Question

For each of the following economic events, indicate the effect that not recording the necessary adjusting entry associated with the transaction described 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,
ii. 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, you will need to determine the required journal entry.
a. On July 15, equipment costing $100,000 is purchased.
b. An investment in a long-term government bond pays interest on March 31 and September 30 of each year. (Respond from the perspective of the entity investing in the bond.)
c. On May 15, a company purchases a two-year insurance policy for $5,000. Coverage begins on July 1. (Respond from the perspective of the company buying the insur ance policy.)
d. On May 15, a company purchases a two-year insurance policy for $5,000. Coverage begins on July 1. (Respond from the perspective of the company issuing the insur ance policy.)
e. During the last week of December, employees earn $5,000 in wages. The wages won't be paid until next year. (Respond from the perspective of the company paying the wages.)


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  • CreatedFebruary 26, 2015
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