Question

Cortina Company accumulates the following adjustment data at December 31.

Indicate (1) the type of adjustment (prepaid expense, accrued revenue, and so on) and (2) the status of the accounts before adjustment (overstated or understated). (Enter your answers in alphabetical order.)
Item (1)
Type of Adjustment (2)
Accounts Before Adjustment
(a) Supplies of $400 are on hand. Supplies account shows $1,600 balance.
Entry field with correct answer Prepaid ExpensesAccrued RevenuesAccrued ExpensesUnearned Revenues
Entry field with incorrect answer now contains modified data Expenses UnderstatedLiabilities UnderstatedExpenses OverstatedRevenues OverstatedAssets UnderstatedAssets OverstatedRevenues UnderstatedLiabilities Overstated
Entry field with incorrect answer now contains modified data Revenues UnderstatedAssets UnderstatedLiabilities UnderstatedLiabilities OverstatedExpenses UnderstatedExpenses OverstatedAssets OverstatedRevenues Overstated
(b) Services performed but unbilled total $700.
Entry field with correct answer Unearned RevenuesAccrued ExpensesPrepaid ExpensesAccrued Revenues
Entry field with incorrect answer now contains modified data Assets UnderstatedAssets OverstatedLiabilities OverstatedExpenses UnderstatedExpenses OverstatedRevenues UnderstatedRevenues OverstatedLiabilities Understated
Entry field with correct answer Assets OverstatedExpenses OverstatedRevenues UnderstatedLiabilities UnderstatedLiabilities OverstatedAssets UnderstatedExpenses UnderstatedRevenues Overstated
(c) Interest of $300 has accumulated on a note payable.
Entry field with correct answer Prepaid ExpensesAccrued ExpensesAccrued RevenuesUnearned Revenues
Entry field with incorrect answer now contains modified data Assets UnderstatedExpenses UnderstatedRevenues OverstatedExpenses OverstatedLiabilities UnderstatedAssets OverstatedRevenues UnderstatedLiabilities Overstated
Entry field with correct answer Assets UnderstatedAssets OverstatedLiabilities UnderstatedRevenues UnderstatedLiabilities OverstatedRevenues OverstatedExpenses UnderstatedExpenses Overstated
(d) Rent collected in advance totaling $1,100 has been earned.
Entry field with correct answer Unearned RevenuesPrepaid ExpensesAccrued ExpensesAccrued Revenues
Entry field with incorrect answer now contains modified data Liabilities OverstatedAssets UnderstatedRevenues UnderstatedLiabilities UnderstatedRevenues OverstatedExpenses OverstatedExpenses UnderstatedAssets Overstated
Entry field with incorrect answer now contains modified data Expenses UnderstatedRevenues OverstatedLiabilities UnderstatedAssets UnderstatedExpenses OverstatedRevenues UnderstatedLiabilities OverstatedAssets Overstated

Answer 1

(a) Supplies of $400 are on hand. Supplies account shows $1,600 balance.

Supplies (asset account) are overstated and supplies expense (expense account) is understated. Adjusting journal entry:

Dr Supplies expense 1,200

Cr Supplies 1,200

(b) Services performed but unbilled total $700.

Both service revenue (revenue account) and accounts receivable (asset account) are understated. Adjusting journal entry:

Dr Accounts receivable 700

Cr Service revenue 700

(c) Interest of $300 has accumulated on a note payable.

Interest expense (expense account) and interest payable (liability account) are both understated. Adjusting journal entry:

Dr Interest expense 300

Cr Interest payable 300

(d) Rent collected in advance totaling $1,100 has been earned.

Unearned revenue (liability account) is overstated, while rental revenue (revenue account) is understated. Adjusting journal entry:

Dr Unearned revenue 1,100

Dr Rental revenue 1,100