Chapter 4, Problem 4.18E

Recording the Effects of Adjusting Entries and Reporting a Corrected Income Statement and Balance Sheet

On December 31, the bookkeeper for Grillo Company prepared the following income statement and balance sheet summarized here but neglected to consider three adjusting entries.

	As Prepared	Effects of Adjusting Entries	Corrected Amounts
Income Statement
Revenues	$ 97,000	_______	_______
Expenses	(73,000)	_______	_______
Income tax expense	_______	_______	_______
Net income	$24,000
Balance Sheet
Assets
Cash	$20,000	_______	_______
Accounts receivable	22,000	_______	_______
Rent receivable		_______	_______
Equipment	50,000	_______	_______
Accumulated depreciation	(10,000)	_______	_______
	$82,000
Liabilities
Accounts payable	$10,000	_______	_______
Income taxes payable		_______	_______
Stockholders’ Equity
Common stock	10,000	_______	_______
Additional paid-in capital	30,000	_______	_______
Retained comings	32,000	_______	_______
	$82,000

Data on the three adjusting entries follow:

1. a. Rent revenue of $2,500 earned in December of the current year was neither collected nor recorded.
2. b. Depreciation of $4,500 on the equipment for the current year was not recorded.
3. c. Income tax expense of $5,100 for the current year was neither paid nor recorded.

Required:

1. 1. Prepare the three adjusting entries that were omitted. Use the account titles shown in the income statement and balance sheet data.
2. 2. Complete the two columns to the right in the preceding tabulation to show the effects of the adjusting entries and the corrected amounts on the income statement and balance sheet.