Questions 8 and 9 refer to the following information: X Company prepares monthly

Question

Questions 8 and 9 refer to the following information:

X Company prepares monthly financial statements. The following transactions occurred during January:

-On January 1, a one-year store rental lease was signed for a total of $46,800, and rent for the first 4 months was paid in advance.

-On January 1, equipment was purchased for $50,000 with a downpayment of $5,000 and a note for the remainder. The note along with annual interest of 8% was due in a year. The estimated life of the equipment is 10 years with a salvage value of $4,000.

-Daily wages are $1,800 and are paid every Friday. The last day in January was a Tuesday.

8. The required adjusting entries on January 31 decreased net income by a total of

9. The required adjusting entries on January 31 decreased total assets by a total of

Explanation / Answer

8)

Expenses incurred in January:

Lease rental = 46800/12 = 3900

Interest accrued on equipment = (50000-5000)*8%*1/12 = 300

Depreciation expense = (50000 - 4000)/10 *1/12 = 46000/10 *1/12 = 4600/12 = 383.33

Daily wage expenses = 1800*31 = 55800

Decrease in net income = 3900+300+383.33+55800 = 60383.33

9)

Decrease in prepaid lease rent as on 31st January = 3900

Increase in fixed assets for purchase of equipment = 50000

Decrease in cash for making down payment = 5000

Decrease in cash for payment of daily wages = 1800*(31-4) = 48600

Decrease in total assets = 3900+5000+48600 – 50000 = 7500

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