Question

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Cactus Company’s annual accounting year ends on June 30. Assume it is June 30, and all of the entries except the following adjusting journal entries have been made:

1. The company earned service revenue of $1,900 on a special job that was completed June 29. Collection will be made during July; no entry has been recorded.
2. On March 31, Cactus paid a six-month premium for property insurance in the amount of $3,180 for coverage starting on that date. Cash was credited and Prepaid Insurance was debited for this amount.
3. At June 30, wages of $890 were earned by employees but not yet paid. The employees will be paid on the next payroll date, which is July 15.
4. On June 1, Cactus collected two months’ revenue of $440. At that date, Cactus debited Cash and credited Deferred Revenue for $440. One-half of it has now been earned but not yet recorded.
5. Depreciation of $1,490 must be recognized on equipment purchased on July 1 of the previous year.
6. Cash of $4,140 was collected on May 1 for services to be rendered evenly over the next year beginning on May 1. Deferred Revenue was credited when the cash was received. Two months of this performance obligation have now been fulfilled but not yet recorded.
7. The company owes interest of $590 on a bank loan taken out on February 1. The interest will be paid when the loan is repaid next year on January 31.
8. The income after all adjustments except income taxes was $31,000. The company’s federal income tax rate is 25%.

Required:

1. Determine the accounting equation effects of each required adjustment. (Enter any decreases to Assets, Liabilities, or Stockholders' Equity with a minus sign.)

Answer 1

Accounting equation

	Assets	=	Liabilities	+	Stockholder's equity
a	Account receivable 1900				Service revenue 1900
b	Prepaid insurance -1590				Insurance expense -1590
c			Wages payable +890		Wages expense -890
d			Deferred revenue -220		Service revenue +220
e	Accumulated depreciation -1490				Depreciation expense -1490
f			Deferred revenue -1380		Service revenue 1380
g			Interest payable +590		Interest expense -590
h			Income tax payable 7750		Income tax expense -7750