Question 1 Total Marks: 30 Adjusting entries and effect on financial statements In the first column of the schedule presented below are the condensed financial statements for ABC Motor Rentals Vehicle before adjusting entries were made. ABC MOTOR RENTALS VEHICLE Financial Statement Unadjusted Adjustment Adjusted Balance Balances Income statement $325,000 Rental revenue Expenses: General expense $48,500 Insurance expense 30,500 Interest expense 1,500 Electricity expense 20,000 Wages expense 150,000 Depreciation expense Profit $74500 Statement of changes in equity Beginning capital Add: Profit Less Drawings Ending capital $85,500 74500 50,000 $110,000 $50,500 Balance Sheet Cash at bank Account receivables Inventory Vehicles Less Accumulated depreciation 25,000 150,000 (40,000) $185,500 $25,000 Account payables Wages payable Unearned rental revenue Loan payable ABC, Capital 8,000 42,500 110,000 $185,500 ABC, Capital 110,000 $185,500 The following items were not reflected in the above statements. 1. Rental revenue earned but not collected or recorded, $2500. 2. Depreciation on vehicles not recorded, $16 500. 3. Wages earned by employees but not paid at year-end, $7600. 4. The company requires the first-day rental in advance as a deposit for making a reservation. The deposit is either deducted from the total rental charges or is forfeited. During the last week of June, deposits earned were not recorded as revenue, $1090. 1 Required (a) Prepare the necessary adjusting entries in general journal form. [15 marks] (b) Determine the effects of the adjustments on the financial statements by completing the schedule presented. [8 marks] (c) Did profit increase or decrease as a result of the adjusting entries? By how much? [2 marks] (d) What was the effect of the adjusting entries on total assets? total liabilities? total equity? [5 marks] Type your answer here: Question Total Marks: 30 Adjusting entries and effect on financial statements In the first column of the schedule presented below are the condensed financial statements for ABC Motor Rentals Vehicle before adjusting entries were made. ABC MOTOR RENTALS VEHICLE Financial Statement Unadjusted Adjustment Adjusted Balance Balances Income statement $325.000 Rental revenue Expenses: General expense $48, 500 Insurance expense 30,500 Interest expense 1.500 Electricity expense 20.000 Wages expense 150,000 Depreciation en Profil $74500 Statement of changes in equity Beginning capital Add: Profit Less Drawings Ending capital 585,500 74500 50.000 $110.000 $50.500 Balance Sheet Cash at bank Account receivables Inventory Vehicles Less Accumulated depreciation 25,000 150.000 (40.000) SINS, SO Account payables $25,000 Wages payable Uncamned rental revenue 8,000 Loan payable 42.500 ABC, Capital 110,000 S185,500 The following items were not reflected in the above statements. 1. Rental revenue carned but not collected or recorded, S2500 2. De a vehicles not recorded, S16 500 3. Wages camed by comployees but not paid at year-end, S7600. 4. The company requires the first-day rental in advance as a deposit for making a reservation The deposit is either deducted from the total rental charges or is forfeited. During the last week of June, deposits eamed were not recorded as revenue, S1090 Required (a) Prepare the necessary adjusting entries in general journal form. [15 marks (b) Determine the effects of the adjustments on the financial statements by completing the schedule presented. (8 marks) (c) Did profit increase or decrease as a result of the adjusting entries? By how much! [2 marks] (d) What was the effect of the adjusting entries on total assets total liabilities total equity? [3 marks Type your answer here
