Reynolds Computer Service offers data processing

services to retail clothing #2299

Reynolds Computer Service offers data processing services to retail clothing

Reynolds Computer Service offers data processing services to retail clothing stores. The
following data have been collected to aid in the preparation of adjusting entries for Reynolds
Computer Service for 2019:

a. Computer equipment was purchased from IBM in 2016 at a cost of $540,000. Annual
depreciation is $132,500.

b. A fire insurance policy for a 2-year period beginning September 1, 2019, was purchased from
Good Hands Insurance Company for $12,240 cash. The entire amount of the prepayment was
debited to prepaid insurance. (Assume that the beginning balance of prepaid insurance was $0
and that there were no other debits or credits to that account during 2019.)

c. Reynolds has a contract to perform the payroll accounting for Dayton's Department Stores. At
the end of 2019, $5,450 of services have been performed under this contract but are unbilled.

d. Reynolds rents 12 computer terminals for $65 per month per terminal from Extreme
Terminals Inc. At December 31, 2019, Reynolds owes Extreme Terminals for half a month's rent
on each terminal. The amount owed is unrecorded.

e. Perry's Tax Service prepays rent for time on Reynolds' computer. When payments are
received from Perry's Tax Service, Reynolds credits unearned rent revenue. At December 31,
2019, Reynolds has earned $1,810 for computer time used by Perry's Tax Service during
December 2019.

Required:

1. Prepare adjusting entries for each of the transactions.

2. What would be the effect on the balance sheet and the income statement if the accountant
failed to make the above adjusting entries?

Reynolds Computer Service offers data processing services to retail clothing

ANSWER
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