he information necessary for preparing the December 31, 2021 year-end adjusting entries for Vito’s Pizza Parlor appears below. Vito’s fiscal year-end is December 31. On July 1, 2021, purchased $11,500 of IBM Corporation bonds at face value. The bonds pay interest twice a year on January 1 and July 1. The annual interest rate is 12%. Vito’s depreciable equipment has a cost of $31,500, a five-year life, and no salvage value. The equipment was purchased in 2019. The straight-line depreciation method is used. On November 1, 2021, the bar area was leased to Jack Donaldson for one year. Vito’s received $6,900 representing the first six months’ rent and credited deferred rent revenue. On April 1, 2021, the company paid $2,760 for a two-year fire and liability insurance policy and debited insurance expense. On October 1, 2021, the company borrowed $23,000 from a local bank and signed a note. Principal and interest at 12% will be paid on September 30, 2022. At year-end, there is a $1,950 debit balance in the supplies (asset) account. Only $730 of supplies remain on hand. Required: 1. Prepare the necessary adjusting journal entries at December 31, 2021. 2. Determine the amount by which net income would be misstated if Vito's failed to record these adjusting entries. (Ignore income tax expense.)
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
The information necessary for preparing the December 31, 2021 year-end
- On July 1, 2021, purchased $11,500 of IBM Corporation
bonds at face value. The bonds pay interest twice a year on January 1 and July 1. The annual interest rate is 12%. - Vito’s
depreciable equipment has a cost of $31,500, a five-year life, and no salvage value. The equipment was purchased in 2019. Thestraight-line depreciation method is used. - On November 1, 2021, the bar area was leased to Jack Donaldson for one year. Vito’s received $6,900 representing the first six months’ rent and credited deferred rent revenue.
- On April 1, 2021, the company paid $2,760 for a two-year fire and liability insurance policy and debited insurance expense.
- On October 1, 2021, the company borrowed $23,000 from a local bank and signed a note. Principal and interest at 12% will be paid on September 30, 2022.
- At year-end, there is a $1,950 debit balance in the supplies (asset) account. Only $730 of supplies remain on hand.
Required:
1. Prepare the necessary adjusting
2. Determine the amount by which net income would be misstated if Vito's failed to record these adjusting entries. (Ignore income tax expense.)
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