會計功課問題~~adjusting entries

The company received a yearly rent of $144,000 in advance from an existing tenant. The rent started from 1 May 2010. The whole amounthas been credited to the rental income account without accounting forunearned rental income at the year end date 30 June 2010.

Ans: the rental income will be overstated and then the profits will be overstated.


ii The purchase of a new motor van for $10,000 had been debited to thepurchase account. No adjustment has been made.

Ans: Fixed Assets (with depreciation) will be understated. Purchases will be overstated and the profits will be understated.

iii An insurance expense of $24,000 was paid covering the period from1 April 2010 to 31 March 2011. The whole amount had beenrecorded in the insurance expense account without accounting forunexpired insurance at the year end date 30 June 2010.

Ans: The expenses should be covered over two financial years. Part of insurance expenses should be in next year. That is, expenses are overstated and profits will be understated.

iv A bank loan had been obtained on 1 March 2010. Accrued interest onthe loan at 30 June 2010 was amounting to $1,200. No interestexpense has been recorded.

Ans: interest expenes are understated. profits are overstated.

v Ending inventory was valued at $83,000. As the demand of theseproducts dropped significantly, the company estimated that theinventory could only be sold at $60,000 after deducting the necessaryselling expenses. No adjustment had been made.


Ans: The cost of inventory should be valued at lower of cost and net realisable value. This will decrease the cost of goods sold, then gross proits and net profits will be overstated.