Question
John Doe, CPA, opened his practice on January 1, 2018. John Doe, CPA follows US GAAP, and has a fiscal year that ends on December
John Doe, CPA, opened his practice on January 1, 2018. John Doe, CPA follows US GAAP, and has a fiscal year that ends on December 31, 2018. However, at the end of the fiscal year, John Doe forgot to make the adjusting entries that would be required based on the facts described below:
A. During the year, office supplies totaling $ 15,000 were purchased and debited to the account Office Supplies Expense. At the end of the December 2018, $ 2,500 of supplies were unused.
B. Johns assistant earned $ 3,000 of wages in the month of December for which she will be paid in January.
C. John completed an audit of a client in December 2018. However, he did not send the client a bill for $ 30,000 in January 2019. John recognizes revenue when an audit is completed.
Using the chart below, please indicate the effect (both direction and amount) of the failure to prepare adjusting entries on the various elements of the financial statements. If, as a result of the failure to prepare an adjusting entry, the applicable element is Too High, indicate that with a + sign. If the applicable element is Too Low, indicate that with a - sign. If the lack of preparing an adjusting entry has no effect on a particular element, put NE (No Effect) in the applicable box.
For example, if you think that not preparing an adjusting entry resulted in Assets being Overstated by $ 4,800, you would put + 4,800 in the Assets box for that line.
Item | Assets | Liabilities | Equity | Net Income |
A | ||||
B | ||||
C |
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