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 required adjusting entry would result in:

i, an overstatement of assets, liabilities, owners’ equity, or net income, li. an understatement of assets, liabilities, owners’ equity, or net income, or iii. no effect on assets, liabilities, owners’ equity, or net income.

Provide explanations for your conclusions and state any assumptions you make.

Assume a December 31 year-end. To respond it’s necessary to determine the required journal entry.

a. A sports fan bought and paid for a ticket to a game in the previous year. He attended the game in the current year. (Respond from the perspective of the sports team.)

b. On July 15 a company signed an agreement with another company allowing it use of some of its proprietary materials for the next three years in exchange for an annual fee of $100,000 payable on April 1 each year, beginning next year. The contract goes into effect on September | of this year. (Respond from the perspective of the company that is receiving the fee.)

c. A company uses electricity during December. It won’t receive a bill from the utility until March of the next year. (Respond from the perspective of the company buying the electricity.)

d. On November 1 the company pays $12,000 for six months rent covering the period from November | through April 30. (Respond from the perspective of the company paying the rent.)

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Shareholders' equity Common Retained Interest Supplies Salaries Utilities shares earnings Revenue revenue expense expense expense $10,000 $12,000 $358,000 $115,000 $25,000 $10,000 $12,000 $406,000 $8,000 $12,000 $126,000 $30,000 Liabilities cont. + Shareholders' equity Unearned Interest revenue payable shares Common Retained earnings Royalty Cost of Revenue revenue goods sold expense Salaries Interest Depreciation expense expense $55,000 $50,000 $55,000 $258,000 $78,000 $55,000 $6,000 $50,000 $55,000 $258,000 $17,800 $205,000 $90,000 $6,000 $25,000