Effect on Accounting Equation
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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
You are to complete each of the following tasks.
Part A
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.
The equipment (purchased on January 1, 2003) has a useful life of 12 years with no salvage value (Straight-line method is used).
Interest accrued on the bonds payable is $20,000 as of December 31, 2003.
Unexpired insurance at December 31, 2003 is $7,000.
The rent payment of $140,000 covered the four months from December 1, 2003 through March 31, 2004.
Salaries and wages of $28,000 were earned but unpaid at December 31, 2003.
Part B
Indicate the proper balance sheet classification of each of the preceding 12 financial statement items on the December 31, 2003 balance sheet. If the account title would not appear on the balance sheet, indicate the financial statement on which it would be found.
Current assets
Property, plant and equipment
Current liabilities
Long-term liabilities
Stockholders' equity
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Solution Summary
The solution explains the effect on the accounting equation of the given transactions.
Solution Preview
1.
Assets = Liabilities + Owners Equity
a. -70,000 -70,000
b. +20,0000 -20,000
c.-23,000 -23,000
d. -35,000 -35,000
+28,000 -28,000
Explanations -
a. The depreciation would reduce the equipment value ( asset reduced) and the expense would reduce the owners equity. The depreciation amount is 840,000/12=70,000 under ...
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