Debits Credits
Accounts Receivable $ 75,000
Equipment 250,000
Accumulated Depreciation—Equipment $ 12,000
Prepaid Rent 12,000
Supplies 3,170
Wages Payable —
Unearned Fees 10,000
Fees Earned 400,000
Wages Expense 140,000
Rent Expense —
Depreciation Expense —
Supplies Expense —
Data needed for year-end adjustments are as follows:
a. Supplies on hand at November 30, $550.
b. Depreciation of equipment during year, $1,675.
c. Rent expired during year, $8,500.
d. Wages accrued but not paid at November 30, $2,000.
e. Unearned fees at November 30, $4,000.
f. Unbilled fees at November 30, $5,380.
Instructions
1. Journalize the six adjusting entries required at November 30, based on the data presented.
2. What would be the effect on the income statement if adjustments (b) and (e) were omitted at the end of the year?
3. What would be the effect on the balance sheet if adjustments (b) and (e) 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 (b) and (e) were omitted at the end of the year?
Answer:
1. a. Supplies Expense 2,620
Supplies 2,620
Supplies used ($3,170 – $550).
b. Depreciation Expense 1,675
Accumulated Depreciation—Equipment 1,675
Depreciation for year.
c. Rent Expense 8,500
Prepaid Rent 8,500
Rent expired.
d. Wages Expense 2,000
Wages Payable 2,000
Accrued wages.
e. Unearned Fees 6,000
Fees Earned 6,000
Fees earned ($10,000 – $4,000).
f. Accounts Receivable 5,380
Fees Earned 5,380
Accrued fees.
2. Fees Earned would be understated by $6,000; Depreciation Expense would
be understated by $1,675; and net income would be understated by $4,325
($6,000 – $1,675).
3. Accumulated Depreciation—Equipment would be understated by $1,675; total assets
would be overstated by $1,675; Unearned Fees would be overstated by $6,000; total
liabilities would be overstated by $6,000; owner’s capital would be understated by
$4,325 ($6,000 – $1,675); and total liabilities and owner’s equity would be
overstated by $1,675 ($6,000 – $4,325).
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.