Brokeback Towing Company is at the end of its accounting year, December 31, 2013. The following data that must be considered were developed from the company's records and related documents:
a.On July 1, 2013, a two-year insurance premium on equipment in the amount of $480 was paid and debited in full to Prepaid Insurance on that date. Coverage began on July 1.
b.At the end of 2013, the unadjusted balance in the Office Supplies account was $1,000. A physical count of supplies on December 31, 2013, indicated supplies costing $250 were still on hand.
c.On December 31, 2013, YY's Garage completed repairs on one of Brokeback's trucks at a cost of $750. The amount is not yet recorded. It will be paid during January 2014.
d.In December the 2013 property tax bill for $1,550 was received from the city. The taxes, which have not been recorded, will be paid on February 15, 2014.
e.On December 31, 2013, the company completed a contract for an out-of-state company for $7,700 payable by the customer within 30 days. No cash has been collected and no journal entry has been made for this transaction.
f.On July 1, 2013, the company purchased a new hauling van. Depreciation for July-December 2013, estimated to total $2,500, has not been recorded.
g.As of December 31, the company owes interest of $450 on a bank loan taken out on October 1, 2013. The interest will be paid when the loan is repaid on September 30, 2014. No interest has been recorded yet.
h.The income before any of the adjustments or income taxes was $25,000. The company's federal income tax rate is 30%. Compute adjusted income based on all of the preceding information, and then determine and record income tax expense.
Questions:
A :Give the adjusting journal entry
B:Without the adjustments made in requirement 1, by what amount would Brokeback's net income have been understated or overstated?