Answer :
Explanation:
The adjusting entries are shown below:
a. Insurance expense A/c Dr $210
To Prepaid insurance A/c $210
(Being the insurance expense is recorded)
The computation is shown below:
= $840 × 6 months ÷ 24 months
= $210
b. Supplies expense A/c Dr $600
To Supplies A/c $600
(Being supplies account is adjusted)
The supplies expense is computed below
= Supplies unadjusted balance - supplies on hand
= $1,000 - $400
= $600
c. Repairs and Maintenance expense A/c Dr $900
To Accrued Liabilities A/c $900
(Being the repairs and maintenance expense is recorded)
d. Accounts Receivable A/c Dr $8,450
To Service revenue A/c $8,450
(Being the contract completion is recorded)
e. Depreciation expense A/c Dr $3,250
To Accumulated depreciation A/c 3,250
(Being the depreciation expense is recorded)
f. Interest expense A/c Dr $600
To Interest payable A/c $600
(Being the interest expense is recorded)
g. Income tax expense A/c Dr $8,000
To Income tax payable A/c $8,000
(Being the income tax expense is recorded)
It is computed below:
= $40,000 × 20%
= $8,000
2. Now the net income overstated or understated is
= Expenses - revenues
where,
Expenses = $210 + $600 + $900 + $3,250 +$600 + $8,000
= $13,560
And, the revenues is $8,450
So, the net income overstated is
= $13,560 - $8,450
= $5,110
1. The adjusting journal entry required for each item at December 31, 2018 are:
Brokeback Towing Company adjusting journal entry
• Dr Insurance Expense $144
($576/24*6)
Cr Prepaid Insurance $144
• Supplies Expense $710
($1,000-$290)
Cr Supplies $710
• Dr Repairs and Maintenance Expense $790
Cr Accounts Payable $790
• Dr Accounts Receivable $7,900
Cr Service Revenue $7,900
• Dr Expense $2,700
Cr Accumulated Depreciation—Equipment $2,700
• Dr Interest Expense $490
Cr Interest Payable $490
• Income Tax Expense $7,250
($29,000*25%)
Cr Income Tax Payable $7,250
2. Brokeback's net income
First step is to calculate the Unadjusted expenses
Unadjusted expenses =$144+$710+$790+$2,700+$490+$7,250
Unadjusted expenses= $12,084
Second step is to calculate the Net income
Net income =$12,084-$7,900
Net income = $4,184 ( Overstated)
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