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 , 2017: Required: Activity Accounts Accumulated Depreciation-Computer Decrease, Depreciation Expense Computer Decrease x Statement(s) ! Feedback Check My Work 1) Determine activity. 1b) Investing activities are obtaining money by building up operations or purchasing investment products such as stocks, bonds and annuities. 1c) Operating activities are the sale of products and/or services, and the costs incurred to operate a business. 2) Determine financial statement accounts affected, balance sheet or income statement. Determine accounts and amount of increases/decreases. 3) Balance Sheet accounts: Assets = Liabilities + Stockholders' Equity. Income Statement accounts: Revenues - Expenses = Net Income. (Equations must stay in balance) 5) Calculate depreciable cost. Subtract salvage value from asset cost. 6) Divide depreciable cost by useful life for depreciation expense. 7) This is a deferred expense, cash paid before expense is incurred. Unexpired costs are assets. As costs expire, they become expense. e. Palmer took out a 120 -day, 9%,$210,000 note on November 1,2017 , with interest and principal to be paid at maturity, Assume a 360 -day year. Activity x Accounts Interest Payable Increase, Interest Expense Decrease X Statement(s) Balance Sheet and Income Statement Feectback Theck My Werk 1) Determine activity. 1b) Investing activities are obtaining money by building up operations or purchasing investment products such as stocks, bonds and annuities. 1c) Operating activities are the sale of products and/or services, and the costs incurred to operate a business. 2) Determine financial statement accounts affected, balance sheet or income statement. Determine accounts and amount of increases/decreases. 3) Balance Sheet accounts: Assets = Liabilities + Stockholders' Equity. Income Statement accounts: Revenues - Expenses = Net Income. (Equations must stay in balance) 4) This is an accrued liability, expense incurred before cash is paid. Cash is paid after an expense is actually incurred. Record expense as incurred. 5) Record monthly interest as incurred with interest expense and interest payable. Calculate interest = principle x rate x time (60/360). How does this entry affect the accounting equation? No En Feestback vCheck My Wrok Partially correct f. Palmer operates five days per week with an average daily payroll of $1,050. Palmer pays its employees every Thursday. December 31 , 2017, is a Sunday. Activity Accounts Statement (s) Feectsack Theck My Werk 1) Determine activity. 1b) Investing activities are obtaining money by building up operations or purchasing investment products such as stocks, bonds and annuities. 1c) Operating activities are the sale of products and/or services, and the costs incurred to operate a business. 2) Determine financial statement accounts affected, balance sheet or income statement. Determine accounts and amount of increases/decreases. 3) Balance Sheet accounts: Assets = Liabilities + Stockholders' Equity. Income Statement accounts; Revenues - Expenses = Net Income. (Equations must stay in balance) 4) This is an accrued liability, expense incurred before cash is paid. Cash is paid after an expense is actually incurred. Record expense as incurred. 5) Determine daily payroll amount. Record accrual for four days' (Friday, Monday, Tuesday, \& Wednesday) wages. How does this entry affect the accounting equation? Fectback Dheck My Wrok 2. Assume that Palmer's accountant forgets to record the adjustments on December 31,2017 . Will net income for the year be understated or overstated? By what amount? (Ignore the effect of income taxes.) 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 , 2017: Required: Activity Accounts Accumulated Depreciation-Computer Decrease, Depreciation Expense Computer Decrease x Statement(s) ! Feedback Check My Work 1) Determine activity. 1b) Investing activities are obtaining money by building up operations or purchasing investment products such as stocks, bonds and annuities. 1c) Operating activities are the sale of products and/or services, and the costs incurred to operate a business. 2) Determine financial statement accounts affected, balance sheet or income statement. Determine accounts and amount of increases/decreases. 3) Balance Sheet accounts: Assets = Liabilities + Stockholders' Equity. Income Statement accounts: Revenues - Expenses = Net Income. (Equations must stay in balance) 5) Calculate depreciable cost. Subtract salvage value from asset cost. 6) Divide depreciable cost by useful life for depreciation expense. 7) This is a deferred expense, cash paid before expense is incurred. Unexpired costs are assets. As costs expire, they become expense. e. Palmer took out a 120 -day, 9%,$210,000 note on November 1,2017 , with interest and principal to be paid at maturity, Assume a 360 -day year. Activity x Accounts Interest Payable Increase, Interest Expense Decrease X Statement(s) Balance Sheet and Income Statement Feectback Theck My Werk 1) Determine activity. 1b) Investing activities are obtaining money by building up operations or purchasing investment products such as stocks, bonds and annuities. 1c) Operating activities are the sale of products and/or services, and the costs incurred to operate a business. 2) Determine financial statement accounts affected, balance sheet or income statement. Determine accounts and amount of increases/decreases. 3) Balance Sheet accounts: Assets = Liabilities + Stockholders' Equity. Income Statement accounts: Revenues - Expenses = Net Income. (Equations must stay in balance) 4) This is an accrued liability, expense incurred before cash is paid. Cash is paid after an expense is actually incurred. Record expense as incurred. 5) Record monthly interest as incurred with interest expense and interest payable. Calculate interest = principle x rate x time (60/360). How does this entry affect the accounting equation? No En Feestback vCheck My Wrok Partially correct f. Palmer operates five days per week with an average daily payroll of $1,050. Palmer pays its employees every Thursday. December 31 , 2017, is a Sunday. Activity Accounts Statement (s) Feectsack Theck My Werk 1) Determine activity. 1b) Investing activities are obtaining money by building up operations or purchasing investment products such as stocks, bonds and annuities. 1c) Operating activities are the sale of products and/or services, and the costs incurred to operate a business. 2) Determine financial statement accounts affected, balance sheet or income statement. Determine accounts and amount of increases/decreases. 3) Balance Sheet accounts: Assets = Liabilities + Stockholders' Equity. Income Statement accounts; Revenues - Expenses = Net Income. (Equations must stay in balance) 4) This is an accrued liability, expense incurred before cash is paid. Cash is paid after an expense is actually incurred. Record expense as incurred. 5) Determine daily payroll amount. Record accrual for four days' (Friday, Monday, Tuesday, \& Wednesday) wages. How does this entry affect the accounting equation? Fectback Dheck My Wrok 2. Assume that Palmer's accountant forgets to record the adjustments on December 31,2017 . Will net income for the year be understated or overstated? By what amount? (Ignore the effect of income taxes.)