At the end of the fiscal year, the following adjusting entries were omitted: (a)

Question

At the end of the fiscal year, the following adjusting entries were omitted:

(a)

No adjusting entry was made to transfer the $1,750 of prepaid insurance from the asset account to the expense account.

(b)

No adjusting entry was made to record accrued fees of $525 for services provided to customers.

Assuming that financial statements are prepared before the errors are discovered, indicate the effect of each error, considered individually, by inserting the dollar amount in the appropriate spaces. Insert "0" if the error does not affect the item.

Error (a)

Error (b)

Over-
stated

Under-
stated

Over-
stated

Under-
stated

(1)

Assets at December 31 would be

$

$

$

$

(2)

Liabilities at Dec. 31 would be

$

$

$

$

(3)

Net income for the year would be

$

$

$

$

(4)

Owner's equity at Dec. 31 would be

$

$

$

$

(a)

No adjusting entry was made to transfer the $1,750 of prepaid insurance from the asset account to the expense account.

(b)

No adjusting entry was made to record accrued fees of $525 for services provided to customers.

Explanation / Answer

(a)

Asset overstated $1,750

Net Income (whatever the previous amount is) - $1,750

Owner's Equity (whatever the previous amount is) - $1,750

(b)

Asset understated $525

Net Income (whatever the previous amount is) + $1,750

Owner's Equity (whatever the previous amount is) + $1,750

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