Quality Heating Company Has the Following Liabilities at Year End

question 90

Essay

Quality Heating Company has the following liabilities at year end:
$\begin{array}{lr}\text { Notes Payable } & \$ 20,000 \\\text { Accounts Payable } & 15,000 \\\text { Unearned Contract Revenue } & 9,000 \\\text { Wages Payable } & 2,900 \\\text { Interest Payable } & 700\end{array}$
a. Which of these accounts probably was/were created at the end of the fiscal year as a result of an accrual? Which probably was/were adjusted at year end? Explain your answer.
b. Which adjustments probably reduced net income? Which probably increased net income? Explain your answers.

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Definitions:

Raw Materials

Basic materials that are used in the production process to manufacture goods, often processed in multiple stages before becoming part of the final product.

Total Manufacturing Costs

The sum of all costs directly involved in the production of goods, including direct materials, direct labor, and manufacturing overhead.

Current Year

The present calendar year, within which all immediate or current financial, business, or calendar activities are considered.

Cost of Goods Manufactured

The cost of goods manufactured represents the total production cost of goods completed during an accounting period, including materials, labor, and overhead.