Question : 117. Parson Services Corporation was organized January 1, Year 8. The : 1245879

117. Parson Services Corporation was organized on January 1, Year 8. The unadjusted trial balance on December 31, Year 8 after recording transactions that occurred during Year 8 is as follows. 

Parson Services CorporationUnadjusted Trial BalanceDecember 31, Year 8

Cash$125,000

Fees Receivable112,000

Notes Receivable115,000

Office Supplies Inventory11,800

Prepaid Insurance12,200

Furniture and Equipment155,000

Accumulated Depreciation0

Accounts Payable$113,000

Common Stock365,000

Fee Revenues195,000

Rent Expense19,500

Office Salaries Expense

Below is the income statement for Year 8 that was prepared after making appropriate adjusting entries for Year 8. 

Parson Services CorporationIncome StatementFor the Year Ended December 31, Year 8

1.Fee Revenues$199,400

2.Interest Revenue on Notes Receivable

Total Revenues$210,900

3.Depreciation Expense(15,500)

4.Rent Expense(18,700)

5.Insurance Expense(11,800)

6.Office Supplies Expense(11,500)

7.Office Salaries Expense)

Net Income

Required:Give the adjusting entries that Parson Services Corporation must have made at the end of Year 8 for each of the seven income statement accounts. You may express the adjusting entries either in the form of journal entries or T accounts.

118. Humana Corporation neglected to make various adjusting entries on December 31, Year 8. Indicate the effects on assets, liabilities, and shareholders’ equity on December 31, Year 8 of failing to adjust for the following independent items as appropriate, using the notation O/S (overstated), U/S (understated), and No (no effect). Also, give the amount of the effect. Ignore income tax implications. Use the following format: 

Effect of Errors or Omissions on December 31, Year 8 Balance Sheet

AssetsLiabilitiesShareholders’ Equity

ItemDirectionAmountDirectionAmountDirectionAmount

a.On December 15, Year 8, Humana Corporation received a $1,400 advance from a customer for products to be manufactured and delivered in January, Year 9. The firm recorded the advance by debiting Cash and crediting Sales Revenue and has made no adjusting entry as of December 31, Year 8.

b.On July 1, Year 8, Humana Corporation acquired a machine for $5,000 and recorded the acquisition by debiting Cost of Goods Sold and crediting Cash. The machine has a five-year useful life and zero estimated salvage value.

c.On November 1, Year 8, Humana Corporation received a $2,000 note receivable from a customer in settlement of an accounts receivable. It debited Notes Receivable and credited Accounts Receivable upon receipt of the note. The note is a six-month note due April 30, Year 9 and bears interest at an annual rate of 12 percent. Humana Corporation made no other entries related to this note during Year 8.

d.Humana Corporation paid its annual insurance premium of $1,200 on October 1, Year 8, the first day of the year of coverage. It debited Prepaid Insurance $900, debited Insurance Expense $300, and credited Cash for $1,200. It made no other entries related to this insurance during Year 8.

e.The Board of Directors of Humana Corporation declared a dividend of $1,500 on December 31, Year 8. The dividend will be paid on January 15, Year 9. Humana Corporation neglected to record the dividend declaration.

f.On December 1, Year 8, Humana Corporation purchased a machine on account for $50,000, debiting Machinery and crediting Accounts Payable for $50,000. Ten days later, the account was paid and the company took the allowed 2 percent discount. Cash was credited $49,000, Miscellaneous Revenue was credited $1,000, and Accounts Payable was debited $50,000. It is the policy of Humana Corporation to record cash discounts taken as a reduction in the cost of assets. On December 28, Year 8, the machine was installed for $4,000 in cash; Maintenance Expense was debited and Cash was credited for $4,000. The machine started operation on January 1, Year 9. As the machine was not placed into operation until January 1, Year 9, as appropriate, no depreciation expense was recorded for Year 8.