Question

Partial Question 4 1.75/3 pts You've been hired by Pitchfork, Inc. to review several transactions that were omitted as adjusting journal entries at December 31, 20x1, which is Pitchfork's year-end. For each of the transactions listed below, record the appropriate AJE that should have been recorded at December 31st. Transactions: 1. On November 1, 20x1, Pitchfork received a $25,000 advance payment from a customer for services to be performed evenly over the next 5 months. The original entry was credited to "Service Revenue". To record the appropriate AJE: Debit Service Revenue , for $ amount [Select] Credit (Select] , for $ amount 15,000 2. On September 1, 20x1, Pitchfork paid $12,600 for a three-year hazard insurance policy. Pitchfork debited "Prepaid Insurance" at the time of the transaction. To record the appropriate AJE: Debit Insurance Expense , for $ amount [Select] Credit [Select] for $ amount 11,200 3. On June 1, 20x1, Pitchfork invested $75,000 into a 12-month CD earning 4% APR. Pitchfork will receive principle and interest at maturity on May 31, 20x2.

Answer 1

4.

Journal

Date	Account title	Debit	Credit
1	Service revenue	15,000
	Unearned Service revenue		15,000
	(To record Unearned Service revenue)
2	Insurance expense	1,400
	Prepaid insurance		1,400
	(To record insurance expense)
3	Interest receivable	1,750
	Interest revenue		1,750
	(To record interest revenue)

On November 1, service revenue of $25,000 was received for 5 months.

Service revenue for 2 months of 2001 = 25,000 x 2/5

= $10,000

Unearned Service revenue on December 31, 2001 = 25,000 - 10,000

= $15,000

Insurance expense for 4 months of year 2001 = 12,600 x 4/36

= $1,400

Interest revenue = Note receivable x Interest rate x Time period

= 75,000 x 4% x 7/12

= $1,750

For questions 5, 6, 7 and 8

Error	Effect on Asset	Effect on Liability	Effect on Equity	Effect on Net income
1	NE	15,000 understated	15,000 overstated	15,000 overstated
2	1,400 overstated	NE	1,400 overstated	1,400 overstated
3	1,750 understated	NE	1,750 understated	1,750 understated
Net effect	$350 understated	$15,000 understated	$14,650 overstated	$14,650 overstated

5.

Assets = U 350

6.

Liabilities = U 15000

7.

Equity = O 14650

8.

Net income = O 14650

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