Homework SourseExercise 1316 Presented below is a list of possible transact
Exercise 13-16
Presented below is a list of possible transactions.
Analyze the effect of the 18 transactions on the financial statement categories indicated.
Transactions
Assets
Liabilities
Owners’ Equity
Net Income
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| 1. | Purchased inventory for $80,000 on account (assume perpetual system is used). |
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| 2. | Issued an $80,000 note payable in payment on account (see item 1 above). |
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| 3. | Recorded accrued interest on the note from item 2 above. |
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| 4. | Borrowed $100,000 from the bank by signing a 6-month, $112,000, zero-interest-bearing note. |
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| 5. | Recognized 4 months’ interest expense on the note from item 4 above. |
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| 6. | Recorded cash sales of $75,260, which includes 6% sales tax. |
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| 7. | Recorded wage expense of $35,000. The cash paid was $25,000; the difference was due to various amounts withheld. |
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| 8. | Recorded employer’s payroll taxes. |
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| 9. | Accrued accumulated vacation pay. |
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| 10. | Recorded an asset retirement obligation. |
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| 11. | Recorded bonuses due to employees. |
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| 12. | Recorded a contingent loss on a lawsuit that the company will probably lose. |
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| 13. | Accrued warranty expense (assume expense warranty approach). |
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| 14. | Paid warranty costs that were accrued in item 13 above. |
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| 15. | Recorded sales of product and related service-type warranties. |
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| 16. | Paid warranty costs under contracts from item 15 above. |
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| 17. | Recognized warranty revenue (see item 15 above). |
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| 18. | Recorded estimated liability for premium claims outstanding. |
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| Transactions | | Assets | | Liabilities | | Owners’ Equity | | Net Income | ||||||
| 1 | Purchased inventory for $80,000 on account (assume perpetual system is used). | No effect - No info on opening and closimng stock | Increase | Decrease - Profit decreased | Decrease - Inc in COGS resulting decrease in income | |||||||||
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| 2 | Issued an $80,000 note payable in payment on account (see item 1 above). | No effect | No effect - Due to liability shifted from account payable to notes payable | No effect | No effect | |||||||||
| 3 | Recorded accrued interest on the note from item 2 above. | | No effect | | Increase - Liability increased due to interest payable | | Decrease - Profit reduced | | Decrease - Interest Expense | |||||
| 4 | Borrowed $100,000 from the bank by signing a 6-month, $112,000, zero-interest-bearing note. | | Increase - Amount received | | Increased - New loan liability created | | No effect | | No effect | |||||
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| 5 | Recognized 4 months’ interest expense on the note from item 4 above. | No effect | Increased - Interest booked | Decrease - Profit reduced | Decrease - Interest Expense booked | |||||||||
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| 6 | Recorded cash sales of $75,260, which includes 6% sales tax. | Increase - Cash received | Increase - Due to VAT liability@ 6% on sales | Increase - Profit increased | Increase - Sales Revenue booked | |||||||||
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| 7 | Recorded wage expense of $35,000. The cash paid was $25,000; the difference was due to various amounts withheld. | Decrease - Cash outflow happened | Increase - Still 10,000 not yet paid | Decrease - Profit reduced | Decrease - Wage Expense booked | |||||||||
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| 8 | Recorded employer’s payroll taxes. | No effect | Increase - Expense booking with liability | Decrease - Profit reduced | Increase - Expense booking | |||||||||
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| 9 | Accrued accumulated vacation pay. | No effect | Increase - Expense booking with liability | Decrease - Profit reduced | Increase - Expense booking | |||||||||
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| 10 | Recorded an asset retirement obligation. | Increase - Present value of cost incurred at the time of disposal will be capitalised by debiting asset and crediting liability | Increase - Present value of cost incurred at the time of disposal will be capitalised by debiting asset and crediting liability | No effect | No effect | |||||||||
| 11 | Recorded bonuses due to employees. | | No effect | | Increase - Expense booking with liability | | Decrease - Profit reduced | | Increase - Expense booking | |||||
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| 12 | Recorded a contingent loss on a lawsuit that the company will probably lose. | No effect | Increase - Liability booked. Only if it is probable and the amount can be estimated, if not No effect | Decrease - Profit reduced | Increase - Loss booked. Only if it is probable and the amount can be estimated, if not No effect | |||||||||
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| 13 | Accrued warranty expense (assume expense warranty approach). | No effect | Increase - Expense booking with liability | Decrease - Profit reduced | Increase - Expense booking | |||||||||
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| 14 | Paid warranty costs that were accrued in item 13 above. | Decrease - Cash paid | Decrease - Liability accrued was dicharged by payment | No effect | No effect | |||||||||
| 15 | Recorded sales of product and related service-type warranties. | | No effect | | Increase - Liability booked | | Increase - Profit increased | | Increase - Sales revenue booked and Decrease - Warranty exp booked | |||||
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| 16 | Paid warranty costs under contracts from item 15 above. | Decrease - Cash outflow happened | Decrease - Liability accrued was dicharged by payment | No effect | No effect | |||||||||
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| 17 | Recognized warranty revenue (see item 15 above). | No effect | Decrease - Liability booked now reversed | Increase - Profit increased | Increse - income booking | |||||||||
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| 18 | Recorded estimated liability for premium claims outstanding. | No effect | Increase - Liability booked | Decrease - Profit reduced | Increase - Expense booked | |||||||||
| Comments: | ||||||||||||||
| Usually in business, the net results of all P&L items will be transferred to owners equity instead of item by item. |
