Part A: Bears, Inc. had several business transactions this month. For the following transactions, indicate the type of account and the effect on the accounting equation (be sure to include if a debit or credit is involved).

Example: Paid $100 for office supplies.

Solution: Office supplies are assets which increased by $100 with a debit. Cash is an asset which decreased by $100 with a credit.

1. Purchased $2,700 of equipment on credit.
2. Collected $3,500 from an outstanding account receivable.
3. Paid $600 on an account payable.
4. Billed a client $1,300 for services provided.

PART B: In recording adjusting entries, BEARS, Inc. failed to record the adjusting entries in the situations listed below. Determine the impact on the income statement and balance sheet by identifying whether assets, liabilities, equity, revenue, and expenses are either overstated or understated.

Example: Depreciation of $900.

Example Solution: Because Bears failed to make the adjusting entry, Bears has understated expenses on the income statement because Bears failed to record the depreciation. They overstated assets on the balance sheet because Bears failed to record the accumulated depreciation. Additionally, equity will be overstated on the balance sheet. This is because net income is overstated. Net income is overstated because Bears failed to record the depreciation expense.

5. Accrued revenues, $3,400.
6. Office supplies on hand, $200 but reported as $700 on the unadjusted trial balance.
7. Unearned revenue that has been earned, $500.