(Learning Objective 1, 3: Journalizing adjusting entries and analyzing their effects on net…

(Learning Objective 1, 3: Journalizing adjusting entries and analyzing their effects on net income; accrual versus cash basis) An accountant made the following adjustments at December 31, the end of the accounting period:

a. Prepaid insurance, beginning, $700. Payments for insurance during the period, $2,100. Prepaid insurance, ending, $800.

b. Interest revenue accrued, $900.

c. Unearned service revenue, beginning, $800. Unearned service revenue, ending, $300.

d. Depreciation, $6,200.

e. Employees’ salaries owed for 3 days of a 5-day work week; weekly payroll, $9,000.

f. Income before income tax, $20,000. Income tax rate is 40%.

❙ Required

1. Journalize the adjusting entries. 

2. Suppose the adjustments were not made. Compute the overall overstatement or understatement of net income as a result of the omission of these adjustments.

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