David Smith owns a car hiring business operating under the name Go Drive. The unadjusted trial balance of Go Drive at 31 May 2020 is shown below (ignore GST).
As at 31 May 2020
|Cash at bank||48,825|
|Accumulated Depreciation – Vehicle||165,000|
|David S., Capital||423,010|
|David S., Drawings||60,900|
|Car hire revenue||299,200|
|Fuel and oil expense||23,520|
The entity prepares financial statements every month. The information below is provided for the month of May:
- Motor vehicles are depreciated 8% each year. No residual values. Straight-line method is used.
- Prepaid advertising has a balance of $2,400 at the end of the month.
- A physical count showed supplies totalling $2,010 were still on hand at 31 May.
- Prepaid insurance which covers 2 years was purchased on 1 May 2020.
- The balance in the unearned revenue account includes $5,400 received in April for car hiring services provided in May.
- Bank loan was borrowed on 1 January 2020. Interest is to be paid at the end of each year (31 December). Interest on bank loan is 5% per annum.
- Owed part time employees wages $2,100.
- Office furniture was purchased at the beginning of May in 2020. It will be depreciated over a useful life of 15 years at which time it is expected to have a residual value of $2,400
a) Prepare necessary adjusting entries.
b) What would be the impacts to the financial statements if the accountant of the entity forgot to make the above adjustments?
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