Reference no: EM132324816
Question
USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT (5) QUESTIONS:
Magic Cleaning Services has a fiscal year end of December 31st. It is in its first year of operations. As of December 31, Magic has the following unadjusted trial balance:
AccountDebitCreditCash $ 430,900
Accounts Receivable$158,000
Supplies$111,000
Equipment$120,000
Accounts Payable $ 45,900
Unearned Service Revenue $ 113,600
Common Stock $ 100,000
Retained Earnings -0-
Service Revenue $ 649,200
Wage Expense$ 48,600
Rent Expense$ 18,000
Utilities Expense$ 6,200
Administrative Expense$ 16,000
TOTALS$ 908,700$ 908,700
In addition, Magic has not yet adjusted for the following:
1. The equipment was purchased on March 1 of the current year. It has a 10-year life, 10% salvage value and Magic uses the double declining balance method for depreciation. Magic records depreciation to the nearest full month.
2. On March 1, Magic prepaid $18,000 for 12 months of rent on an office/warehouse. The original entry was recorded as Rent Expense.
3. By December 31st, 60% of the services related to the Unearned Revenues had been performed.
4. Wages of $5,700 should be accrued and are scheduled to be paid on January 2.
5. Supplies of $33,000 were still on hand at year end.
6. Based on industry averages, it is estimated that 3% of the accounts receivable will prove to be uncollectible.
Required:
To record AJE #2, Magic should do which of the following to record the correct adjustment:
Sing the information presented for Magic Cleaning Services, IF none of the (6) adjusting journal entries had been recorded, determine the effect on Total Assets.
ASSETSLIABILITIESEQUITY [BLANK_A]
(*NOTE: When recording your answer, use O for Overstated, U for Understated, or NE for No Effect. Do not space between your O/U/NE and the dollar amount of the error. Example: If your answer for the effect on Assets is Understated by $10,500, enter your answer as U10500. Do not use dollar signs or commas when recording your answer.)
Using the information presented for Magic Cleaning Services, IF none of the (6) adjusting journal entries had been recorded, determine the effect on Total Liabilities.
ASSETSLIABILITIESEQUITY [Blank_B]
(*NOTE: When recording your answer, use O for Overstated, U for Understated, or NE for No Effect. Do not space between your O/U/NE and the dollar amount of the error. Example: If your answer for the effect on Assets is Understated by $10,500, enter your answer as U10500. Do not use dollar signs or commas when recording your answer.)
Using the information presented for Magic Cleaning Services, IF none of the (6) adjusting journal entries had been recorded, determine the effect on Total EQUITY.
ASSETSLIABILITIESEQUITY [BLANK_C]
(*NOTE: When recording your answer, use O for Overstated, U for Understated, or NE for No Effect. Do not space between your O/U/NE and the dollar amount of the error. Example: If your answer for the effect on Assets is Understated by $10,500, enter your answer as U10500. Do not use dollar signs or commas when recording your answer.)