Homework Answers
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) .
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