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).
|
Go Drive Trial Balance As at 31 May 2020 |
||
| Account | Debit | Credit |
| Cash at bank | 48,825 | |
| Accounts receivable | 54,600 | |
| Fuel supplies | 8,460 | |
| Prepaid advertising | 5,970 | |
| Prepaid insurance | 5,400 | |
| Office Furniture | 24,000 | |
| Motor vehicles | 862,500 | |
| Accumulated Depreciation – Vehicle | 165,000 | |
| Accounts payable | 31,200 | |
| Accrued interest | 4,500 | |
| Unearned revenue | 33,390 | |
| Loan payable | 283,000 | |
| David S., Capital | 423,010 | |
| David S., Drawings | 60,900 | |
| Car hire revenue | 299,200 | |
| Wages expense | 122,430 | |
| Fuel and oil expense | 23,520 | |
| Electricity expense | 15,000 | |
| Mis. Expenses | 7,695 | |
| 1,239,300 | 1,239,300 | |
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
Required:
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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