Course: Financial Accounting

Classifying Adjusting Entries The following accounts were taken from the unadjusted trial balance of Murray Co., a congressional lobbying firm. Indicate whether or not each account would normally require an adjusting entry. If the account normally requires an adjusting entry, use the following notation to indicate the type of adjustment: AE-Accrued Expense AR-Accrued Revenue PE-Prepaid Expense UR-Unearned Revenue To illustrate, the answer for the first account follows: Account Answer Accounts Receivable Normally requires adjustment (AR). Does not normally require adjustment. Building Cash Does not normally require adjustment. Common Stock Interest Receivable Does not normally require adjustment. Normally requires adjustment (AR). V Does not normally require adjustment. Normally requires adjustment (PE). Land Prepaid Rent Salaries Payable Normally requires adjustment (AE). Supplies Unearned Fees Normally requires adjustment (PE). Normally requires adjustment (UR). Normally requires adjustment (AE). Wages Expense Effect of Omitting Adjusting Entry At the end of October, the first month of the business year, the usual adjusting entry transferring rent earned to a revenue account from the unearned rent account was omitted. Indicate which items will be incorrectly stated, because of the error, on (A) the income statement for October and (B) the balance sheet as of October 31. Also indicate whether the items in error will be overstated or understated. a. Income Statement Rent Revenue Understated Net Income Understated b. Balance Sheet Unearned Rent Overstated Stockholders' Equity Understated