Question

PART 1: Prepare jpurnal entries for each of the following transactions for Fisk Corporation that has a fiscal year end of December 31.

A. On october 1, $12,000 was paid for a one- year fire insurance policy.

B. On june 30 the compnay lents its chief financial officer $10,00. Principal and interest at 6% are due in one year.

C. Equipment costing $60,000 was purchased at the beginning of the year for cash.Part 2. prepare teh necessary adjusting entries at December 31 for each of the items liste in part 1. Depreciation on the equipmetnt is $12,000 per year.

PART 2: Prepare the necessary adjusting entries at December 31 for each of the items listed in part 1. Depreciation on the equipment is $12,000 per year.

PART 3: If the adjusting entries prepared in Part 2 were not recorded, would net income be higher or lower and by how much? ( Answer the question separately for each adjusting entry and provide and answer in total.)

Answer 1

1)

Date	Account title	Debit	credit
October 1	Prepaid insurance	12000
	cash		12000
June 30	Note receivable/Loan receivable	10000
	cash		10000
1 Jan	Equipment	60000
	cash		60000

The amount of transaction B seems or are taken as to be $ 10000 (seems there is error 10,00)

2)

Date	Account title	Debit	credit
31 Dec	Insurance expense	3000
	Prepaid insurance		3000
	[Being insurance expired for 3 months out of 12months (one year)(1Oct-31DEC) 12000*3/12]
Dec 31	Interest receivable	300
	Interest revenue		300
	[Being interest earned for 6 months (30June -31Dec )10000*6%*6/12]
Dec 31	Depreciation expense	12000
	Accumulated depreciation-equipment		12000

3)

	Amount of overstatement /(understatement)	Higher /(lower)
Insurance expense	3000	Higher	since expenses are not recorded ,it will overstate the net income
Interest revenue	(300)	Lower	Since revenue is not recorded ,it will understate the net income
Depreciation expense	12000	Higher	since expenses are not recorded ,it will overstate the net income
Total	14700	Higher

Net income will be higher by $ 14700 if adjusting entries are not made.