Question

Exercise 3-53 (Algorithmic) Adjusting Entries Reynolds Computer Service offers data processing services to retail clothing stores. The following data have been collected to aid in the preparation of adjusting entries for Reynolds Computer Service for 2019: a. Computer equipment was purchased from IBM in 2016 at a cost of $540,000. Annual depreciation is $125,900. b. A fire insurance policy for a 2-year period beginning September 1, 2019, was purchased from Good Hands Insurance Company for $12,000 cash. The entire amount of the prepayment was debited to prepaid insurance. (Assume that the beginning balance of prepaid insurance was $0 and that there were no other debits or credits to that account during 2019.) c. Reynolds has a contract to perform the payroll accounting for Dayton's Department Stores. At the end of 2019, $5,420 of services have been performed under this contract but are unbilled. d. Reynolds rents 12 computer terminals for $67 per month per terminal from Extreme Terminals Inc. At December 31, 2019, Reynolds owes Extreme Terminals for half a month's rent on each terminal. The amount owed is unrecorded. e. Perry's Tax Service prepays rent for time on Reynolds' computer. When payments are received from Perry's Tax Service, Reynolds credits unearned rent revenue. At December 31, 2019, Reynolds has earned $1,840 for computer time used by Perry's Tax Service during December 2019.

Answer 1

		Ans 1.
		Reynolds Computer Services
Sr No	Date	Account Title	Dr $	Cr$
a	Dec31.	Depreciation Expense	125,900
		Accumulated Depreciation - Computer Equipment		125,900
b.	Dec31.	Insurance Expense	2,000
		Prepaid Insurance		2,000
c.	Dec31.	Unbilled Revenue	5,420
		Service Revenue		5,420
d.	Dec31.	Rent Expense	402
		Accrued Liability		402
e.	Dec31.	Rent Revenue		1,840
		Unearned Rent Revenue	1,840
		Ans 2.
a		If the adjusting entries are not made , the Net income and Equity will be overstated
		and assets will be overstated.
b.		If the adjusting entries are not made , the Net income and Equity will be overstated
		and assets will be overstated.
c.		If the adjusting entries are not made , the Net income and Equity will be understated
		and assets will be understated.
d.		If the adjusting entries are not made , the Net income and Equity will be overstated
		and Liabilities will be understated.
e.		If the adjusting entries are not made , the Net income and Equity will be understated
		and liabilities will be overstated.