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1 February, 03:59

Effect of Omitting Adjustments For the year ending April 30, Mann Medical Services Co. mistakenly omitted adjusting entries for (1) $9,200 of supplies that were used, (2) unearned revenue of $12,000 that was earned, and (3) insurance of $2,500 that expired. Indicate the combined effect of the errors on (a) revenues, (b) expenses, and (c) net income for the year ended April 30. (a) Revenues understated $ (b) Expenses $ (c) Net income $

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  1. 1 February, 04:01
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    (a) Revenues overstated $12,000

    (b) Expenses understated $11,700

    (c) Net income overstated $300

    Explanation:

    First prepare the journal entries pertaining to the omitted adjusting entries as follows;

    Entry 1

    Supplies Expense $9,200 (debit)

    Supplies $9,200 (credit)

    Entry 2

    Revenue $12,000 (debit)

    Unearned Revenue $12,000 (credit)

    Entry 3

    Insurance Expense $2,500 (debit)

    Prepaid Insurance $2,500 (credit)

    Then consider the Effects on the named Accounts

    Expenses.

    Affected by Entry 1 and Entry 3

    Expenses are understated by $11,700

    Revenues.

    Affected by Entry 2.

    Revenues are overstated by $12,000

    Net Income

    Affected by Entries 1, 2, 3 also the net effect of the two items above.

    Income is overstated by $300
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