Donald Fishing Charters has collected the following data for the December 31 adjusting entries:

a. The company received its electric bill on December 20 for $ 400 but will not pay it until January 5. (Use the Utilities Payable account.)

b. Donald purchased a six-month boat insurance policy on November 1 for $ 1,800. Donald recorded a debit to Prepaid Insurance.

c. As of December 31, Donald had earned $ 2,300 of charter revenue that has not been recorded or received.

d. Donald’s fishing boat was purchased on January 1 at a cost of $ 50,000. Donald expects to use the boat for five years and that it will have a residual value of $ 5,000. Determine annual depreciation assuming the straight- line depreciation method is used.

e. On October 1, Donald received $ 6,000 prepayment for a deep-sea fishing charter that will take place in December. As of December 31, Donald has completed the charter.

Requirements

1. Journalize the adjusting entries needed on December 31 for Donald Fishing Charters. Assume Donald records adjusting entries only at the end of the year.

2. If Donald 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 aguide.

Transcribed Image Text:

Adjusing Entry Specific Category of Accounts on the Balance Sheet Over / Understated Spedfic Category of Accounts on the Over Income Statement Understated