Adjusting Entries-Annual Adjustments Palmer Industries prepares annual financial statements and adjusts its accounts only at the end of the year. The following information is available for the year ended December 31, 2016: Required: 1. For each of the following situations, prepare the appropriate adjusting entry to be recorded on December 31, 2016. How does this entry affect the accounting equation? Indicate the effect on financial statement items by selecting "-" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement. Do not round intermediate calculations. If required, round your answers to the nearest dollar a. Palmer purchased computer equipment two years ago for $15,000. The equipment has an estimated useful life of five years and an estimated salvage value $250. Journal Balance Sheet Income Statement Stockholders' Net Description Debit Credit Assets Liabilities Equity Revenues Expenses Income b. The Office Supplies account had a balance of $3,600 on January 1, 2016. During 2016, Palmer added $17,500 to the account for purchases of office supplies during the year. Acount of the supplies on hand at the end of December 2016 indicates a balance of $1,850. Journal Balance Sheet Income Statement Stockholders Net Description Debit Credit Assets Liabilities Equity Revenues Expenses Income c. On August 1, 2016, Palmer credited a liability account, Customer Deposits, for $24,000. This sum represents an amount that a customer paid in advance and that will be recognized evenly by Palmer over a six-month period. Journal Balance Sheet Income Statement Stockholders Net Description Debit Credit Assets Liabilities Equity Revenues Expenses Income d. Palmer rented some office space on November 1, 2016, at a rate of $2,700 per month. On that date, Palmer debited Prepaid Rent for three months' rent paid in advance. Journal Balance Sheet Income Statement Stockholders' Net Description Debit Credit Assets Llabilities + Equity Revenues Expenses Income e. Palmer took out a 120-day, 9%, $200,000 note on November 1, 2016, with interest and principal to be paid at maturity. Assume a 360-day year Journal Balance Sheet Income Statement Stockholders' Net Description Debit Credit Assets Liabilities Equity Revenues Expenses Income f. Palmer operates five days per week with an average daily payroll of $500. Palmer pays its employees every Thursday, December 31, 2016, is a Saturday. Journal Balance Sheet Income Statement Stockholders' Net Description Debit Credit Assets Liabilities + Equity Revenues Expenses Income 2. Assume that Palmer's accountant forgets to record the adjusting entries on December 31, 2016. Will net income for the year be understated or overstated? By what amount? (Ignore the effect of Income taxes.)
