Chapter 3, Problem 65APSA

Problem 3-65A Preparation of Adjusting Entries

Bartow Photographic Services takes wedding and graduation photographs. At December 31, the end of Bartow’s accounting the following information is available:

1. All wedding photographs are paid for in advance, and all cash collected for them is credited to Unearned Service Revenue. Except for a year end adjusting entry, no other entries are made for service revenue from wedding photographs. During the year, Bartow received $42,600 for wedding photographs. At year end, $37,400 of services had been performed. The beginning-of-the-year balance of Unearned Service Revenue was zero.
2. During December, Bartow photographed 225 members of the next year’s graduating class of Shaw High School The school has asked Bartow to print one copy of a photograph of each student for the school files. Bartow delivers these photographs on December 28 and will bill the school S5.00 per student in January of next year. Revenue from photographs ordered by students will recorded as the orders are received during the early months of next year.
3. Equipment used for developing and printing was rented for $22,500. The rental term was for 1 year beginning on August I and the entire year of rent was paid on August 1. The payment was debited to Prepaid Rent.
4. Depreciation on the firm’s building for the current year is S9,400.
5. Wages of S4, 170 are owed but unpaid and unrecorded at December 31.
6. Supplies at the beginning of the year were $2,400. During the year, supplies costing $19,600 were purchased from Kodak. When the purchases were made, their cost was debited to Supplies. At year end, a physical inventory indicated that supplies costing $4,100 were on hand.

Required:

l. Prepare the adjusting entries for each of these items.

2. CONCEPTUAL CONNECTION By how much would net income overstated or understated if the accountant failed to make the adjusting entries?