Question

Exercise 3-9A Calculate the effects on net income of not recording adjusting entries (LO3-3) Consider the following transactions for Huskies Insurance Company: 1. Equipment costing $32,400 is purchased at the beginning of the year for cash. Depreciation on the equipment is $5,400 per year. 2. On June 30, the company lends its chief financial officer $34,000; principal and interest at 7% are due in one year. On October 1, the company receives $9,600 from a customer for a one-year property insurance policy. Deferred Revenue is credited Required: Indicate by how much net income in the income statement is higher or lower if the adjustment is not recorded. (Do not round intermediate calculations.) sactio Net Income 2. 3. Total

Answer 1

Answers

Transaction	Net Income
1	$5,400	Higher, because expense would not have been recorded
2	$1,190	Lower, because 6 month interest revenue would not been recognised.
3	$2,400	Lower, because 3 month revenue earned would not be recorded if adjustment is not made
Total	$1,810	Higher, [5400 - 1190 - 2400]