Question

E4-10 Determining Financial Statement Effects of Seven Typical Adjusting Entries L04-1 Dittman's Variety Store is completing the accounting process for the current year just ended, December 31. The transactions during year have been jumalized and posted. The following data with respect to adjusting entries are available a Wages earned by employees during December, unpaid and unrecorded at December 31, amounted to $2,700. The last payroll was December 28, the next payroll will be January 6 b. Office supplies on hand at January 1 of the current year totaled totaled $450. Office supplies purchased and debited to Office Supplies during the year amounted to $500. The year-end count showed $275 of supplies on hand c. One-fourth of the basement space is rented to Heald's Specialty Shop for $560 per month payable monthly. At the end of the current year, the rent for November and December had not been collected or recorded Collection is expected in January of the next year d. The store used delivery equipment all year that cost $60,500: $12,100 was the estimated annual depreciation e. On July 1 of the current year, a two-year insurance premium amounting to $2,400 was paid in cash and debited in fulto Prepaid Insurance Coverage began on July 1 of the current year, The remaining basement of the store is rented for $1.500 per month to another merchant, M Carlos, Inc. Carlos sells compatible, but not competitive merchandise On November 1 of the current year, the store collected six months' rent in the amount of $9,600 in advance from Carlos, it was credited in full to Unearned Rent Revenue when collected g. Dittman's Variety Store operates a repair shop to meet its own needs. The shop also does repairs for M. Carlos At the end of the current year, Carlos had not paid $800 for completed repairs. This amount has not yet been recorded as Repair Shop Revenue Collection is expected during January of next year Required: For each of the transactions above, indicate the amount and direction of effects of the adjusting entry on the elements of the balance sheet and income statement. Using the table below, indicate for increase and for decrease Income Statement Balance Sheet Stockholders Liabilities Stockholm Equity Transaction Assets Revenues Expenses Net Income

Answer 1

Transaction Assets Balance Sheet Income Statement Stockholders' Liabilities Equity Revenues Expenses Net Income +$2,700 +$2,700 +$175 +$1,120 +$12,100 +$600 +$3,200 +$800 -$175 +$1,120 -$12,100 -$600 -$3,200 +$800 (c) (e) (g) (a) Explainantions : $2700 is to be recorded as expense and as it is not yet paid should be shown as liabilty (b) Total expense on Supplies = ($450 + $500 - $275) = $675, as $500 already debited only added in the expenses, Closing stock of supplies as told is $275, hence the Balance sheet's stock will reduce by $175 (c) Rental Income of 2 months is accrued ($560 x 2 =$1,120), hence Revenue of $1,120 will be increased with a siultaneous increase in $1,120 accrued Income (Asset) $12,100 will be recorded as expense and simulataneously Assets will be reduced by $12,100 Insurance expense for current year will be recorded ($2400 x 6/24) = $600, as the full amount was debited to Asset, $600 will be subtracted from the Assets Full rent debited to Assets $9600, 2 month's rent is to be recorded as Revenue therefore ($1600 x2) = $3,200 is to be recorded as Revenue. And $3,200 will be reduced from assets $800 is revenue earned but not received, Thus revenue will increase by $800 and Asset will increase by $800

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