Chapter 4, Problem 14E

Reporting an Adjusted Income Statement

Dyer, Inc., completed its first year of operations on December 31, 2018. Because this is the end of the annual accounting period, the company bookkeeper prepared the following preliminary income statement:

You are an independent CPA hired by the company to audit the firm’s accounting systems and financial statements. In your audit, you developed additional data as follows:

1. a. Wages for the last three days of December amounting to $310 were not recorded or paid.
2. b. The $400 telephone bill for December 2018 has not been recorded or paid.
3. c. Depreciation of equipment amounting to $23,000 for 2018 was not recorded.
4. d. Interest of $500 was not recorded on the notes payable by Dyer, Inc.
5. e. The Rental Revenue account includes $4,000 of revenue to be earned in January 2019.
6. f. Supplies costing $600 were used during 2018, but this has not yet been recorded.
7. g. The income tax expense for 2018 is $7,000, but it won’t actually be paid until 2019.

Required:

1. 1. What adjusting journal entry for each item (a) through (g) should be recorded at December 31, 2018? If none is required, explain why.
2. 2. Prepare, in proper form, an adjusted income statement for 2018.
3. 3. Did the adjustments have a significant overall effect on the company’s net income? By what dollar amount did net income change as a result of the adjustments?