Question

Fishing Charters has collected the following data for the

December

31 adjusting​ entries:

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​(Click the icon to view the​ data.) Read the requirements

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.Requirement 1. Journalize the adjusting entries needed on

December

31 for

Stewart

Fishing Charters. Assume

Stewart

records adjusting entries only at the end of the year. ​(Record debits​ first, then credits. Select the explanation on the last line of the journal entry​ table.)a. The company received its electric bill on

December

20 for

$150

but will not pay it until

January

5.​ (Use the Utilities Payable​ account.)

Date			Accounts and Explanation	Debit	Credit
(a) Dec. 31			Accounts Payable	150

b.

Stewart

purchased a

three​-month

boat insurance policy on

November

1 for

$3,300.

Stewart

recorded a debit to Prepaid Insurance.

Date			Accounts and Explanation	Debit	Credit
(b) Dec. 31

c. As of

December

​31,

Stewart

had earned

$4,000

of charter revenue that has not been recorded or received.

Date			Accounts and Explanation	Debit	Credit
(c) Dec. 31

d.

Stewart​'s

fishing boat was purchased on

January

1 at a cost of

$77,000.

Stewart

expects to use the boat for

ten

years and that it will have a residual value of

$2,000.

Determine annual depreciation assuming the​ straight-line depreciation method is used.

Date			Accounts and Explanation	Debit	Credit
(d) Dec. 31

e. On

October

​1,

Stewart

received

$5,500

prepayment for a​ deep-sea fishing charter to take place in

December.

As of

December

​31,

Stewart

has completed the charter. ​(When the cash was​ received, assume that a liability account was​ credited.)

Date			Accounts and Explanation	Debit	Credit
(e) Dec. 31

Requirement 2. If

Stewart

had not recorded the adjusting​ entries, indicate which specific category of accounts on the financial statements would be misstated and if the misstatement is overstated or understated.

Begin by completing the table for adjustment a and then transactions b through e.

	Specific Category of		Specific Category
Adjusting	Accounts on the	Over /	of Accounts on the	Over /
Entry	Balance Sheet	Understated	Income Statement	Understated
(a)

(b)

(c)

(d)

(e)

Choose from any list or enter any number in the input fields and then continue to the next question.

Answer 1

Fishing Charters
Journal Entry Workbook
Date	Accounts Title	Debit	Credit
Dec-31	Electricity A/c	150
	Utilities Payable A/c		150
	Since the electricity bill has been received and not paid the liability will be carried to the utilites payable a/c
Nov-01	Prepaid Insurance	3300
	Boat Insurance Ac		3300
	Since the insurance has been purchased for 3 months, it is an asset for the company
31-Dec	Insurance Expense A/c	2200
	Prepaid Insurance		2200
	The insurance of 1100 for each month, november and december shall be charged to the income statement, balance of 1100 shall be carried to the assets in balance sheet
31-Dec	Accounts Receivable	4000
	Charter Revenue		4000
	Since the amount is earned but not received it shall be carried to the assets in balance sheet
31-Dec	Depriciation	7500
	Accumulated Depriciation on Fishing Boat		7500
	Annual Depriciation shall be charged to fishing boat
31-Dec	Prepaid income for deep fishing charter	5500
	deep fishing charter		5500
	since the income has been received prior to provision of service, it is a liability and hence will be reduced with cash payment

Calculation of Depriciation for Fishing Boat
Cost	77000
Useful Life	10 Years
Residual value	2000
Depriciation = (Cost - Residual Value)/Useful Life
Depriciation = (77000 - 2000)/10
Annual Depriciation = 7500

Unadjusted	Accounts affecting the		Impact on Net Income
Adjusting Entry Relating to	Income Statement	Balance-sheet
Electricty Bill	-150	0	-150
Boat Insurance	-1100	0	-1100
Charter Revenue	4000	0	4000
Depriciation	-7500	0	-7500
Prepaid Income for Deep Fishing Charter	5500	0	5500
		Total Impact	750