ADJUSTING ENTRIES Allentown Services, Inc., is preparing adjusting entries for the year ending December 31, 2009. The following data are available:

a. Interest is owed at December 31, 2009, on a six-month, 9 percent note. Allentown borrowed $100,000 from NBD on September 1, 2009.

b. Allentown provides daily building maintenance services to Mack Trucks for a quarterly fee of $2,400, payable on the fifteenth of the month following the end of each quarter. No entries have been made for the services provided to Mack Trucks during the quarter ended December 31, and the related bill will not be sent until January 15, 2010.

c. At the beginning of 2009, the cost of office supplies on hand was $1,220. During 2009, office supplies with a total cost of $6,480 were purchased from Office Depot and debited to office supplies inventory. On December 31, 2009, Allentown determined the cost of office supplies on hand to be $970.

d. On September 23, 2009, Allentown received a $6,300 payment from Bethlehem Steel for nine months of maintenance services beginning on October 1, 2009. The entire amount was credited to unearned revenue when received.

Required:

. Prepare the appropriate adjusting entries at December 31, 2009.

. What would be the effect on the balance sheet and the income statement if the accountant failed to make the above adjusting entries?

Exercise