Instructions Reynolds Computer Service offers data processing services to retail clothing stores. The following data have been collected to aid in the preparation of adjusting entries for Reynolds Computer Service for 2019: a. Computer equipment was purchased from IBM in 2016 at a cost of $560,000. Annual depreciation is $132,500. b. A fire insurance policy for a 2-year period beginning September 1, 2019, was purchased from Good Hands Insurance Company for $13,680 cash. The entire amount of the prepayment was debited to prepaid insurance. (Assume that the beginning balance of prepaid insurance was $0 and that there were no other debits or credits to that account during 2019.) c. Reynolds has a contract to perform the payroll accounting for Dayton's Department Stores. At the end of 2019, $5,400 of services have been performed under this contract but are unbilled. d. Reynolds rents 15 computer terminals for $64 per month per terminal from Extreme Terminals Inc. At December 31, 2019, Reynolds owes Extreme Terminals for half a month's rent on each terminal. The amount owed is unrecorded. e. Perry's Tax Service prepays rent for time on Reynolds' computer. When payments are received from Perry's Tax Service, Reynolds credits unearned rent revenue. At December 31, 2019, Reynolds has earned $1,750 for computer time used by Perry's Tax Service during December 2019. Required: 1. Prepare adjusting entries for each of the transactions. 2. Conceptual Connection: What would be the effect on the balance sheet and the income statement if the accountant failed to make the above adjusting entries? Chart of Accounts General Ledger ASSETS REVENUE 111 Cash 411 Sales Revenue 412 Service Revenue 121 Accounts Receivable 122 Notes Receivable 413 Interest Income 123 Supplies 414 Rent Revenue 124 Prepaid Insurance 125 Prepaid Rent EXPENSES 126 Inventory 511 Cost of Goods Sold 127 Interest Receivable 512 Advertising Expense 130 Investment 513 Supplies Expense 131 Land 514 Utilities Expense 134 Furniture 515 Rent Expense 139 Accumulated Depreciation 516 Insurance Expense 521 Wages Expense LIABILITIES 531 Interest Expense 532 Depreciation Expense 211 Accounts Payable 213 Income Taxes Payable 541 Income Taxes Expense Chart of Accounts LIABILITIES 211 Accounts Payable 213 Income Taxes Payable 214 Wages Payable 215 Utilities Payable 216 Insurance Payable 217 Rent Payable 221 Interest Payable 222 Unearned Service Revenue 223 Unearned Rent Revenue 231 Bonds Payable 232 Notes Payable (Long-term) EQUITY 311 Common Stock 321 Retained Earnings, 12/31/18 331 Dividends 350 Income Summary General Journal PAGE 1 IMPACT ON FINANCIAL STATEMENTS GENERAL JOURNAL BALANCE SHEET INCOME STATEMENT DATE POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY REVENUE EXPENSES NET INCOME ACCOUNT TITLE Adjusting Entries Final Question 2. Conceptual Connection: What would be the effect on the balance sheet and the income statement if the accountant failed to make the above adjusting entries? a. Net income and stockholders' equity would and assets would b. Net income and stockholders' equity would and assets would c. Net income and stockholders' equity would and assets would d. Net income and stockholders' equity would and liabilities would e. Net income and stockholders' equity would and liabilities would
