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Part A 1.On December 1, 2011, Johnson received a $45,000 payment for services to be rendered equally over a four-month period. Service revenue was credited. Assets = Liabilities + Stockholders’ Equity (0)(-) (+) DateAccount NameDebitCredit 12/31/1 1 Cash$45,00 0 Service Revenue$45,00 0 (To record cash for services provided) Service Revenue$33,75 0 Unearned Revenue$33,75 0 (To record revenue for future services)
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Impact of Adjusting Entries
Spencer Barr, Amy Collmeyer, Xi Dai, Kevin Steitz, Kathryn Young
Introduction
• Definition of adjusting entry– Deferral– Accrual
• Concepts– Revenue Recognition Principle– Matching Principle
• Impact of adjusting entry• Assignment
Part A1. On December 1, 2011, Johnson received a $45,000 payment
for services to be rendered equally over a four-month period. Service revenue was credited.
Assets = Liabilities + Stockholders’ Equity (0) (-) (+)
Date Account Name Debit Credit
12/31/11 Cash $45,000
Service Revenue $45,000
(To record cash for services provided)
Service Revenue $33,750
Unearned Revenue $33,750
(To record revenue for future services)
Part A cont.2. On December 31, 2011, the company paid a local radio
station $16,000 for 40 radio ads that were to be aired, 20 per month, throughout January and February of 2012. Prepaid advertising was debited.
Assets = Liabilities + Stockholders’ Equity (0) (0) (0)
*No adjusting journal entry!*But…
Date Account Name Debit Credit
12/31/11 Advertising Expense $8,000
Prepaid Advertising $8,000
(Paid cash for advertising)
Part A cont.
3. Employee salaries for the month of December 2011 totaling $8,400 will be paid on January 5, 2012.
Assets = Liabilities + Stockholders’ Equity (0) (+) (-)
Date Account Name Debit Credit
12/31/11 Salaries Expense $8,400
Salaries Payable $8,400
(To record accrued salaries)
Part A cont.
4. On September 31, 2011, Johnson Corp. borrowed $60,000 from a local bank. A note was signed with principal and 6% interest to be paid on September 1, 2012.
Assets + Liabilities + Stockholders’ Equity (0) (+) (-)
Date Account Name Debit Credit
12/31/11 Interest Expense $900
Interest Payable $900
(To record interest on notes payable)
Part A cont.
5. On December 31, 2011, it was determined that $8,000 of the recorded accounts receivable would prove to be uncollectible.
Assets = Liabilities + Stockholders’ Equity (-) (0) (-)
Date Account Name Debit Credit
12/31/11 Bad Debts Expense $8,000
Allowance for Doubtful Accounts $8,000
(To record estimate of uncollectible accounts)
Part B
1. Total assets on December 31, 2011
Total Assets
Overstated Understated
5) 12/31/11 Adj. 8000
12/31/11 Bal. 8000
Part B cont.
2. Total liabilities on December 31, 2011
Total LiabilitiesOverstated Understated
1) 12/31/11 Adj. 11,250
3) 12/31/11 Adj. 8,400
4) 12/31/11 Adj. 900
12/31/11 Bal. 1,950
Part B cont.
3. Net income for 2011
Net Income
Overstated Understated
3) 12/31/11 Adj. 8,400 1) 12/31/11 Adj. 11,250
4) 12/31/11 Adj. 900
5) 12/31/11 Adj. 8,000
12/31/11 Bal. 6,050
Part B cont.
4. Total retained earnings on December 31, 2011
Total Retained Earnings
Overstated Understated
3) 12/31/11 Adj. 8,400 1) 12/31/11 Adj. 11,250
4) 12/31/11 Adj. 900
5) 12/31/11 Adj. 8,000
12/31/11 Bal. 6,050
Part B cont.
5. Total stockholders’ equity on December 31, 2011
Total Stockholders’ Equity
Overstated Understated
3) 12/31/11 Adj. 8,400 1) 12/31/11 Adj. 11,250
4) 12/31/11 Adj. 900
5) 12/31/11 Adj. 8,000
12/31/11 Bal. 6,050
Conclusion
