Debits Credits
Accounts Receivable $ 80,000
Equipment 150,000
Accumulated Depreciation - Equipment $ 28,000
Prepaid Rent 6,000
Supplies 3,000
Wages Payable —
Unearned Fees 10,500
Fees Earned 410,000
Wages Expense 190,000
Rent Expense —
Depreciation Expense —
Supplies Expense —
Data needed for year-end adjustments are as follows:
a. Unbilled fees at August 31, $9,150.
b. Supplies on hand at August 31, $675.
c. Rent expired, $5,000.
d. Depreciation of equipment during year, $3,300.
e. Unearned fees at August 31, $3,000.
f. Wages accrued but not paid at August 31, $3,100.
Instructions
1. Journalize the six adjusting entries required at August 31, based on the data presented.
2. What would be the effect on the income statement if adjustments (a) and (f) were omitted at the end of the year?
3. What would be the effect on the balance sheet if adjustments (a) and (f) were omitted at the end of the year?
4. What would be the effect on the “Net increase or decrease in cash” on the statement of cash flows if adjustments (a) and (f) were omitted at the end of the year?
Answer:
1. a. Accounts Receivable 9,150
Fees Earned 9,150
Accrued fees earned.
b. Supplies Expense 2,325
Supplies 2,325
Supplies used ($3,000 – $675).
c. Rent Expense 5,000
Prepaid Rent 5,000
Prepaid rent expired.
d. Depreciation Expense 3,300
Accumulated Depreciation—Equipment 3,300
Equipment depreciation.
e. Unearned Fees 7,500
Fees Earned 7,500
Fees earned ($10,500 – $3,000).
f. Wages Expense 3,100
Wages Payable 3,100
Accrued wages.
2. Fees Earned would be understated by $9,150; Wages Expense would be
understated by $3,100; and net income would be understated by $6,050
($9,150 – $3,100).
3. Accounts Receivable would be understated by $9,150; total assets would be
understated by $9,150; Wages Payable would be understated by $3,100;
total liabilities would be understated by $3,100; owner’s capital would be
understated by $6,050 ($9,150 – $3,100); and total liabilities and owner’s
equity would be understated by $9,150 ($3,100 + $6,050).
4. There is no effect on the “Net increase or decrease in cash” on the statement
of cash flows, since adjusting entries do not affect cash.