PR 3-2B Adjusting entries

Selected account balances before adjustment for Intuit Realty at November 30, the end of the current year, follow:


Debits Credits Accounts Receivable $  75,000 Equipment 250,000 Accumulated Depreciation—Equipment $  12,000 Prepaid Rent 12,000 Supplies 3,170 Wages Payable — Unearned Fees 10,000 Fees Earned 400,000 Wages Expense 140,000 Rent Expense — Depreciation Expense —  Supplies Expense —








Data needed for year-end adjustments are as follows:
• Supplies on hand at November 30, $550.
• Depreciation of equipment during year, $1,675.
• Rent expired during year, $8,500.
• Wages accrued but not paid at November 30, $2,000.
• Unearned fees at November 30, $4,000.
• Unbilled fees at November 30, $5,380.

Instructions
1. Journalize the six adjusting entries required at November 30, based on the data presented.
2. What would be the effect on the income statement if the adjustments for equipment depreciation and unearned fees were omitted at the end of the year?
3. What would be the effect on the balance sheet if the adjustments for equipment depreciation and unearned fees were omitted at the end of the year? 
4. What would be the effect on the “Net increase or decrease in cash” on the statement of cash flows if the adjustments for equipment depreciation and unearned fees were omitted at the end of the year?


Answer:
1.  Nov. 30 Supplies Expense2,620
Supplies2,620
Supplies used ($3,170 – $550).
30 Depreciation Expense1,675         
Accumulated Depreciation—Equipment 1,675         
Depreciation for year.
30 Rent Expense8,500         
Prepaid Rent8,500         
Rent expired.
30 Wages Expense2,000         
Wages Payable2,000         
Accrued wages.
30 Unearned Fees6,000
Fees Earned6,000
Fees earned ($10,000 – $4,000).
30 Accounts Receivable5,380         
Fees Earned5,380         
Accrued fees.
2. Fees Earned would be understated by $6,000, Depreciation Expense would 
be understated by $1,675, and net income would be understated by $4,325 
($6,000 – $1,675).
3. Accumulated Depreciation—Equipment would be understated by $1,675, total 
assets would be overstated by $1,675, Unearned Fees would be overstated by 
$6,000, total liabilities would be overstated by $6,000, owner’s equity (Owner’s
Capital) would be understated by $4,325 ($6,000 – $1,675), and total liabilities
and owner’s equity would be overstated by $1,675 ($6,000 – $4,325). 
4. There is no effect on the “Net increase or decrease in cash” on the statement 

of cash flows because adjusting entries do not affect cash.