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Concept Introduction:
The business activity for each type of adjusting entry is explained as follows:
- Accrued revenue: The adjusting entry for Accrued revenue is prepared to record the revenue earned during the period.
- Accrued Expense: The adjusting entry for Accrued expense is prepared to record the expenses incurred during the period.
- Deferred Revenue: The adjusting entry for Deferred revenue is prepared to defer the revenue that belong to next period.
- Deferred expenses: The adjusting entry for Deferred expense is prepared to defer the expense that belong to next period.
- Depreciation: The adjusting entry for depreciation expense is prepared to record the depreciation expense that belong to current period. Requirement-1:
To prepare:
The
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Answer to Problem 49E
The journal entries for the cash receipts and payments are as follows:
Greensboro Properties Inc. | |||
Journal Entries | |||
For the year 2019 | |||
Date | Account Title | Debit | Credit |
Mar. 1 | Prepaid Insurance | $ 10,500 | |
Cash | $ 10,500 | ||
May. 1 | Cash | $ 30,000 | |
Unearned Rent Revenue | $ 30,000 | ||
July. 31 | Cash | $ 240,000 | |
Unearned Rent Revenue | $ 240,000 | ||
Nov. 1 | Prepaid Security services | $ 4,500 | |
Cash | $ 4,500 |
Explanation of Solution
The journal entries for the cash receipts and payments are explained as follows:
Greensboro Properties Inc. | |||
Journal Entries | |||
For the year 2019 | |||
Date | Account Title | Debit | Credit |
Mar. 1 | Prepaid Insurance | $ 10,500 | |
Cash | $ 10,500 | ||
(Being amount paid for insurance in advance) | |||
May. 1 | Cash | $ 30,000 | |
Unearned Rent Revenue | $ 30,000 | ||
(Being amount received in advance) | |||
July. 31 | Cash | $ 240,000 | |
Unearned Rent Revenue | $ 240,000 | ||
(Being amount received in advance) | |||
Nov. 1 | Prepaid Security services | $ 4,500 | |
Cash | $ 4,500 | ||
(Being amount paid in advance) |
Concept Introduction:
Adjusting entries are required to adjust the accounts according to the accrual basis of accounting at the end of the every accounting period. For example: Recording the depreciation expense on depreciable assets at the end of each accounting year.
The business activity for each type of adjusting entry is explained as follows:
To prepare:
The adjusting entries at the end of the year.
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Answer to Problem 49E
The adjusting entries at the end of the year are as follows:
Greensboro Properties Inc. | |||
Adjusting entries | |||
For the year 2019 | |||
Date | Account Title | Debit | Credit |
Dec. 31 | Insurance Expense | $ 8,750 | |
Prepaid Insurance | $ 8,750 | ||
Dec. 31 | Unearned Rent Revenue | $ 20,000 | |
Rent Revenue | $ 20,000 | ||
Dec. 31 | Unearned Rent Revenue | $ 200,000 | |
Rent Revenue | $ 200,000 | ||
Dec. 31 | Security Service Expense | $ 3,000 | |
Prepaid Security services | $ 3,000 |
Explanation of Solution
The adjusting entries at the end of the year are explained as follows:
Greensboro Properties Inc. | |||
Adjusting entries | |||
For the year 2019 | |||
Date | Account Title | Debit | Credit |
Dec. 31 | Insurance Expense (10500*10/12) | $ 8,750 | |
Prepaid Insurance | $ 8,750 | ||
(Being adjustment made for accrued expense) | |||
Dec. 31 | Unearned Rent Revenue | $ 20,000 | |
Rent Revenue (30000*8/12) | $ 20,000 | ||
(Being adjustment made for accrued revenue) | |||
Dec. 31 | Unearned Rent Revenue | $ 200,000 | |
Rent Revenue (240000*5/6) | $ 200,000 | ||
(Being adjustment made for accrued revenue) | |||
Dec. 31 | Security Service Expense (4500*2/3) | $ 3,000 | |
Prepaid Security services | $ 3,000 | ||
(Being adjustment made for accrued expense) |
Concept Introduction:
Adjusting entries are required to adjust the accounts according to the accrual basis of accounting at the end of the every accounting period. For example: Recording the depreciation expense on depreciable assets at the end of each accounting year.
The business activity for each type of adjusting entry is explained as follows:
- Accrued revenue: The adjusting entry for Accrued revenue is prepared to record the revenue earned during the period.
- Accrued Expense: The adjusting entry for Accrued expense is prepared to record the expenses incurred during the period.
- Deferred Revenue: The adjusting entry for Deferred revenue is prepared to defer the revenue that belong to next period.
- Deferred expenses: The adjusting entry for Deferred expense is prepared to defer the expense that belong to next period.
- Depreciation: The adjusting entry for depreciation expense is prepared to record the depreciation expense that belong to current period. Requirement-3:
To Indicate:
The effect of omission of adjusting entries on the Income statement and
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Answer to Problem 49E
The effect of omission of adjusting entries on the Income statement and balance sheet for the year is as follows:
# | Effect of Omission | |||
a | Understatement of Expenses by $8750 | |||
Overstatement of assets by $8750 | ||||
b | Overstatement of Liabilities by $20,000 | |||
Understatement of revenue by $20,000 | ||||
c | Overstatement of Liabilities by $200,000 | |||
Understatement of revenue by $200,000 | ||||
d | Understatement of Expenses by $3000 | |||
Overstatement of assets by $3000 | ||||
Explanation of Solution
The effect of omission of adjusting entries on the Income statement and balance sheet for the year is explained as follows:
Greensboro Properties Inc. | |||||
Adjusting entries | |||||
For the year 2019 | |||||
# | Date | Account Title | Debit | Credit | Effect of Omission |
a | Dec. 31 | Insurance Expense (10500*10/12) | $ 8,750 | Understatement of Expenses by $8750 | |
Prepaid Insurance | $ 8,750 | Overstatement of assets by $8750 | |||
(Being adjustment made for accrued expense) | |||||
b | Dec. 31 | Unearned Rent Revenue | $ 20,000 | Overstatement of Liabilities by $20,000 | |
Rent Revenue (30000*8/12) | $ 20,000 | Understatement of revenue by $20,000 | |||
(Being adjustment made for accrued revenue) | |||||
c | Dec. 31 | Unearned Rent Revenue | $ 200,000 | Overstatement of Liabilities by $200,000 | |
Rent Revenue (240000*5/6) | $ 200,000 | Understatement of revenue by $200,000 | |||
(Being adjustment made for accrued revenue) | |||||
d | Dec. 31 | Security Service Expense (4500*2/3) | $ 3,000 | Understatement of Expenses by $3000 | |
Prepaid Security services | $ 3,000 | Overstatement of assets by $3000 | |||
(Being adjustment made for accrued expense) |
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Chapter 3 Solutions
Cornerstones of Financial Accounting
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