Question & Answer: AT&T LTE 11:36 AM イ0 89961 D + くweek 3 week 3 Assignment 1 Detail Submission Grade Jack's Concrete commenced its business on Janu…..

AT&T LTE 11:36 AM イ0 89961 D + くweek 3 week 3 Assignment 1 Detail Submission Grade Jacks Concrete commenced its business on January 1, 2016. On December 31, 2016, Jacks Concrete did not record any adjusting entries with respect to the following transactions: a. During the first year of its operations, Jacks purchased supplies in the amount of $10,000 (debited to Supplies expense), and of this amount, $3,000 were unused as of December 31, 2016. b. On March 15, 2016 Jacks Previous Next Courses Calendar To Do Notifications Messages

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AT&T LTE 11:36 AM イ0 89961 D + くweek 3 week 3 Assignment 1 Detail Submission Grade Jack’s Concrete commenced its business on January 1, 2016. On December 31, 2016, Jack’s Concrete did not record any adjusting entries with respect to the following transactions: a. During the first year of its operations, Jack’s purchased supplies in the amount of $10,000 (debited to “Supplies expense”), and of this amount, $3,000 were unused as of December 31, 2016. b. On March 15, 2016 Jack’s Previous Next Courses Calendar To Do Notifications Messages

Expert Answer

See the answer below.


Reference		Effect on
		Asset	Liability	Net Income
a	Direction	US		US
a	Dollar effect	3,000		3,000
b	Direction		US	OS
b	Dollar effect		13,500	13,500
c	Direction		US	OS
c	Dollar effect		1,500	1,500
d	Direction		US	OS
d	Dollar effect		9,000	9,000
e	Direction	OS		OS
e	Dollar effect	3,250		3,250

Notes:
a. The purchase of supplies for $10,000 have been debited
to supplies expense account out of which supplies of the
value of $3,000 were unused.

(i)When the supplies are purchased supplies (asset) have to be
debited. At the year end the supplies expense is to be debited and the asset
account is to be credited taking into acount the value of supplies left in stock.
(ii) At the year end the supplies expense has to be debited with the supplies
consumed , which in the present case is $7,000($10,000 – $3,000)
(iii) For this transaction , the asset should have been shown at $3,000 and an expense
of $7,000 should have been booked. Hence there is an understatement of asset
by $3,000 and an understatement of income by $7,000.

b.Receipt of $18,000 towards landscaping services to be rendered for 24 months
beginning July 1 , has been credited to “Landscaping Revenue”.

(i) When advance is received for service to be rendered to be rendered in future
a liability account has to credited.At the end of the accounting period, the value
of the service rendered is to be transferred to revenue account.
(ii) In the present case originally $18,000 should have been credited to “Unearned Revenue”
account(liability), At the year end the value of the services rendered during the year
from July to December (6 moths out of 24 moths) should have been transferred to revenue account.
(iii) Therefore the liability account is understated by $13,500(18,000*18/24) and the revenue account
is overstated by the same amount ($18,000 – $24,000*6/24).

c. The company’s fuel bill of $1,500 for December 2016 was received in January 2017.

(i) When a bill for an expense is received after the end of the period, we need to make
an adjustment entry for the expense by booking the expense and creating a liability.
(ii) In the given instatnce, accrued expenses(liability) account should have been credited
and fuel expense account should have been debited.
(iii) Therefore there is an understatement of liability the extent of $1,500 and
and an overstatement of income by $1,500.

d. The company borrowed $100,000 at 12% interest per year on April 1, 2016 which is
to be repaid on March 2017.
(i) When there is a borrowing, the interest expense payable for the accountig period should be
debitedand a liability account should be credited for making the payment.
(ii) In this case, interest expense should be booked for 9 months(April to dEcember) for $9,000
($100,00012%9/12) and a liability for $9,000 should be created.
(iii) Hence, there is an overstatement of income by $9,000 and an understatement of liability by $9,000.

e. Truck purchased for $65,000 and to last for 100,000 miles with no salvage value.
The truck ran 5,000 miles during the year.
(i) When an aset is purchased , depreciation on the asset is to be recorded for the acounting period.
Depreciation (expense) account should be debited and a accumulated depreciation (adjustment to asset)
account is to be credited.
(ii) In the present case, depreciation should have been debited for $3,250 (65,000/100,000*5000)
and accumulated depreciation account should have been credited by $3,250.
(iii) Hence, there is an overstatement of income by $3,250 and an overstatement of asset by $3,250.

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