1. Impact of Adjusting Entries Spencer Barr, Amy Collmeyer, Xi Dai, Kevin Steitz, Kathryn Young

2. Introduction Definition of adjusting entry – Deferral – Accrual Concepts – Revenue Recognition Principle – Matching Principle Impact of adjusting entry Assignment

3. Part A 1.On December 1, 2011, Johnson received a $45,000 payment for services to be rendered equally over a four-month period. Service revenue was credited. Assets = Liabilities + Stockholders’ Equity (0)(-) (+) DateAccount NameDebitCredit 12/31/1 1 Cash$45,00 0 Service Revenue$45,00 0 (To record cash for services provided) Service Revenue$33,75 0 Unearned Revenue$33,75 0 (To record revenue for future services)

4. Part A cont. 2.On December 31, 2011, the company paid a local radio station $16,000 for 40 radio ads that were to be aired, 20 per month, throughout January and February of 2012. Prepaid advertising was debited. Assets = Liabilities + Stockholders’ Equity (0) (0) (0) *No adjusting journal entry!* But… DateAccount NameDebitCredit 12/31/1 1 Advertising Expense$8,00 0 Prepaid Advertising$8,00 0 (Paid cash for advertising)

5. Part A cont. 3.Employee salaries for the month of December 2011 totaling $8,400 will be paid on January 5, 2012. Assets = Liabilities + Stockholders’ Equity (0) (+)(-) DateAccount NameDebitCredit 12/31/1 1 Salaries Expense$8,40 0 Salaries Payable$8,40 0 (To record accrued salaries)

6. Part A cont. 4.On September 31, 2011, Johnson Corp. borrowed $60,000 from a local bank. A note was signed with principal and 6% interest to be paid on September 1, 2012. Assets + Liabilities + Stockholders’ Equity (0) (+)(-) DateAccount NameDebitCredit 12/31/1 1 Interest Expense$900 Interest Payable$900 (To record interest on notes payable)

7. Part A cont. 5.On December 31, 2011, it was determined that $8,000 of the recorded accounts receivable would prove to be uncollectible. Assets = Liabilities + Stockholders’ Equity (-) (0)(-) DateAccount NameDebitCredit 12/31/1 1 Bad Debts Expense$8,00 0 Allowance for Doubtful Accounts$8,00 0 (To record estimate of uncollectible accounts)

8. Part B 1.Total assets on December 31, 2011 Total Assets OverstatedUnderstated 5)12/31/11 Adj. 8000 12/31/11 Bal. 8000

9. Part B cont. 2.Total liabilities on December 31, 2011 Total Liabilities OverstatedUnderstated 1)12/31/11 Adj. 11,2503)12/31/11 Adj. 8,400 4)12/31/11 Adj. 900 12/31/11 Bal. 1,950

10. Part B cont. 3.Net income for 2011 Net Income OverstatedUnderstated 3)12/31/11 Adj. 8,4001)12/31/11 Adj. 11,250 4)12/31/11 Adj. 900 5)12/31/11 Adj. 8,000 12/31/11 Bal. 6,050

11. Part B cont. 4.Total retained earnings on December 31, 2011 Total Retained Earnings OverstatedUnderstated 3)12/31/11 Adj. 8,4001)12/31/11 Adj. 11,250 4)12/31/11 Adj. 900 5)12/31/11 Adj. 8,000 12/31/11 Bal. 6,050

12. Part B cont. 5.Total stockholders’ equity on December 31, 2011 Total Stockholders’ Equity OverstatedUnderstated 3)12/31/11 Adj. 8,4001)12/31/11 Adj. 11,250 4)12/31/11 Adj. 900 5)12/31/11 Adj. 8,000 12/31/11 Bal. 6,050

13. Conclusion