For the Year Ending December 31, Orion Inc., mistakenly omitted Adjusting Entries, so Preparing Adjusting Entries first and then show the effect on Revenue, Expenses and Net Income:-
Adjusting Entries
Date | Accounts Title | Debit | Credit |
---|---|---|---|
December 31 (1) | Supplies Expense | $1,500 | |
Supplies | $1,500 | ||
December 31 (2) | Unearned Revenue | $4,200 | |
Revenue | $4,200 | ||
December 31 (3) | Insurance Expense | $5,000 | |
Prepaid Insurance | $5,000 | ||
Effect on Expenses:- Supplies Expense of $1,500 and Insurance Expense of $5,000 mistakenly omitted, these Expenses not include in Company's Trial Balance. So the Expenses are understated by $6,500 ($1,500+$5,000).
Effect on Revenue:- An Increase in Revenue of $4,200 not shown ,so the Revenues are understated by $4,200.
Effect on Net Income:- Net Income is a difference between Revenues and Expenses.
Net Income=(Revenues - Expenses)
=($4,200-$6,500)
=-$2,300
This amount of difference between Revenues and Expenses not include in Net Income and amount ($2,300) Decrease the Net Income,So Net Income are Overstated by $2,300.
(2) Calculations for Ending balance of Retained Earnings:-
Before Calculating the Ending Balance of Retained Earnings, we need to calculate Net Income, so we prepare Income Statement and the prepare Statement of Retained Earnings:-
Income Statement
December 31
Accounts | Amount | Amount |
---|---|---|
Fees Earned | $6,778 | |
Less:- Expenses | ||
Wages Expense | $2,857 | |
Rent Expense | 827 | |
Utilities Expense | 311 | |
Depreciation Expense | 216 | |
Miscellaneous Expense | 101 | |
Total Expenses | $(4,312) | |
Net Income | $2,466 | |
Statement of Retained Earnings
December 31
Accounts | Amount |
---|---|
Retained Earnings, Beginning | $10,968 |
Add:- Net Income | 2,466 |
$13,434 | |
Less:- Dividends | (608) |
Retained Earnings, Ending | $12,826 |
Ending Balance of Retained Earnings is $12,826, so the Answer is Option (c) .
Calculator For the year ending December 31, Orion, Inc. mistakenly omitted adjusting entries for (1) $1,500...
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