Mastery Problem The Adjusting Process Unadjusted Financial Statements These financial statements were prepared from the unadjusted trial balance Cole Designs Inc Income Statement For the Year Ended December 31, 20Y3 Fees earned$68,200 Wages expense(44,900) Net income$23,300 Cole Designs Inc Balance Sheet December 31, 20Y3 Assets Cash$4,250 Accounts receivable32,800 Supplies3,700 Prepaid insurance3,800 Office equipment11,000 Total assets$55,550 Liabilities Unearned fees$8,900 Stockholders Equity Common stock$12,000 Retained earnings34,65046,650 Total liabilities and stockholders equity$55,550 Adjusted Financial Statements These financial statements were prepared from the adjusted trial balance Cole Designs Inc Income Statement For the Year Ended December 31, 20Y3 Fees earned$74,050 Expenses Wages expense$47,500 Supplies expense3,600 Insurance expense2,700 Depreciation expense1,300 Total expenses(55,100) Net income$18,950 Cole Designs Inc Balance Sheet December 31, 20Y3 Assets Cash$4,250 Accounts receivable33,250 Supplies100 Prepaid insurance1,100 Office equipment$11,000 Accumulated depreciationoffice equipment(1,300)9,700 Total assets$48,400 Liabilities Wages payable$2,600 Unearned fees3,500 Total liabilities$6,100 Stockholders Equity Common stock$12,000 Retained earnings30,300 42,300 Total liabilities and stockholders equity$48,400 Accounting Bases Under which basis of accounting would adjusting entries never be recorded Cash basis of accounting Which accounts would most likely not be used under the cash basis of accounting aSupplies Expense bUnearned Fees cAccounts Payable dRevenue eAccounts Receivable fCash b, c and e Matching PrincipleRevenue Recognition Under the accrual basis of accounting, many of the account balances in the ledger at the end of the accounting period are reported on the financial statements without change Some accounts require updating, though When preparing financial statements, the economic life of the business is divided into time periods The matching principle states that The expenses incurred during a period are matched with the revenue that those expenses generated Under the accrual basis of accounting, the revenue recognition principle states that Revenues are recognized when services have been performed or products have been delivered to customers Review the following selected transaction data of a business for April Keeping the matching principle in mind, indicate which of the following would be used to compute net income for the month of April aCash paid in April for expenses incurred in May bCash paid in April for expenses incurred in April cCash received in April from customers for services performed in May dExpenses incurred in April but not paid until June eServices provided to customers on account during April fCash received from cash customers for services performed in April b, d, e and f Overstated, Understated Assume that the Cole Designs Inc financial statements in the Unadjusted Financial Statements panel were prepared from the unadjusted trial balance and the financial statements in the Adjusted Financial Statements panel were prepared from the adjusted trial balance For the following financial statement items, indicate Yes or No if the item was overstated, understated or neither on the financial statements prepared using the unadjusted trial balance OverstatedUnderstatedNeither Net income Yes No No Stockholders equity Yes No No Revenues No Yes No Total assets Yes No No Total expenses No Yes No Total liabilities No No Yes Adjusting Entries Journalize the six December 31 adjusting entries for Cole Designs Inc that adjusted the accounts to arrive at the financial statements in the Adjusted Financial Statements panel If an amount box does not require an entry, leave it blank Dec 31 Select Select Select Select Dec 31 Select Select Select Select Dec 31 Select Select Select Select Dec 31 Select Select Select Select Dec 31 Select Select Select Select Dec 31 Select Select Select Select Check My Work