Question

Instructions a. Computer equipment was purchased from IBM in 2016 at a cost of $540,000. Annual depreciation is $150,000 b. A fire insurance policy for a 2-year period beginning September 1, 2019, was purchased from Good Hands Insurance Company for $13,440 cash. The entire amount of the prepayment was debited to prepaid Insurance. (Assume that the beginning balance of prepaid insurance was $0 and that there were no other debits or credits to that account during 2019.) c. Reynolds has a contract to perform the payroll accounting for Dayton's Department Stores. At the end of 2019, $5,100 of services have been performed under this contract but are unbilled. d. Reynolds rents 10 computer terminals for $80 per month per terminal from Extreme Terminals Inc. At December 31, 2019. Reynolds owes Extreme Terminals for half a month's rent on each terminal. The amount owed is unrecorded. e. Perry's Tax Service prepays rent for time on Reynolds' computer. When payments are received from Perry's Tax Service, Reynolds credits unearned rent revenue. At December 31, 2019, Reynolds has earned $1,800 for computer time used by Perry's Tax Service during December 2019. Required: 1. Prepare adjusting entries for each of the transactions 2. Conceptual Connection: What would be the effect on the balance sheet and the income statement if the accountant failed to make the above adjusting entries?

Answer 1

1	Date	Account Title	Post Ref.	Debit	Credit		Assets	Liabilties	Equity	Revenue	Expenses	Net Income
	Dec 31	Depreciation Expenses		$50,000					-$50,000		$50,000	-$50,000
		Accumulated Depreciation			$50,000		-$50,000
	Dec 31	Insurance Expense		$2,240					-$2,240		$2,240	-$2,240
		Prepaid Insurance			$2,240		-$2,240
		($13,440 x 1/2 x 4/12)
	Dec 31	Accounts Receivable		$5,100			$5,100
		Service Revenue			$5,100				$5,100	$5,100		$5,100
	Dec 31	Rent Expenses		$400							$400	-$400
		Rent Payable			$400				$400
		(10 x $80 x 1/2)
	Dec 31	Unearned Rent Revenue		$1,800				$1,800
		Service Revenue			$1,800				$1,800	$1,800		$1,800
2
a	Decrease, Decrease
b	Decrease, Decrease
c	Increase, Increase
d	Decrease, Increase
e	Increase, Decrease