Suppose the adjustments were not made. Compute the overall overstatement or understatement of net…
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(Learning Objective 1, 3: Journalizing adjusting entries and analyzing their effects on net income; accrual versus cash basis) An accountant made the following adjustments at December 31, the end of the accounting period:
a. Prepaid insurance, beginning, $700. Payments for insurance during the period, $2,100. Prepaid insurance, ending, $800.
b. Interest revenue accrued, $900.
c. Unearned service revenue, beginning, $800. Unearned service revenue, ending, $300.
d. Depreciation, $6,200.
e. Employees’ salaries owed for 3 days of a 5-day work week; weekly payroll, $9,000.
f. Income before income tax, $20,000. Income tax rate is 40%.
Required
1. Journalize the adjusting entries.
2. Suppose the adjustments were not made. Compute the overall overstatement or understatement of net income as a result of the omission of these adjustments.