Moteki Company Accumulates The Following Adjustment D 250927
Moteki Company Accumulates The Following Adjustment Data At December 3
Moteki Company accumulates the following adjustment data at December 31. Indicate the type of adjustment (prepaid expenses, accrued revenues, and so on), and the status of accounts before adjustment (overstated or understated). (Enter answers in alphabetical order.) 1. Supplies of $100 are on hand. 2. Services provided but not recorded total $900. 3. Interest of $200 has accumulated on a note payable. 4. Rent collected in advance totaling $650 has been earned.
Paper For Above instruction
Moteki Company's year-end adjusting entries are critical for ensuring the financial statements accurately reflect the company's financial position as of December 31. The adjustments primarily relate to accrued revenues, prepaid expenses, and accrued liabilities, as well as the status of accounts prior to these adjustments. Proper classification helps stakeholders assess the company's performance and financial health accurately.
The first adjustment involves supplies of $100 on hand. This is a prepaid expense; initially, supplies expenses may have been overstated or understated depending on previous entries. Before adjustment, supplies expense was likely overstated if supplies were not properly accounted for; after adjustment, supplies expense will be accurate, and supplies on hand will be properly reported.
Second, services provided but not recorded totaling $900 are an accrued revenue. Prior to adjustment, revenue and accounts receivable were understated because the service income was earned but not yet recognized in the books. Correcting this ensures revenues are fully recognized in the period earned, aligning with the revenue recognition principle.
The third adjustment involves interest of $200 accumulated on a note payable. This is an accrued expense that was not paid or recorded by year-end. Previously, interest expense was understated, and liabilities were understated as well. Post-adjustment, interest payable increases, and expenses are recognized in the correct period, providing a true picture of expenses and liabilities.
The fourth adjustment involves rent collected in advance totaling $650 that has now been earned. This is an unearned revenue (a liability) that, prior to adjustment, was overstated because the revenue was recognized prematurely. After adjustment, the unearned revenue decreases, and revenue increases, accurately reflecting earned income.
Summary of Adjustments and Account Statuses
| Item | Type of Adjustment | Status of Accounts Before Adjustment |
|---|---|---|
| Supplies on hand of $100 | Prepaid Expenses | Supplies Expense Overstated; Supplies Understated |
| Services provided but not recorded ($900) | Accrued Revenues | Revenues Understated; Accounts Receivable Understated |
| Interest accrued of $200 | Accrued Expenses | Interest Expense Understated; Interest Payable Understated |
| Rent collected in advance ($650), now earned | Unearned Revenues | Liabilities Overstated; Revenues Understated |
These adjustments ensure the company's financial statements meet generally accepted accounting principles (GAAP). Accurate recognition of revenues and expenses provides stakeholders with a clear view of company performance and financial position at year-end.
References
- Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate Accounting (16th ed.). Wiley.
- White, G. I., Sondhi, A. C., & Fried, D. (2003). The Analysis and Use of Financial Statements. Wiley.
- Gibson, C. H. (2021). Financial Reporting and Analysis (14th ed.). Cengage Learning.
- Epstein, L., & Nach, H. (2017). Business Combined Financial Statements: Case Studies for Financial Reporting. Wiley.
- Financial Accounting Standards Board (FASB). (2023). Accounting Standards Codification