Question

On December 31, 2016, Krug Company reported total liabilities of $180,000 prior to the following adjusting entries:

Depreciation expense: $40,000;

Accrued sales revenue: $38,000;

Accrued expenses: $26,000;

Used insurance: $6,000; the insurance was initially recorded as prepaid.

Rent revenue earned: $4,000; the rent was initially prepaid by the tenant and credited to unearned rent revenue.

How much are Krug's total liabilities after the adjusting entries?

Answer 1

Ans:

Total liabilities prior to the adjusting entries: = $180,000

Depreciation expense = No effect on liability

Accrued service revenues = No effect on liability

Accrued expenses: $26,000 - Increases liability

used insurance which was initially recorded as prepaid. = No effect on liability

Rent revenue earned which was initially prepaid by the tenant and credited to unearned rent revenue: $4,000 - reduces liability

Krug Company total liabilities after adjusting entries =A) $202,000. (180,000 + 26,000 - 4000)