Answered Essay: A company has a fiscal year-end of December 31: (1) on October 1, $20,000 was paid for a one-year fire insurance policy; (2) on June

A company has a fiscal year-end of December 31: (1) on October 1, $20,000 was paid for a one-year fire insurance policy; (2) on June 30 the company lent its chief financial officer $18,000; principal and interest at 8% are due in one year; and (3) equipment costing $68,000 was purchased at the beginning of the year for cash. Depreciation on the equipment is $13,600 per year.

If the adjusting entries were not recorded, would net income be higher or lower and by how much?

Expert Answer

 

Answer.

On October 1, $20,000 was paid for a one-year fire insurance policy:

$20,000 Insurance Expense was paid in advance.
Monthly Insurance Expense = $20,000 ÷ 12 = $1,666.67
Adjusting entries would be for 3 months = $1,666.67 × 3 = $5,000

$5,000 will be recorded in Income Statement as Expense which will decrease Net Income.

On June 30, the company lent its chief financial officer $18,000; principal and interest at 8% are due in one year; and

Monthly Interest = ($18,000 × 8%) ÷ 12 = $120
Adjusting entries would be $120 × 6 = $720

Interest received for 6 month period will be recorded in Income Statement as Revenue and will increase Net Income.

Equipment costing $68,000 was purchased at the beginning of the year for cash. Depreciation on the equipment is $13,600 per year.

Adjusting entry = $13,600

Depreciation for the year will be recorded in Income Statement as Expense and will decrease Net Income.

The effect of these adjusting entries on Net Income = $720 – ($5,000 + $13,600)
The effect of these adjusting entries on Net Income = -$17,880

So, If these entries are not recorded then net income will be higher by $17,880.

Buy Essay
Calculate your paper price
Pages (550 words)
Approximate price: -

Help Me Write My Essay - Reasons:

Best Online Essay Writing Service

We strive to give our customers the best online essay writing experience. We Make sure essays are submitted on time and all the instructions are followed.

Our Writers are Experienced and Professional

Our essay writing service is founded on professional writers who are on stand by to help you any time.

Free Revision Fo all Essays

Sometimes you may require our writers to add on a point to make your essay as customised as possible, we will give you unlimited times to do this. And we will do it for free.

Timely Essay(s)

We understand the frustrations that comes with late essays and our writers are extra careful to not violate this term. Our support team is always engauging our writers to help you have your essay ahead of time.

Customised Essays &100% Confidential

Our Online writing Service has zero torelance for plagiarised papers. We have plagiarism checking tool that generate plagiarism reports just to make sure you are satisfied.

24/7 Customer Support

Our agents are ready to help you around the clock. Please feel free to reach out and enquire about anything.

Try it now!

Calculate the price of your order

Total price:
$0.00

How it works?

Follow these simple steps to get your paper done

Place your order

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Receive the final file

Once your paper is ready, we will email it to you.

HOW OUR ONLINE ESSAY WRITING SERVICE WORKS

Let us write that nagging essay.

STEP 1

Submit Your Essay/Homework Instructions

By clicking on the "PLACE ORDER" button, tell us your requires. Be precise for an accurate customised essay. You may also upload any reading materials where applicable.

STEP 2

Pick A & Writer

Our ordering form will provide you with a list of writers and their feedbacks. At step 2, its time select a writer. Our online agents are on stand by to help you just in case.

STEP 3

Editing (OUR PART)

At this stage, our editor will go through your essay and make sure your writer did meet all the instructions.

STEP 4

Receive your Paper

After Editing, your paper will be sent to you via email.

× How can I help you?