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Wildcat Corporation has a fiscal year-end of December 31. Please review the following transactions: On October 1, the insurance premium of $23,000 was paid for a one-year fire insurance policy. On June 30, the company advanced its chief financial officer $21,000; principal and interest at 7% on the note are due in one year. Equipment costing $71,000 was purchased at the beginning of the year for cash. Depreciation on the equipment is $14,200 per year. If the adjusting entries were not recorded, would net income be higher or lower and by how much

Answer :

Tundexi

Answer:

S/n   General Journal              Debit        Credit

1.       Insurance Expense   $5,750

         {(23,000/12) * 3}

                Prepaid Insurance                     $5,750

2.      Interest Receivable     $735

        (21,000 * 7% * 6/12)

                  Interest Revenue                      $735    

3.      Depreciation Expense     $14,200

               Accumulated Dep.                       $14,200

Effect on Net Income

Net Income would be lower by:

==> ($5,750 - $735 + $14,200)

==> $19,215

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