Question

1. Willycom Company borrowed $80,000 from China Bank on September 2, 2012. Willycom signed a 180 day, 12% note payable to China Bank. On December 31, 2012, part of the adjusting entry should include:

1. Debit Interest Expense for $3,200.
2. Credit Interest Payable for $4,800.
3. Debit Interest Expense for $9,600.
4. Credit Note Payable for $80,000.
5. None of the above.

Use the following information for the next two questions

On December 31, 2012, Lauren Company prepared year-end financial statements.  Lauren failed to record any of the following necessary adjusting entries.  What would be the effect of failing to record each of the following necessary, but unrecorded, adjusting journal entries on Lauren Company’s year-end financial statements?

1. Lauren Co. failed to correctly record the amount of insurance that had expired at the end of the year; it had originally recorded the cost of the insurance by a debit to Prepaid Insurance.

1. Total assets are understated.
2. Total liabilities are overstated.
3. Total owners’ equity is overstated.          
4. Net income is understated.
5. None of the above

2. Lauren Co. failed to correctly record the amounts owed to them by its customers for services performed but not yet paid to Lauren Co. by the end of the year.

1. Total assets are overstated.
2. Total liabilities are understated.
3. Total owners’ equity is overstated.          
4. Net income is overstated.
5. None of the above

Answer 1

1) Adjusting entry

Date	account and explanation	Debit	Credit
	Interest expense (80000*12%*120/360)	3200
	Interest payable		3200

So answer is a) Debit Interest Expense for $3,200

2) If forget prepaid insurance adjusted that means assets are overstated and equity is also over stated

So answer is c) Total owners’ equity is overstated.      

3) Customer service provided but not recorded it means assets and equity are under stated

So answer is e) None of them