Problem 2–7 Requirement 1 a. Interest receivable ..................................................... Interest revenue ($10,000 x 12% x 1/2) ...................... b. Depreciation expense ($30,000 x 1/5)........................... Accumulated depreciation ..................................... c. Unearned rent revenue............................................... Rent revenue ($6,000 x 2/6) ...................................... d. Prepaid insurance ..................................................... Insurance expense ($2,400 x 15/24)........................... e. Interest expense ($20,000 x 12% x 3/12) ........................ Interest payable...................................................... f. Supplies expense ($1,800 – 700) .................................. Supplies ................................................................. Requirement 2 Adjustments to revenues: 600 6,000 2,000 1,500 600 1,100 600 6,000 2,000 1,500 600 1,100 Income overstated (understated) Understatement of interest revenue Understatement of rent revenue $ (600) (2,000) Adjustments to expenses: Overstatement of insurance expense Understatement of depreciation expense Understatement of interest expense Understatement of supplies expense Overstatement of net income (1,500) 6,000 600 1,100 $3,600 2– Solutions Manual, Vol.1, Chapter 2 75