Problem 1: (Journalizing adjusting entries and analyzing their effects on net income, comparing accrual and cash basis) An accountant made the following adjustment at December 31, the end of the accounting period:
a. Prepaid insurance, beginning, $500. Payments for the insurance during the period, $1,500. Prepaid insurance, ending, $1,000.
b. Interest revenue accrued, $1,000.
c. Unearned service revenue, beginning, $1,200. Unearned service revenue, ending, $400.
d. Depreciation, $4,900.
e. Employees' salaries owed for three days of a five-day work week, weekly payroll, $14,000.
f. Income before income tax, $22,000. Income tax rate is 25%.
Requirements:
1. Journalize the adjusting entries.
2. Suppose the adjustments were not made. Compute the overall overstatement or understatement of net income as a result of the omission of these adjustments.