The 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. a. On July 1, 2021, purchased $12,500 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 10%. b. Vito's depreciable equipment has a cost of $26,000, a four-year life, and no salvage value. The equipment was purchased in 2019. The straight-line depreciation method is used. c. On November 1, 2021, the bar area was leased to Jack Donaldson for one year. Vito's received $7,500 representing the first six months' rent and credited deferred rent revenue. d. On April 1, 2021, the company paid $3,000 for a two-year fire and liability insurance policy and debited insurance expense. e. On October 1, 2021, the company borrowed $25,000 from a local bank and signed a note. Principal and interest at 10% will be paid on September 30, 2022. f. At year-end, there is a $2,050 debit balance in the supplies (asset) account. Only $750 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 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. a. On July 1, 2021, purchased $12,500 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 10%. b. Vito's depreciable equipment has a cost of $26,000, a four-year life, and no salvage value. The equipment was purchased in 2019. The straight-line depreciation method is used. c. On November 1, 2021, the bar area was leased to Jack Donaldson for one year. Vito's received $7,500 representing the first six months' rent and credited deferred rent revenue. d. On April 1, 2021, the company paid $3,000 for a two-year fire and liability insurance policy and debited insurance expense. e. On October 1, 2021, the company borrowed $25,000 from a local bank and signed a note. Principal and interest at 10% will be paid on September 30, 2022. f. At year-end, there is a $2,050 debit balance in the supplies (asset) account. Only $750 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.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Need assistance with part 1 and 2
Transcribed Image Text:The 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.
a. On July 1, 2021, purchased $12,500 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 10%.
b. Vito's depreciable equipment has a cost of $26,000, a four-year life, and no salvage value. The equipment was purchased in 2019.
The straight-line depreciation method is used.
c. On November 1, 2021, the bar area was leased to Jack Donaldson for one year. Vito's received $7,500 representing the first six
months' rent and credited deferred rent revenue.
d. On April 1, 2021, the company paid $3,000 for a two-year fire and liability insurance policy and debited insurance expense.
e. On October 1, 2021, the company borrowed $25,000 from a local bank and signed a note. Principal and interest at 10% will be paid
on September 30, 2022.
f. At year-end, there is a $2,050 debit balance in the supplies (asset) account. Only $750 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. (lgnore income tax
expense.)
Complete this question by entering your answers in the tabs below.
Required 1
Required 2
Determine the amount by which net income would be misstated if Vito's failed to record these adjusting entries. (Ignore
income tax expense.) (Amounts to be deducted should be indicated by a minus sign. Do not round intermediate calculations.)
Income
Overstated
(Understated)
Adjustments to revenues:
Overstatement of interest revenue
Overstatement of rent revenue
Adjustments to expenses:
< Required 1
Required 2 >
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