The information necessary for preparing the 2018 year-end
adjusting entries for Vito’s Pizza Parlor appears below. Vito’s
fiscal year-end is December 31.
Required:
1. Prepare the necessary adjusting journal
entries at December 31, 2018.
2. Determine the amount by which net income would
be misstated if Vito's failed to record these adjusting entries.
(Ignore income tax expense.)
Solution 1:
Journal Entry - Vito's Pizza Parlor | ||||
Event | Date | Particulars | Debit | Credit |
1 | 31-Dec-18 | Interest receivables Dr | $630.00 | |
To Interest revenue ($10,500*12%*6/12) | $630.00 | |||
(To record interest revenue on bond) | ||||
2 | 31-Dec-18 | Depreciation expense Dr | $6,100.00 | |
To Accumulated depreciation - Equipment ($36,600/6) | $6,100.00 | |||
(To record depreciation on equipment) | ||||
3 | 31-Dec-18 | Deferred rent revenue Dr | $2,100.00 | |
To Rent revenue ($6,300/6*2) | $2,100.00 | |||
(To record adjusting entry of rent revenue) | ||||
4 | 31-Dec-18 | Prepaid insurance Dr | $1,575.00 | |
To Insurance expense ($2,520/24*15) | $1,575.00 | |||
(To record adjusting entry of insurance) | ||||
5 | 31-Dec-18 | Interest expense Dr | $630.00 | |
To Interest payable ($21,000*12%*3/12) | $630.00 | |||
(To record interest expense) | ||||
6 | 31-Dec-18 | Supplies Expense Dr | $1,140.00 | |
To Supplies ($1,850 - $710) | $1,140.00 | |||
(To record supplies expense) |
Solution 2:
Impact of adjusting entries on net income = $630 - $6,100 + $2,100 + $1,575 - $630 - $1,140 = -$3,565
Therefore net income is overstated by $3,565 if Vito's failed to record these adjusting entries.
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