Asked by Ellen Sypolt on Jul 14, 2024
Verified
The unadjusted trial balance and the adjustment data for Porter Business Institute are shown below along with adjusting entry information.What is the impact of the adjusting entries on the balance sheet? Show the calculation for total assets,total liabilities,and equity without the adjustments; show the calculation for total assets,total liabilities,and equity with the adjustments.Which one provides the most accurate presentation of the balance sheet?
Additional information items:
a.The Prepaid Insurance account consists of a payment for a 1 year policy.An analysis of the insurance invoice indicates that one half of the policy has expired by the end of the December 31 year-end.
b.A cash payment for space sublet for 8 months was received on July 1 and was credited to Unearned Rent.
c.Accrued interest expense on the note payable of $1,000 has been incurred but not paid.
Adjusting Entries
Journal entries made at the end of an accounting period to update account balances before the preparation of financial statements, ensuring records adhere to the accrual basis of accounting.
Balance Sheet
A declaration that provides a snapshot of a company's assets, financial obligations, and shareholder equity at a designated time.
Total Assets
The sum of all assets owned by a business, representing its total resources.
- Assess and explain the consequences of correction entries on net income and the veracity of financial reports.
- Understand the process and significance of preparing income statements and balance sheets.
Verified Answer
The accrual basis gives the most accurate balance sheet presentation.Prepaid insurance has been reduced to show the portion related to future periods.Liabilities now show the correct balance in Unearned Rent and Interest Payable.Equity increased because of the increase in Net Income.
Learning Objectives
- Assess and explain the consequences of correction entries on net income and the veracity of financial reports.
- Understand the process and significance of preparing income statements and balance sheets.
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