Chapter 3, Problem 3.40BP

Journalizing adjusting entries and identifying the impact on financial statements

Henderson Fishing Charters has collected the following data for the December 31 adjusting entries:

1. a. The company received its electric bill on December 20 for $ 150 but will not pay it until January 5. (Use the Utilities Payable account.)
2. b. Henderson purchased a nine-month boat insurance policy on November 1 for $8,100. Henderson recorded a debit to Prepaid Insurance.
3. c. As of December 31, Henderson had earned $4,000 of charter revenue that has not been recorded or received.
4. d. Henderson’s fishing boat was purchased on January 1 at a cost of $80,500. Henderson expects to use the boat for five years and that it will have a residual value of $5,500. Determine annual depreciation assuming the straight-line depreciation method is used.
5. e. On October 1, Henderson received $5,000 prepayment for a deep-sea fishing charter to take place in December. As of December 31, Henderson has completed the charter.

Requirements

1. 1. Journalize the adjusting entries needed on December 31 for Henderson Fishing Charters. Assume Henderson records adjusting entries only at the end of the year.
2. 2. If Henderson had not recorded the adjusting entries, indicate which specific category of accounts on the financial statements would be misstated and if the misstatement is overstated or understated. Use the following table as a guide: