Reference no: EM132545586

Question - Adjusting entries and effect on financial statement

In the first column of the schedule presented below are the condensed financial statements for ABC Motor Rentals Vehicle before adjusting entries were made.

ABC MOTOR RENTALS VEHICLE Financial Statement Unadjusted Balance Adjustment Adjusted Balances Income statement $325,000 Rental revenue Expenses: General expense $48,500 Insurance expense 30,500 Interest expense 1,500 Electricity expense 20,000 Wages expense 150,000 Depreciation expense - Profit $74500 Statement of changes in equity Beginning capital $85,500 Add: Profit 74500 Less Drawings 50,000 Ending capital $110,000 Balance Sheet Cash at bank $50,500 Account receivables Inventory 25,000 Vehicles 150,000 Less Accumulated depreciation (40,000) $185,500 Account payables $25,000 Wages payable - Unearned rental revenue 8,000 Loan payable 42,500 ABC, Capital 110,000 $185,500

The following items were not reflected in the above statements.

1. Rental revenue earned but not collected or recorded, $2500.

2. Depreciation on vehicles not recorded, $16 500.

3. Wages earned by employees but not paid at year-end, $7600.

4. The company requires the first-day rental in advance as a deposit for making a reservation.

The deposit is either deducted from the total rental charges or is forfeited. During the last week of June, deposits earned were not recorded as revenue, $1090.

(a) How to Prepare the adjusting entries in general journal form.

(b) How to Determine the effects of the adjustments on the financial statements by completing the schedule presented.

(c) Did profit increase or decrease as a result of the adjusting entries? By how much?

(d) What was the effect of the adjusting entries on total assets? total liabilities? total equity?