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. On July 1, 2021, purchased $20,000 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 9%. Vito’s depreciable equipment has a cost of $4,000, a four-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 $9,000 representing the first six months’ rent and credited deferred rent revenue. On April 1, 2021, the company paid $1,200 for a two-year fire and liability insurance policy and debited insurance expense. On October 1, 2021, the company borrowed $10,000 from a local bank and signed a note. Principal and interest at 9% will be paid on September 30, 2022. At year-end, there is a $1,150 debit balance in the supplies (asset) account. Only $600 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.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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7.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.

On July 1, 2021, purchased $20,000 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 9%.
Vito’s depreciable equipment has a cost of $4,000, a four-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 $9,000 representing the first six months’ rent and credited deferred rent revenue.
On April 1, 2021, the company paid $1,200 for a two-year fire and liability insurance policy and debited insurance expense.
On October 1, 2021, the company borrowed $10,000 from a local bank and signed a note. Principal and interest at 9% will be paid on September 30, 2022.
At year-end, there is a $1,150 debit balance in the supplies (asset) account. Only $600 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.)

No
Assessment Tool iFrame Interest receivable
Transaction
General Journal
Debit
Credit
900
Interest revenue
900
Depreciation expense
Accumulated depreciation
2
b.
1,000
1,000
3
Deferred rent revenue
3,000
C.
Rent revenue
3,000
4
d.
Prepaid insurance
1,920
Insurance expense
1,920
e.
Interest expense
225
Interest payable
225
6
f.
Supplies expense
550
Supplies
550
Required 1
Required 2 >

Determine the amount by which net income would be misstated If Vito's falled to record these adjusting entries
Income tax expense.) (Amounts to be deducted should be Indicated by a minus sign. Do not round Intermedlate
calculations.)
Income
Overstated
(Understated)
Adjustments to revenues:
Adjustments to expenses:
< Required 1
Required 2 >

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