Give the adjusting journal entry required for each item at December 31, 2018. If adjustments were not made each period, the financial results could be materially misstated. Determine the amount by which Brokeback's net income would have been understated, or overstated, had the adjustments in requirement 1 not been made.

The adjusting entries are shown below:

a. Insurance expense A/c Dr $210

To Prepaid insurance A/c $210

(Being the insurance expense is recorded)

The computation is shown below:

= $840 * 6 months : 24 months

= $210

b. Supplies expense A/c Dr $600

To Supplies A/c $600

(Being supplies account is adjusted)

The supplies expense is computed below

= Supplies unadjusted balance - supplies on hand

= $1,000 - $400

= $600

c. Repairs and Maintenance expense A/c Dr $900

To Accrued Liabilities A/c $900

(Being the repairs and maintenance expense is recorded)

d. Accounts Receivable A/c Dr $8,450

To Service revenue A/c $8,450

(Being the contract completion is recorded)

e. Depreciation expense A/c Dr $3,250

To Accumulated depreciation A/c 3,250

(Being the depreciation expense is recorded)

f. Interest expense A/c Dr $600

To Interest payable A/c $600

(Being the interest expense is recorded)

g. Income tax expense A/c Dr $8,000

To Income tax payable A/c $8,000

(Being the income tax expense is recorded)

It is computed below:

= $40,000 * 20%

= $8,000

2. Now the net income overstated or understated is

= Expenses - revenues

where,

Expenses = $210 + $600 + $900 + $3,250 + $600 + $8,000

= $13,560

And, the revenues is $8,450

So, the net income overstated is

= $13,560 - $8,450

= $5,110