Question

1. Prepare the Adjusting Journal Entries (AJEs) that should be made on December 31, 2015, the end of the accounting year, for each of the following independent situations. If no AJE is required, indicate “none.” Assume the firm only makes AJEs at the end of the accounting year. . In addition, identify the impact, if any, on the financial statements if you failed to make the appropriate AJE. Indicate NE for no impact, U for understatement, and O for overstatement. Use the following format to indicate the impact of failing to make the required entry for each situation.

Assets                Liabilities Expenses            Revenues          Net Income        Owners’ Equity

XX                     XX            XX            XX            XX            XX           

1. 1. On April 1, 2015, the firm collected $12,000 of rent for 12 months in advance. The journal entry to record the receipt included a credit to a balance sheet account.
2. 2. On July 1, 2015, the firm collected $12,000 of rent for 12 months in advance. The journal entry to record the receipt included a credit to an income statement account.
3. 3. On March 31, 2015, the firm collected $3,000 of rent for 3 months in advance. The journal entry to record the receipt included a credit to a temporary account.
4. 4. On February 1, 2015, the firm collected $5,000 of rent for 5 months in advance. The journal entry to record the receipt included a credit to a permanent account.
5. 5. On March 1, 2015, the firm paid $6,000 for a 6-month insurance policy. The journal entry to record the payment included a debit to a temporary account.

1. 6. On September 30, 2015, the firm paid $6,000 for a 6-month rental of a machine. The journal entry to record the payment included a debit to a balance sheet account.
2. 7. On April 1, 2015, the firm paid $6,000 for a 6-month rental of a machine. The journal entry to record the payment included a debit to an income statement account.
3. 8. On October 31, 2015, the firm paid $5,000 for a 5-month rental of a machine. The journal entry to record the payment included a debit to a permanent account.

Answer 1

sl.no Entries Already made Cash A/c Dr Adjusting entries 12,000 Rent Received in Advance (Liability) Dr (April to December 1000 9) Rental Income A/c Dr a. 9,000 To Rent received in Advance 12,000 To Rental Income A/c 9,000 (Liabilty created on rent received in advance) 9,000 To P&l A/c 9,000 Cash A/c Dr 12,000 Rental Income A/c Dr 6,000 To Rental Income A/c Being Advance received considered as income) 12,000To Rent Received in Advance (Liability) 6,000 (Being Advance rent for Jan 16 to June 16 (1000 6) recorded) P&I A/c Dr (Being Excess income recorded reversed) "none" no adjustment entries Rental Income A/c Dr Rental Income A/c Dr 12,000 6,000 To P&l A/ Being income transferred to P&I A/c 12,000 To Rental Income A/c 6,000 C. Cash A/c Dr 3,000 To Rent income A/c Being Rent advance received recorded 3,000 3,000 To P&IA/ Being income transferred to income statement 3,000 Cash A/c Dr 5,000 Rent Received in Advance (Liability) Dr 5,000 To Rent received in advance A/c Being Rent advance received recorded ,000 To Rental Income A/c ,000 Rental Income A/c Dr 5,000 5,000 To P&IA/c "none" no adjustment entries P&I A/c Dr Being expenses transferred to income statement e. Insurance Premium A/c Dr 6,000 To Cash A/c Being premium paid recorded for Mar- Aug 6,000 6,000 To Insurance premiun A/c 6,000