Question

Wildcat Corporation has a fiscal year-end of December 31. Please review the following transactions: On October 1, the insurance premium of $23,000 was paid for a one-year fire insurance policy. On June 30, the company advanced its chief financial officer $21,000; principal and interest at 7% on the note are due in one year. Equipment costing $71,000 was purchased at the beginning of the year for cash. Depreciation on the equipment is $14,200 per year. If the adjusting entries were not recorded, would net income be higher or lower and by how much

Answer 1

S/n General Journal Debit Credit

1. Insurance Expense $5,750

{(23,000/12) * 3}

Prepaid Insurance $5,750

2. Interest Receivable $735

(21,000 * 7% * 6/12)

Interest Revenue $735

3. Depreciation Expense $14,200

Accumulated Dep. $14,200

Effect on Net Income

Net Income would be lower by:

==> ($5,750 - $735 + $14,200)

==> $19,215