Chapter 3, Problem 49E

To determine

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-1:

To prepare:

The journal entries for the cash receipts and payments.

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)

To determine

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-2:

To prepare:

The adjusting entries at the end of the year.

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)

To determine

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 balance sheet for the year.

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)