Concept explainers
• LO2–2, LO2–5
The information necessary for preparing the 2018 year-end adjusting entries for Vito’s Pizza Parlor appears below. Vito’s fiscal year-end is December 31.
a. On July 1, 2018, purchased $10,000 of IBM Corporation
b. Vito’s
c. On November 1, 2018, the bar area was leased to Jack Donaldson for one year. Vito’s received $6,000 representing the first six months’ rent and credited deferred rent revenue.
d. On April 1, 2018, the company paid $2,400 for a two-year fire and liability insurance policy and debited insurance expense.
e. On October 1, 2018, the company borrowed $20,000 from a local bank and signed a note. Principal and interest at 12% will be paid on September 30, 2019.
f. At year-end, there is a $1,800 debit balance in the supplies (asset) account. Only $700 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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