Question

Exercise 3-50 (Algorithmic) Prepayment of Expenses JDM Inc. made the following prepayments for expense items during 2019: a. Prepaid building rent for 1 year on April 1 by paying $5,940. Prepaid rent was debited for the amount paid. b. Prepaid 12 months' insurance on October 1 by paying $4,032. Prepaid insurance was debited. C. Purchased $4,380 of office supplies on October 15, debiting supplies for the full amount. There were no office supplies on hand as of October 15. Office supplies costing $1,085 remain unused at December 31, 2019. d. Paid $696 for a 12-month service contract for repairs and maintenance on a computer. The contract begins November 1. The full amount of the payment was debited to prepaid repairs and maintenance. Required: 1. Prepare journal entries to record the payment of cash for each transaction. April (Record prepayment for rent) Oct. 1 a (Record the prepayment of insurance) Oct. 15

please do question 3

Answer 1

Req 3.
Expenses understated by:
a. Prepaid rent expired for 9 months not debited Rent expense (5,940*9/12):	4455
b. Prepaid insurance of 3 months not debited to Insurance expense (4,032*3/12):	1008
c. Supplies used for the period not debited to Supplies expense (4380-1085):		3295
d. Repair and maintenance expense not debited for 2 months (696*2/12):		116
Expenses understated by:						8874
When expenses are unstated, it means there is an over-statement of Income.
Thus,
Income overstated by $ 8,874.
Answer is Overstated by $ 8,874