Question

Incorrect for the work you have completed so for. It does not indicate completion Return to question 8 Brokeback Towing Company is at the end of its accounting year, December 31, 2018. The following data that must be considered were developed from the company's records and related documents: 125 points 8 00:57:34 a. On July 1, 2018, a two-year Insurance premium on equipment in the amount of $600 was paid and debited in full to Prepaid Insurance on that date. Coverage began on July 1. b. At the end of 2018, the unadjusted balance in the Supplies account was $1,000. A physical count of supplies on December 31, 2018, indicated supplies costing $300 were still on hand. c On December 31, 2018, YY's Garage completed repairs on one of Brokeback's trucks at a cost of $800. The amount is not yet recorded. It will be paid during January 2019. d. On December 31, 2018, the company completed a contract for an out-of-state company for $7950 payable by the customer within 30 days. No cash has been collected and no Journal entry has been made for this transaction e. On July 1, 2018, the company purchased a new hauling van. Depreciation for July- December 2018, estimated to total $2.750, has not been recorded. As of December 31, the company owes interest of $500 on a bank loan taken out on October 1, 2018. The interest will be paid when the loan is repaid on September 30, 2019 No interest has been recorded yet. 9. Assume the income after the preceding adjustments but before income taxes was $30,000. The company's federal income tax rate is 30%. Compute and record income tax expense. Required: 1. Give the adjusting journal entry required for each item at December 31, 2018 2. If adjustments were not made each period, the financial results could be materially misstated. Determine the amount by which Brokeback's net income would have been understated, or overstated, had the adjustments in requirement 1 not been made. Answer is not complete Complete this question by entering your answers in the tabs below. Required 1 Required 2 If adjustments were not made each period, the financial results could be materially misstated. De which Brokeback's net income would have been understated, or overstated, had the adjustments made. Brokeback's net income < Required 1 Required 2

Answer 1

Answer -a

	Journal
S.no	Account Title and Explanations	Amount	Amount
		Debit	Credit
a	Insurance Expense	$       150.00
	To Prepaid Insurance		$     150.00
	(Being insurance expensed for the year)
b	Supplies Expense	$       700.00
	To Supplies		$     700.00
	(Being supplies used during the year expensed)
c	Repair & Maintenance	$       800.00
	To YY Garage (Accounts Payable)		$     800.00
	(Being repair expenseincurred)
d	Accounts Receivable	$    7,950.00
	To Revenue		$ 7,950.00
	(Being revenue recorded from the contract)
e	Depriciation	$    2,750.00
	To Hauling Van		$ 2,750.00
	(Being depriciation charged on van)
f	Interest Expense	$       500.00
	To Interest Payable		$     500.00
	(Being interest expense recorded)
g	Income tax expense	$    9,000.00
	To Income tax payable		$ 9,000.00
	(Being income tax expense recorded $30,000 *30%)
Total		$       21,850.00	$     21,850.00

Answer -b

Calacualtion of income understated or overstated : Adjustments : Less : Insurance Expense Supplies Expense Repair & Maintenance Depriciation Interest Expense $ (150.00) $ (700.00) $ (800.00) $ (2,750.00) $ (500.00) Add: Revenue $ 7,950.00 Understated Income before tax $ 3,050.00 Less: Income tax @ 30% $ (915.00) Understated Income after tax $ 2,135.00

Explanation : Point no. g has not been considered while calcuating understated or overstated income as this is a year end transaction and not an adjustment.