Reference no: EM133081422

Question - Waldo's Pizza Parlor operates on 25th Street in downtown Ogden. The company's fiscal year-end is December 31.

1. On July 1, 2021, the company purchased $19,500 of Apple Corporation bonds at face value. The bonds pay interest twice a year on January 1 and July 1. The annual interest rate is 10%.

2. Waldo's depreciable equipment has a cost of $6,600, a six-year life, and no salvage value. The equipment was purchased in 2019. The straight-line depreciation method is used.

3. On November 1, 2021, the bar area was leased to a bartender for one year. Waldo received $8,700 representing the first six months' rent and credited deferred rent revenue.

4. On April 1, 2021, the company paid $1,320 for a two-year fire and liability insurance policy and debited insurance expense.

5. On October 1, 2021, the company borrowed $11,000 from a local bank and signed a note. Principal and interest at 10% will be paid on September 30, 2022.

6. At year-end, there is a $1,200 debit balance in the supplies (asset) account. Only $610 of supplies remain on hand.

Required -

1. Prepare the necessary adjusting journal entries at December 31, 2021.

2. Determine the amount by which net income would be misstated if Waldo failed to record these adjusting entries. (Ignore income tax expense.)