Question

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: a. On July 1, 2018, a two-year insurance premium on equipment in the amount of $480 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 $250 were still on hand. c. On December 31, 2018, YY's Garage completed repairs on one of Brokeback's trucks at a cost of $750. 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 $7,700 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 $2,500, has not been recorded. As of December 31, the company owes interest of $450 on a bank loan taken out op October 1, 2018. The interest will be paid when the loan is repaid on September 30, 2019. No interest has been recorded yet. g. Assume the income after the preceding adjustments but before income taxes was $25,000. 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 1

Dr Cr. 9) 120 Journal Entries Insurance All Dr Prepaid Insurance Acar To Bank Alc (Two Year Insurance Paid) 360 480 b) closing Stock Alle Dr. 750 750 To Proding All 750 c) Outstanding Expense sic Do To Repair Alc (Repair Cost not yet poid) 750 d) 7400 Revenue Alc Dr To Bills Receivable wic (Contract completed but payment 1700 not yet collected DEN

2,500 Depuiciation sic Dr 2,500 To Vehicle Alc (Depuiciation on vehicle not recorded ) Interest J Dr Outstanding dette To interest on Loan AIC ( (Interest on loon will be paid with loon) uso 450 wewe the -2 Y the adjustments not made then only difference would be of $750 and deducted from credit si $25,000 so income $ 24,250 it will now ώ now will be