Each of the following events describes acquiring an asset that requires a year-e

Question

Each of the following events describes acquiring an asset that requires a year-end adjusting entry. Paid $16,100 cash on January 1 to purchase computer equipment to be used for administrative purposes. The equipment had an estimated expected useful life of five years and a $2,600 salvage value. Paid $16,100 cash on January 1 to purchase manufacturing equipment. The equipment had an estimated expected useful life of five years and a $2,600 salvage value. Paid S19,200 cash in advance on May 1 for a one-year rental contract on administrative offices. Paid S19,200 cash in advance on May 1 for a one-year rental contract on manufacturing facilities. Paid S1,200 cash to purchase supplies to be used by the marketing department. At the end of the year, $380 of supplies was still on hand. Paid S1,200 cash to purchase supplies to be used in the manufacturing process. At the end of the year, $380 of supplies was still on hand. Show how the adjusting entry affects the amount of net income shown on the year-end financial statements. Assume a December 31 annual closing date. Also, in the Cash Flow column, indicate whether the cash flow is for operating activities (OA), investing activities (IA), or financing activities (FA). Use NAto indicate that an element was not affected by the event and enter "0" in the cell. The first event has been recorded as an example. Assume that any products that have been made have not been sold.

Explanation / Answer

Adjusting Entries Net Income Statement of Cash Flow Explanation Serial No Account Title and Explanation Debit ($) Credit ($) Amount of Change Amount of change Activities 1 Depreciation -computer [(16100-2600)/5] 2700 Accumulated depreciation 2700 -2700 2700 OA Non cash expense and will be added to net profit (depreciation for one year charged) 2 Depreciation -machinery [(16100-2600)/5] 2700 Accumulated depreciation 2700 -2700 2700 OA Non cash expense and will be added to net profit ((depreciation for one year charged) 3 Rent - administration [19200*(8/12)] 12800 Rent in advance 12800 -12800 -12800 OA Decrease in current asset (rent expense for 8 months recorded) 4 Rent-manufaturing facilities 12800 Rent in advance 12800 -12800 -12800 OA Decrease in current asset (rent expense for 8 months recorded) 5 Supplies expense - marketing 820 Supplies 820 -820 -820 OA Decrease in current asset (supplies expenses of 1200 - 380 = $820 recorded) 6 Supplies expense - manufacturing 820 Supplies 820 -820 -820 OA Decrease in current asset (supplies expenses of 1200 - 380 = $820 recorded) Total 32640 32640 -32640 -21840

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