The unadjusted trial balance and the adjustment data for Porter Business Institute are shown below along with adjusting entry information. What is the impact of the adjusting entries on the balance sheet? Show the calculation for total assets, total liabilities, and owner's equity without the adjustments; show the calculation for total assets, total liabilities, and owner's equity with the adjustments. Which one provides the most accurate presentation of the balance sheet? Porter Business InstituteUnadjusted Trial BalanceDecember 31 (in millions)Cash…………………………………………. $ 58,000??Accounts receivable…………..………………59,000??Prepaid insurance …………………………...12,000??Equipment
…………………………………….8,000??Accumulated depreciation-equipment ……….. ??$ 2,000Buildings……………………………………….57,500??Accumulated depreciation-buildings…………..??17,500Land………………………………….55,000??Unearned rent…………………………………..??16,000Long-term notes payable……………………….??50,000Porter, Capital ……………………………….??115,600Tuition fees earned ……………………….??74,000Training fees earned …………………….??23,400Wages expense ……………………………32,000??Utilities expense ………………………….8,000??Property taxes expense ……………………5,000??Interest expense ……………………………4,000?________Totals ………………………………………..$ 298,500?$298,500Additional information items:a. The Prepaid Insurance account consists of a payment for a 1 year policy. An analysis of the insurance invoice indicates that one half of the policy has expired by the end of the December 31 year-end.b. A cash payment for space sublet for 8 months was received on July 1 and was credited to Unearned Rent.c. Accrued interest expense on the note payable of $1,000 has been incurred but not paid.
What will be an ideal response?
| Total assets before adjustment | $230,000 |
| Total liabilities before adjustments (16,000 + 50,000) | $66,000 |
| Total equity before adjustments (115,600 + 48,400) | $164,000 |
| Total assets after adjustments | $224,000 |
| Total liabilities after adjustments (4,000+ 50,000+ 1,000) | $55,000 |
Increases to $1,000
| Total equity after adjustments (115,600+53,400) | $169,000 |
The accrual basis gives the most accurate balance sheet presentation. Prepaid insurance has been reduced to show the portion related to future periods. Liabilities now show the correct balance in Unearned Rent and Interest Payable. Equity increased because of the increase in Net Income.
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