The information necessary for preparing the 2013 year-end adjusting entries for
ID: 2492247 • Letter: T
Question
The information necessary for preparing the 2013 year-end adjusting entries for Vito’s Pizza Parlor appears below. Vito’s fiscal year-end is December 31. a. On July 1, 2013, purchased $17,000 of IBM Corporation bonds at face value. The bonds pay interest twice a year on January 1 and July 1. The annual interest rate is 10%. b. Vito’s depreciable equipment has a cost of $6,400, a four-year life, and no salvage value. The equipment was purchased in 2011. The straight-line depreciation method is used. c. On November 1, 2013, the bar area was leased to Jack Donaldson for one year. Vito’s received $7,200 representing the first six months’ rent and credited unearned rent revenue. d. On April 1, 2013, the company paid $1,920 for a two-year fire and liability insurance policy and debited insurance expense. e. On October 1, 2013, the company borrowed $16,000 from a local bank and signed a note. Principal and interest at 10% will be paid on September 30, 2014. f. At year-end, there is a $1,450 debit balance in the supplies (asset) account. Only $660 of supplies remain on hand. Required: 1. Prepare the necessary adjusting journal entries at December 31, 2013. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field.) 2. Determine the amount by which net income would be misstated if Vito's failed to make these adjusting entries. (Ignore income tax expense.) (Amounts to be deducted should be indicated by a minus sign. Do not round intermediate calculations.)
Explanation / Answer
Vito's pizza Parlour Adjustment entries Dec 31.2013. Effect on et income Sr No Account title Dr $ Cr $ a Interest Expense 850 (850) Interest Payable 850 ( accrual of interest on Bond for 180 days @10%) b Accumulated Depreciation-Equipment 1,600 Depreciation Expense 1,600 (1,600) ( recording depreciation for the year for equipment) c Unearned Revenue 2,400 Rent Revenue 2,400 2,400 d Insurance Expense 1,200 1,200 Prepaid Insurance 1,200 ( Crediting 15 months prepaid insurance earlier debited to insurance expense) e Interest Expense 404 (404) Interest Payable 404 ( accrual of 91 days interest @10% on note payable) f Supplies Expense 790 (790) Supplies 790 ( recording the supplies expense leaving $660 balance in supplies asset a/c) Total of effects in Income statement (44) So net income increases by $44 due to adjustments In the absence of adjustments , net income would have been lower by $44
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