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Effect of adjustments on accounting equation

Selected amounts at December 31, 2003 from the Hay and Barnabas Company's information system appear as follows:

Cash Paid employees for salaries and wages $ 300,000
Cash collected from sales customers $1,850,000
Bonds payable $ 500,000
Cash $ 150,000
Common Stock $ 60,000
Equipment $ 840,000
Prepaid Insurance $ 30,000
Inventory $ 250,000
Prepaid rent $ 140,000
Retained earnings $ 130,000
Salaries and wages expense $ 328,000
Sales $2,000,000

1. There are five adjustments that need to be made before the financial statements can be prepared at year end. Show the effect of each of the following (a-e) on the accounting equation.

a. The equipment (purchased on January 1, 2003) has a useful life of 12 years with not salvage value (straight-line method is used).
b. Interest accrued on the bonds payable is $20,000 as of December 31, 2003.
c. Unexpired insurance at December 31, 2003 is $7,000.
d. The rent payment of $140,000 covered the four months from December 1, 2003 through March 31, 2004.
e. Salaries and wages of $28,000 were earned but unpaid at December 31, 2003.

Please see attached for full questions.

2. Indicate the proper balance sheet classification of each of the preceding 12 financial statement items on the December 31, 2003 balance sheet. If the title would not appear on the balance sheet, indicate the financial statement on which it would be found.

a. Current assets
b. Property, plant and equipment
c. Current liabilities
d. Long-term liabilities
f. Stockholders' equity

Cash Paid employees for salaries and wages Profit & Loss - expense
Cash collected from sales customers Current Asset
Bonds payable Long Term Liability
Cash Current Asset
Common Stock Stockholders Equity
Equipment Property, Plant and Equipment
Prepaid Insurance Current Asset
Inventory Current Assets
Prepaid rent Current Asset
Retained earnings Stockholders Equity
Salaries and wages expense Profit and Loss - Expense
Sales Profit and Loss - Revenue

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Solution Summary

The solution explains the effects of adjusting entries on accounting equation and also provides balance sheet classifiaction of some accounts

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