(Evaluating the effect that not recording adjusting entries has on net income, LO 4, 5) For each of the following economic events, indicate the effect that not recording the necessary adjusting entry at year end would have on the financial statements. Indicate whether not recording the adjusting entry would result in (i) an overstatement of assets, liabilities, owners’ equity, or net income (they are higher than they would be otherwise), (ii) an understatement of assets, liabilities, owners’ equity, or net income (they are lower than they would be otherwise), or (iii) no effect on assets, liabilities, owners’ equity, or net income. Provide an explanation for your conclusion and state any assumptions you make. Assume a December 31 year end.

For this question it is necessary for you to determine what is the adjusting entry required.

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Shareholders' Equity Capital Stock expense Retained Services Supplies Rent Wage Amortization Earnings Revenue Expense Expense expense $10,000 $12,000 $58,000 $5,000 $16,000 $10,000 $12,000 $66,000 $12,000 $7,000 $20,000 $8,000 Liabilities (cont'd) + Shareholders' Equity Unearned Interest Capital Retained Revenue Payable Stock Earnings Revenue Cost of Goods Sold Insurance Expense Salaries Interest Amortization Expense Expense Expense $55,000 $50,000 $55,000 $258,000 $78,000 $55,000 $6,000 $50,000 $55,000 $258,000 $180,000 $10,000 $90,000 $6,000 $25,000