Ask Question
3 December, 11:20

A company has a fiscal year-end of December 31: (1) on October 1, $14,000 was paid for a one-year fire insurance policy; (2) on June 30 the company advanced its chief financial officer $12,000; principal and interest at 6% on the note are due in one year, and (3) equipment costing $62,000 was purchased at the beginning of the year for cash. Depreciation on the equipment is $12,400 per year. If the adjusting entries were not recorded, would the net income be higher or lower, and by how much?

+5
Answers (1)
  1. 3 December, 13:14
    0
    Answer: Higher by $15,540.

    Explanation:

    Insurance was paid for a year on October 1 therefore it lasted only 3 months in the year. That needs to be reflected.

    = 14,000 * 3/12

    = $3,500

    $3,500 in insurance for the year.

    Advanced $12,000 for principal and note due in a year on June 30 leaving only 6 months in the year. Accounting for that will be,

    = 12,000 * 6% * 6/12

    = $360

    Equipment cost was not an adjusting error but the depreciation is. Depreciation for the year is $12,400.

    Adding all the adjusting entries,

    = 3,500 + 360 + 12,400

    = $15,540

    All of the above were expenses to be taken out of Net Income. Therefore if they were not recorded, Income would be higher by $15,540.
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “A company has a fiscal year-end of December 31: (1) on October 1, $14,000 was paid for a one-year fire insurance policy; (2) on June 30 the ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers