Reynolds Computer Service offers data processing services to retail clothing stores. The followingdata have been collected to aid in the preparation of adjusting entries for Reynolds ComputerService for 2019:a. Computer equipment was purchased from IBM in 2016 at a cost of $540,000. Annual depreciation is $132,500.b. A fire insurance policy for a 2-year period beginning September 1, 2019, was purchased from Good Hands Insurance Company for $12,240 cash. The entire amount of the prepayment was debited to prepaid insurance. (Assume that the beginning balance ofprepaid insurance was $0 and that there were no other debits or credits to that accountduring 2019.)c. Reynolds has a contract to perform the payroll accounting for Dayton’s Department Stores.At the end of 2019, $5,450 of services have been performed under this contract but areunbilled.d. Reynolds rents 12 computer terminals for $65 per month per terminal from Extreme TerminalsInc. At December 31, 2019, Reynolds owes Extreme Terminals for half a month’s renton each terminal. The amount owed is unrecorded.e. Perry’s Tax Service prepays rent for time on Reynolds’ computer. When payments arereceived from Perry’s Tax Service, Reynolds credits unearned rent revenue. At December31, 2019, Reynolds has earned $1,810 for computer time used by Perry’s Tax Service duringDecember 2019.Required:1. Prepare adjusting entries for each of the transactions.2. CONCEPTUAL CONNECTION What would be the effect on the balance sheet and theincome statement if the accountant failed to make the above adjusting entries?
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.
| Reynolds Computer Service offers data processing services to retail clothing stores. The following data have been collected to aid in the preparation of Service for 2019: a. Computer equipment was purchased from IBM in 2016 at a cost of $540,000. Annual b. A fire insurance policy for a 2-year period beginning September 1, 2019, was purchased from Good Hands Insurance Company for $12,240 cash. The entire amount of the prepayment was debited to prepaid insurance. (Assume that the beginning balance of prepaid insurance was $0 and that there were no other debits or credits to that account during 2019.) c. Reynolds has a contract to perform the payroll accounting for Dayton’s Department Stores. At the end of 2019, $5,450 of services have been performed under this contract but are unbilled. d. Reynolds rents 12 computer terminals for $65 per month per terminal from Extreme Terminals Inc. At December 31, 2019, Reynolds owes Extreme Terminals for half a month’s rent on each terminal. The amount owed is unrecorded. e. Perry’s Tax Service prepays rent for time on Reynolds’ computer. When payments are received from Perry’s Tax Service, Reynolds credits unearned rent revenue. At December 31, 2019, Reynolds has earned $1,810 for computer time used by Perry’s Tax Service during December 2019. Required: 1. Prepare adjusting entries for each of the transactions. 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? |
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