Chapter 4, Problem 4.4E

Determining Adjustments and Accounting Equation Effects

Mobo, a wireless phone earrier, completed its first year of operations on October 31. All of the year’s entries have been recorded, except for the following:

1. a. At year-end, employees earned wages of $6,000, which will be paid on the next payroll date, November 6.
2. b. At year-end, the company had earned interest revenue of $3,000. It will be collected December 1.

Required:

1. 1. What is the annual reporting period for this company?
2. 2. Identify whether each required adjustment is a deferral or an accrual.
3. 3. Show the accounting equation effects of each required adjustment, using the format shown in the demonstration case.
4. 4. Why are these adjustments needed?