The unadjusted trial balance and the adjustment data for Porter Business Institute are given below along with adjusting entry information. What is the impact on net income if these adjustments are not recorded? Show the calculation for net income without the adjustments and net income with the adjustments. Which one gives the most accurate net income? Which accounting principles are being violated if the adjustments are not made? 
Additional 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?
a. Net income before the adjustments would be:
| Unadjusted revenues (74,000 + 23,400) | $97,400 |
| Unadjusted expenses (32,000 + 8,000 + 5,000 + 4,000) | 49,000 |
| Net income | $48,400 |
| Adjusted revenues (97,400 + 12,000 Rent earned) | $109,400 |
| 6,000 + 5,000) | 56,000 |
| Net income | $53,400 |
The accrual basis gives the most accurate net income because it requires all revenues to be recorded when earned and all expenses to be recorded when incurred. This follows the expense recognition (matching) principle which states that expenses of the period should be matched with revenues of the period. There is a net increase of $5,000 in net income. Revenues increase by $12,000 to recognize the rent earned. Expenses increase by $7,000; a $6,000 increase in Insurance Expense and a $1,000 increase in Interest Expense.
You might also like to view...
Why is understanding personality important to organizational behavior?
A. Personality is easily influenced by intervention efforts. B. Personality is linked to organizational outcomes. C. Personality affects work habits. D. Personality affects how individuals act outside the organization.
Which of the following is correct?? A) The litigation was initiated by two attorneys specializing in criminal law
B) ?You will need sharp knives to peel and cut those fresh potatos. C) Many people hold different believes about the future of our country.
When a manufacturer rewards retailers based on the number of pieces moved through their scanners, this sales promotion method is known as a
A. merchandise allowance. B. count-and-recount allowance. C. buy-back allowance. D. scan-back allowance. E. scan-count allowance.
A default by a debtor in a secured real estate transaction may trigger a legal court action for ________.
A. compensation B. novation C. foreclosure D. reconveyance