Ans:
2 |
Balance sheet |
Income statement |
|||||||||||
Assets |
Liabilities |
Stockholder's equity |
Revenues |
Expenses |
Net income |
||||||||
Transaction |
Effect |
Amount |
Effect |
Amount |
Effect |
Amount |
Effect |
Amount |
Effect |
Amount |
Effect |
Amount |
|
a. |
U |
1800 |
NE |
U |
1800 |
U |
1800 |
NE |
U |
1800 |
|||
b. |
O |
14600 |
NE |
O |
14600 |
NE |
U |
14600 |
O |
14600 |
|||
c. |
NE |
O |
1400 |
U |
1000 |
U |
1400 |
NE |
U |
1400 |
|||
d. |
NE |
O |
1160 |
U |
1160 |
NE |
O |
1160 |
U |
1160 |
|||
e. |
O |
640 |
NE |
O |
640 |
U |
640 |
O |
640 |
||||
Explanation |
|||||||||||||
a. |
Entry should be: |
||||||||||||
Debit |
Credit |
||||||||||||
Rent receivable |
(Asset) |
1800 |
|||||||||||
Rent revenue |
(Revenues) |
1800 |
|||||||||||
Absence of this entry- |
|||||||||||||
Asset will be understated by $ 1800 (Due to absence of rent receivable) |
|||||||||||||
Revenue will be understated by $ 1800 (Due to absence of rent revenue).This will understate net income and stockholder's equity |
|||||||||||||
b. |
Entry should be: |
||||||||||||
Debit |
Credit |
||||||||||||
Depreciation exp |
(Expenses) |
14600 |
|||||||||||
Acc. Depreciation |
(Asset) |
14600 |
|||||||||||
Absence of this entry- |
|||||||||||||
Expenses will be understated by $ 14600 (Due to absence of depreciation expense).This will overstate net income and stockholder's equity. |
|||||||||||||
Asset will be overstated by $ 14600 (Due to absence of acc.depreciation-It reduces assets) |
|||||||||||||
c. |
Entry should be: |
||||||||||||
Debit |
Credit |
||||||||||||
Unearned revenue |
(Liabilities) |
1400 |
|||||||||||
Revenue |
(Revenues) |
1400 |
|||||||||||
Absence of this entry- |
|||||||||||||
Liabilities will be overstated by $ 1400 (Due to absence of debiting unearned revenue) |
|||||||||||||
Revenue will be understated by $ 1400 (Due to absence of revenue).This will understate net income and stockholder's equity |
|||||||||||||
d. |
Interest expense recognized=17400*8%=$ 1392 |
||||||||||||
Interest expense to be recognized from Nov to Dec for 2 months=1392*(2/12)=$ 232 |
|||||||||||||
Here, Interest expense overstated by $ 1160 (1392-232).This will understate net income and stockholder's equity |
|||||||||||||
Credit would have been given to interest payable |
|||||||||||||
Hence, interest payable also overstated by $ 1160 (1392-232).This means liabilities overstated by $ 1160 |
|||||||||||||
e. |
Entry should be: |
||||||||||||
Debit |
Credit |
||||||||||||
Insurance expense |
640 |
||||||||||||
Prepaid insurance |
640 |
||||||||||||
Expenses will be understated by $ 640 (Due to absence of insurance expense).This will overstate net income and stockholder's equity. |
|||||||||||||
Asset will be understated by $ 640 (Due to absence of credit to prepaid insurance) |
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