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    gwapagirl40's Avatar
    gwapagirl40 Posts: 31, Reputation: 1
    Junior Member

    Sep 6, 2012, 11:01 PM
    If no adjusting entries, assets, liab, equity be higher or lower?

    On December 20, 2013, Jamesway received a $4,000 payment from a customer for services to be rendered early in 2014. Service revenue was credited.

    On December 1, 2013, the company paid a local radio station $2,000 for 40 radio ads that were to be aired, 20 per month, throughout December and January. Prepaid advertising was debited.
    3. Employee salaries for the month of December totaling $16,000 will be paid on January 7, 2014.

    On August 31, 2013, Jamesway borrowed $60,000 from a local bank. A note was signed with principal and 8% interest to be paid on August 31, 2014.

    If none of the adjusting journal entries were made, would assets, liabilities, and shareholders’equity on the 12/31/13 balance sheet be higher or lower and by how much?

    Please, please... anyone check my answer if it's right!!

    Assets higher by $1000
    Liab lower by $ 21600
    Equity higher by $4000
    ArcSine's Avatar
    ArcSine Posts: 969, Reputation: 106
    Senior Member

    Sep 7, 2012, 05:03 AM
    You are correct that the necessary adjusting entries would've increased liabilities by 21,600 (and hence the lack of the adjustments has the effect of keeping debt lower than it should be, by 21,600).

    You're off, though, on the effect on assets and on equity.

    One way to approach it is to actually write up the adjusting entries for each of the four described transactions. Then tally up the effect that these four entries have in the aggregate on assets, debt, and equity.

    Then, of course, the effect on each of the three balance sheet components from not making the adjusting entries is just the opposite.

    Give that a spin, then post back in with your results.

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