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Chapter 3: 28E_2 (page 166)

Question :The following data at July 31, 2018, are given for RCO: a. Depreciation, \(600. b. Prepaid rent expires, \)200. c. Interest expense accrued, \(700. d. Employee salaries owed for Monday through Thursday of a five-day workweek; weekly payroll, \)8,000. Unearned revenue earned, \(1,000. f. Office supplies used, \)150. Requirements 1. Journalize the adjusting entries needed on July 31, 2018. 2. Suppose the adjustments made in Requirement 1 were not made. Compute the overall overstatement or understatement of net income as a result of the omission of these adjustments

Short Answer

Expert verified

Net income will be overstated by $7,050.

Step by step solution

01

Step-by-Step-SolutionStep1: Explanation on Adjusting Entries

Adjustries entries are used to record the accrued revenues and expenses at the end of the period.

02

Calculation of Overstatement of Net Inocme

Overstatement is calculated as follows:Overstatement=Depreciation+RentExpense+InterestExpense+SalariesExpense+SuppliesExpense-RevenueEarned=$600+$200+$700+$6,400+$150-$1,000=$7,050

Thus, overstatement equals $7,050. Overstatement=Depreciation+RentExpense+InterestExpense+SalariesExpense+SuppliesExpense-RevenueEarned=$600+$200+$700+$6,400+$150-$1,000=$7,050

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Most popular questions from this chapter

On October 1, Orlando Gold Exchange paid cash of $57,600 for computers that are expected to remain useful for three years. At the end of three years, the value of the computers is expected to be zero. Requirements 1. Calculate the amount of depreciation for the month of October using the straightline depreciation method. 2. Record the adjusting entry for depreciation on October 31. 3. Post the purchase of October 1 and the depreciation on October 31 to T-accounts for the following accounts: Computer Equipment, Accumulated Depreciation— Computer Equipment, and Depreciation Expense—Computer Equipment. Show their balances at October 31. 4. What is the computer equipment’s book value on October 31?

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