Exam 3: Measuring Business Income: The Adjusting Process

When a prepaid expense is initially recorded as an expense, the adjusting entry:

Unearned revenue was not adjusted to show $3,000 of revenue earned during the current period. What is the effect of this error on the balance sheet?

When a prepaid expense is recorded initially as an expense, the adjusting entry transfers the unused portion of the expense to the asset account.

Failure to record an accrued expense:

Table 3-2 The unadjusted trial balance of Danvon Collection Services at December 31, 2019 follows. Danvon records payments for insurance, rent and supplies to the expense accounts; and, cash received in advance from customers as revenue. Cash \4 ,800 Accounts receivable 10,400 Prepaid insurance Prepaid rent Office supplies Equipment 16,500 Accumulated amortization \2 ,400 Salaries payable Interest payable Unearned serv ice rev enue 600 Note payable 8,000 Ted Danvon, capital 18,200 Ted Danvon, withdrawals 0 Service revenue 42,500 Salaries expense 20,500 Amortization expense Rent expense 16,200 Insurance expense 2,200 Office supplies expense 600 Interest expense \7 1,700 \7 1,700 -Refer to Table 3-2. Given the following information, prepare the necessary adjusting entries at year end, December 31, 2019, for Danvon Collection Services. a)A count revealed that $100 of office supplies were still on hand at December 31, 2019. b)The accountant has determined that the prepaid insurance balance at December 31, 2019, should be in the amount of $450. c)The equipment is amortized at the rate of $200 per month. d)The accountant has determined that the unearned service revenue balance at December 31, 2019 should be in the amount of $950. e)Interest of $200 on the note payable has accrued to the end of the year. f)Salaries accrued at December 31, 2019 amounted to $650. g)The accountant has determined that the prepaid rent balance at December 31, 2019 should be in the amount of $100.