urrent Liabilities (Chapter 13 Questions 48-50. What effect does the following t

Question

urrent Liabilities (Chapter 13 Questions 48-50. What effect does the following transactions have on assets, liabilities, owners' equity, and net income? Recorded accrued interest of $10,000 on a notes payable at year end. Liabilities Ovners 48. Assets t Income Equity a. Decrease DecreaseNo Effect No Effect b. Increase c. Decrease Incre d. No Effect Increase e. No Effect Increase No Effect No Effect ase Decrease Decrease Decrease Increase Increase Decrease Decrease 49. Purchase inventory for $100,000 on account (assume perpetual system is used). Liabilities Ovners t Income Equitv a. Incre b. Increase c. Decrease Increase d. No EffctIce e. Increase Decrease No Effect No Effect Increase ase No Effect No Effect Decrease ase Decrease Decrease No Effect Decrease Increase 50. Recorded an Asset Retirement Obligation (ARO) in the financial statements. AssetsLiabilities Owners' Net Income a. Incre b. Increase c. Decrease Incre d. No Effect Incre e. Increase Decrease Increase ase ase Increase Equity No Effect No Effect Decrease Decrease Decrease Decrease No Effect Decrease No Effect No Effect ase

Explanation / Answer

Requirement 48:

Accrued Interest of $10000 on a notes payable at year end:

Interest Expense a/c (Net Income) Dr $10000

To Interest Payable a/c (Liabilities) $10000

This implies, Net Income decreases and liabilities increases. Since Net income decreases, owners' equity decreases. There will be no impact on assets.

Correct Option is (d)

Requirement 49:

Purchase inventory for $100000 on account:

Inventory a/c (Assets) Dr $100000

To Accounts Payable a/c (Liabilities) $100000

This implies, Assets increases and liabilities increases. There will be no impact on net income and owner's equity.

Correct Option is (b)

Requirement 50:

Recording an Asset Retirement Obligation:

Fixed Asset a/c (Assets) Dr

To Asset Retirement Obligation (Liabilities)

This implies, Assets increases and liabilities increases.There will be no impact on net income and owner's equity.

Correct Option is (b)

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