Selected account balances before adjustment for Alantic Coas

Selected account balances before adjustment for Alantic Coast Realty at July 31, 2016, the end of the current year, are as follows: Debits Credits (debits) Accounts Receivable $ 75,000 (debits) Equipment 345,700 (credit) Accumulated Depreciation—Equipment $112,500 (debits) Prepaid Rent 9,000 (debits) Supplies 3,350 (credit) Wages Payable – (credit) Unearned Fees 12,000 (credit) Fees Earned 660,000 (debits) Wages Expense 325,000 Rent Expense – Depreciation Expense – Supplies Expense – Data needed for year-end adjustments are as follows: a. Unbilled fees at July 31, $11,150. b. Supplies on hand at July 31, $900. c. Rent expired, $6,000. d. Depreciation of equipment during year, $8,950. e. Unearned fees at July 31, $2,000. f. Wages accrued but not paid at July 31, $4,840. Required: 1. Journalize the six adjusting entries required at July 31, based on the data presented. Refer to the Chart of Accounts for exact wording of account titles. 2. What would be the effect on the income statement if adjustments (a) and (f) were omitted at the end of the year? 3. What would be the effect on the balance sheet if adjustments (a) and (f) were omitted at the end of the year? 4. What would be the effect on the “Net increase or decrease in cash” on the statement of cash flows if adjustments (a) and (f) were omitted at the end of the year?

Solution

Account title

debit

credit

a

Accounts Receivable

11150

Fees earned

11150

b

Supplies Expense

2450

Supplies

2450

c

Rent Expense

6000

Prepaid Rent

6000

d

Depreciation Expense, Equipment

8950

Accumulated Depreciation, Equipment

8950

e

Unearned Fees

2000

Fees Earned

2000

f

Wages Expense

4840

Wages Payable

4840

supplies expense = (3350-900) = 2450

2. What would be the effect on the income statement if adjustments (a) and (f) were omitted at the end of the year?

Fees earned – understated -11150

Wages expense – understated -4840

Net income – understated – 6310

3. What would be the effect on the balance sheet if adjustments (a) and (f) were omitted at the end of the year?

Account receivable – understated -11150

Total assets - understated – 11150

Wages payable – understated – 4840

Total liabilities – understated – 4840

Owner’s capital – understated – 6310

Total liability and owner’s equity – 11150

4. What would be the effect on the \"Net increase or decrease in cash\" on the statement of cash flows if adjustments (a) and (f) were omitted at the end of the year?

No effect