporary owners equity accounts (revenue(s), expenses(s), and Drawing). This process transfers the net income or net loss and the withdrawals to the Capital account. In addition, the closing process prepares the records for the new fiscal period. Required 1. Journalize the dosing entries in the general journal. (If you are using Working Papers to prepare the closing entries, enter your transactions beginning on page 5.) 2. Post the closing entries to the general ledger accounts. (Skip this step if you are using CLGL.) 3. Prepare a post-dosing trial balance as of October 31, 20--. Check Figures 1. Debit to Income Summary second entry, 12,023.25 2. Post-closing trial balance total, 37,420.00arrow_forwardReversing Entries On December 31, 2019, Kellams Company made the following adjusting entries for its annual accounting period: Required: Prepare whatever reversing entries are appropriate.arrow_forwardWorksheet Victoria Company has the following account balances on December 31, 2019, prior to any adjustments: Additional adjustment information: (a) depreciation on buildings, 1,100; on equipment, 600; (b) bad debts expense, 240; (c) interest accumulated but not paid: on note payable, 50; on mortgage payable, 530 (this interest is due during the next accounting period); (d) insurance expired, 175; (e) salaries accrued but not paid 370; (f) rent was collected in advance and the performance obligation is now satisfied, 800; (g) office supplies cm hand at year-end, 230 (expensed when originally purchased earlier in the year); and (h) the income tax rate is 30% on current income and is payable in the first quarter of 2020. Required: 1. Transfer the account balances to a 10-column worksheet and prepare a trial balance. 2. Prepare the adjusting entries in the general journal and complete the worksheet. 3. Prepare the companys income statement, retained earnings statement, and balance sheet. 4. Prepare closing entries in the general journal.arrow_forward
- It is now August 31. You have journalized and posted the adjustments in the All About You Spa accounting records, and Ms. Valli wants to see financial statements for the last two months (July and August). Then she would like you to prepare the closing entries. Required 1. Prepare an income statement for the two months ended August 31, 20--. 2. Prepare a statement of owners equity for the two months ended August 31, 20--. Ignore this step if using QuickBooks. 3. Prepare a balance sheet as of August 31, 20--. 4. Journalize the closing entries in the general journal. If you are preparing the closing entries using Working Papers, enter your transactions beginning on page 5. 5. Post the closing entries to the general ledger accounts. Ignore this step if you are using QuickBooks or CLGL. 6. Prepare a post-closing trial balance as of August 31, 20--. Check Figures 1. Net income, 15,314.18 2. A. Valli, Capital (end of period), 67,085.93 3. Balance Sheet report total assets, 83,081.33 4. Post-closing trial balance total, 83,935.12arrow_forwardReece Financial Services Co., which specializes in appliance repair services, is owned and operated by Joni Reece. Reece Financial Services accounting clerk prepared the following unadjusted trial balance at July 31, 2019: The data needed to determine year-end adjustments are as follows: Depreciation of building for the year, 6,400. Depreciation of equipment for the year, 2,800. Accrued salaries and wages at July 31, 900. Unexpired insurance at July 31, 1,500. Fees earned but unbilled on July 31, 10,200. Supplies on hand at July 31, 615. Rent unearned at July 31, 300. Instructions 1. Journalize the adjusting entries using the following additional accounts: Salaries and Wages Payable, Rent Revenue, Insurance Expense, Depreciation ExpenseBuilding, Depreciation ExpenseEquipment, and Supplies Expense. 2. Determine the balances of the accounts affected by the adjusting entries and prepare an adjusted trial balance.arrow_forward
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