Question

Froblem 2 (Financial Statement Impact of Liability Transactions) Instructions I below is a list of possible transactions. Analyze the effect of the following transactions on the a statement categories indicated Ilse the following code: I: Increase D: Decrease NE: No net effe ALOE NI ly TI 1. Purchased inventory for $80,000 on account (assume perpetual system is used). AP AP 2. Issued an $80,000 note payable in payment on account (see item 1 above). 3. Recorded accrued interest on the note from item 2 above. 4. Borrowed $100,000 from the bank by signing a 6-month, 112,000, zero-interest bearing note. 5. Recognized 4 months' interest expense on the note from item 4 above. 6. Recorded cash sales of $75,260, which includes 6% sales tax. 7. Recorded wage expense of $35,000. The cash paid was $25,000, the difference was due to various amounts withheld. 8. Recorded employer's payroll taxes 9. Accrued accumulated vacation pay. 10. Recorded an asset retirement obligation 11. Recorded bonuses due to employees. 12. Recorded a contingent loss on a lawsuit that the company will probably lose. 13. Accrued warranty expense. 14. Paid warranty costs that were accrued in item 13 above.

Answer 1

1. Inventory is increased and creditor has increased.

2.creditor has decreased and note payable increased.

3.accrued interest increased.

4. liability has increased ,bank has also increased but less than 2000.

5. No treatment.

6. cash increased tax  liability has increased by 6%

1. Inventory is increased and creditor has increased.

2.creditor has decreased and note payable increased.

3.accrued interest increased.

4. liability has increased ,bank has also increased but less than 2000.

5. No treatment.

6. cash increased tax  liability has increased by 6%