Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 5

Recording Adjusting Entries and Preparing an Adjusted Trial Balance
North Star prepared the following unadjusted trial balance at the end of its second year of operations ending December 31,2012.

Other data not yet recorded at December 31, 2012:
a. Rent expired during 2012, $1,200.
b. Depreciation expense for 2012, $ 1,000.
c. Utilities payable, $9,000.
d. Income tax expense, $390.
Required:
1. Using the format shown in the demonstration case, indicate the accounting equation effects of each required adjustment.
2. Prepare the adjusting journal entries required at December 31, 2012.
3. Summarize the adjusting journal entries in T-accounts. After entering the beginning balances and computing the adjusted ending balances, prepare an adjusted trial balance as of December 31, 2012.
4. Compute the amount of net income using (a) the preliminary (unadjusted) numbers, and (b) the final (adjusted) numbers. Had the adjusting entries not been recorded, would net income have been overstated or understated, and by what amount