Harrison Fishing Charters has collected the following data for the December 31 adjusting entries: a. The company received its electric bill on December 31 for \(375 but will not pay it until January 5. (Use the Utilities Payable account.) b. Harrison purchased a three-month boat insurance policy on November 1 for \)3,600. Harrison recorded a debit to Prepaid Insurance. c. As of December 31, Harrison had earned \(1,000 of charter revenue that has not been recorded or received. d. Harrison’s fishing boat was purchased on January 1 at a cost of \)56,500. Harrison expects to use the boat for five years and that it will have a residual value of \(6,500. Determine annual depreciation assuming the straight-line depreciation method is used. e. On October 1, Harrison received \)5,000 prepayment for a deep-sea fishing charter to take place in December. As of December 31, Harrison has completed the charter. Requirements 1. Journalize the adjusting entries needed on December 31 for Harrison Fishing Charters. Assume Harrison records adjusting entries only at the end of the year. 2. If Harrison had not recorded the adjusting entries, indicate which specific category of accounts on the financial statements would be misstated and if the misstatement is overstated or understated. Use the following table as a guide:

Step by step solution

01

Calculation of Insurance Expense

Insurance expense is calculated as follows:

$\begin{array}{c}\mathbf{InsuranceExpense}\mathbf{=}\mathbf{AmountPaid}\mathbf{\times }\frac{\mathbf{NumberofMonthsExpired}}{\mathbf{TotalMonthsofInsurancePaid}}\\ \mathbf{=}\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{600}\mathbf{\times }\frac{\mathbf{2}}{\mathbf{3}}\\ \mathbf{=}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{400}\end{array}$

02

Calculation of Depreciation Expense

Depreciation expense is calculated as follows:

$\begin{array}{c}\mathbf{DepreciationExpense}\mathbf{=}\frac{\mathbf{Cost}-\mathbf{ResidualValue}}{\mathbf{UsefulLife}}\\ \mathbf{=}\frac{\mathbf{\$}\mathbf{56}\mathbf{,}\mathbf{500}-\mathbf{\$}\mathbf{6}\mathbf{,}\mathbf{500}}{\mathbf{5}}\\ \mathbf{=}\mathbf{\$}\mathbf{10}\mathbf{,}\mathbf{000}\end{array}$

Unlock Step-by-Step Solutions & Ace Your Exams!

• Full Textbook Solutions

  Get detailed explanations and key concepts

• Unlimited Al creation

  Al flashcards, explanations, exams and more...

• Ads-free access

  To over 500 millions flashcards

• Money-back guarantee

  We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!