Chapter 3, Problem E3.27E

Identifying the impact of adjusting entries on the financial statements
Learning Objective 3, 5 
Austin Acoustics recorded the following transactions during October:

1. Received $2,500 cash from customer for three months of service beginning October 1 and ending December 31. The company recorded a $2,500 debit to Cash and a $2,500 credit to Unearned Revenue.
2. Employees are paid $3,000 on Monday following the five-day workweek. October 31 is on Friday.
3. The company pays S440 on October 1 for its six-month auto insurance policy. The company recorded a $440 debit to Prepaid Insurance and a $440 credit to Cash.
4. The company purchased office furniture for $8,300 on January 2. The company recorded a $8,300 debit to Office Furniture and an $8,300 credit to Accounts Payable. Annual depreciation for the furniture is $1,000.
5. The company began October with $50 of office supplies on hand. On October 10, the company purchased office supplies on account of $100. The company recorded a $100 debit to Office Supplies and a $100 credit to Accounts Payable. The company used S120 of office supplies during October
6. The company received its electric bill on October 31 for $325 but did not pay it until November 10.
7. The company paid Novembers rent of $2,500 on October 30. On October 30, the company recorded an $2,500 debit to Rent Expense and a $2,500 credit to Cash.

Indicate if an adjusting entry is needed for each item on October 31 for the month of October. Assuming the adjusting entry is not made, indicate which specific category or categories of accounts on the financial statements are misstated and if they are overstated or understated. Use the following table as a guide. Item e is completed as an example:

Item	Adjusting Entry Needed?	Specific Category of Accounts on the Balance Sheet	Over /Understated	Specific Category of Accounts on the Income Statement	Over /Understated
(a)	Yes	Liability Equity	Over Under	Revenue	Under