Compute the increase or decrease in profit

Assignment Help Financial Accounting

Reference no: EM131643305

Assessment 1

I. You are employed to investigate whether any accrual entries are needed in the business of Safe Security Services (SSS). On completion of your investigation on 30 June, you have discovered that the following items need attention:

1. Employee salaries owed but not recorded, $9200.
2. Prepaid insurance expired, $900.
3. Interest revenue accrued but not recorded, $10 000.
4. Unearned security services revenue now earned, $4600.
5. Depreciation not recorded, $16 000.

Required

A. Prepare the adjusting entries for items 1 to 5 at 30 June, the end of the accounting period.

B. Suppose the adjusting entries in requirement A were not made. Calculate the total overstatement or understatement of profit as a result of the omission of these adjustments.

II. Selected accounts of Rikki's Real Estate are shown below at 30 June of the current year before any adjusting entries have been made.

                                Debit          Credit
Prepaid Insurance        $ 1200
Supplies                              550
Office Equipment                  6 000
Unearned Rental Fees                           $ 4200
Salaries Expense          29 800
Rental Fees Revenue                            13 200

Additional information

(a) Prepaid insurance represents premiums for 1 year paid on 1 June.
(b) Supplies of $200 were on hand at 30 June.
(c) Office equipment, which had been purchased on 1 April, is expected to last 5 years.
(d) Rikki collected 4 months' rent in advance on 1 June from a number of tenants.
(e) Accrued salaries not recorded as at 30 June are $3500.

Required

Record in the general journal the necessary adjusting entries on 30 June.

III. Subiaco Rental Services ends its financial year on 30 June.

Required

A. Using the following information, make the necessary adjusting entries.

1. Rent of office premises of $609 for the 3-month period ending 31 July is due to be paid in July.

2. The telephone expense of $147 is unpaid and unrecorded at 30 June.

3. The Supplies account had a $287 debit balance on 1 July of the preceding year. Supplies costing $1372 were purchased during the year, and $252 of supplies are on hand as at 30 June.

4. Subiaco Rental Services borrowed $13300 from ABC Bank on 15 February. The principal, plus 8% interest, is payable on 15 August. Accrued interest on 30 June has not been recorded.

5. Annual depreciation on equipment is estimated to be $6580. The balance in Accumulated Depreciation at the beginning of the financial year was $9870.

6. The office assistant earns $280 a day. He will be paid in July for the 5-day period ending 3 July.

7. On 1 June, Subiaco Rental Services received 2 months rent in advance, totalling $896. Thiswas recorded by a credit to Unearned Rental Revenue.

8. Subiaco Rental Services purchased a 6-month insurance policy for $567 on 1 November. A 24-month policy was purchased on 30 April for $1272. Both purchases were recorded by debiting Prepaid Insurance.

B. As you know, all adjusting entries affect one balance sheet account and one income statement account. Based on your adjusting entries prepared in requirement A:

1. calculate the increase or decrease in profit
2. calculate the increase or decrease in total assets, total liabilities and total equity.

Reference no: EM131643305

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