Question

Show the effect, if any, of the transaction entry or adjusting entry on the appropriate balance sheet category or on the income statement by selecting the amount and indicating whether it is an addition (+) or a subtraction (-). Column headings reflect the expanded balance sheet equation; items that affect net income should not be shown as affecting stockholders' equity. In some cases. only one column may be affected because all of the specific accounts affected by the transaction are included in that category. Transaction a has been completed as an illustration. a. Provided services to a client on account; revenues totaled $530, b. Paid an insurance premium of $360 for the coming year. An asset, Prepaid Insurance, was debited. c. Recognized insurance expense for one month from the premium transaction in b via a reclassification adjusting entry. d. Paid $825 of wages accrued at the end of the prior month. e. Paid $2,700 of wages for the current month. f. Accrued $650 of wages at the end of the current month. g. Received cash of $1,525 on accounts receivable accrued at the end of the prior month. Required: a. Indicate the financial statement effect. b. Prepare the journal entry for the above transactions.

Answer 1

Balance Sheet Category		Income Statement
Transaction/ Adjustment	Assets	=	Liabilities	+	Stockholders' Equity		Net Income Effect
a.	+ $ 530	=		+			+ $ 530
b.	+ $ 360 and - $ 360	=		+
c.	($ 30) ( $ 360 / 12 )	=		+			($ 30)
d.	($ 825 )	=	($ 825 )	+
e.	($ 2,700 )	=		+			($ 2,700 )
f.		=	+$ 650	+			($ 650)
g.	+$ 1,525 and - $ 1,525

Event	General Journal	Debit	Credit
a.	Account receivable	$ 530
	Service revenue		$ 530
	(To record the service provided)
b.	Prepaid insurance	$ 360
	Cash		$ 360
	(To record insurance premium in advance)
c.	Insurance Expense ( $ 360 / 12)	$ 30
	Prepaid Insurance		$ 30
	(To record the recognized insurance expense )
d.	Wages payable	$ 825
	Cash		$ 825
	(To record the wages accrued )
e.	Wages expense	$ 2,700
	Cash		$ 2,700
	(To record wages paid)
f.	Wages expense	$ 650
	Wages payable		$ 650
	(To record the wages accrued)
g.	Cash	$ 1,525
	Account receivable		$ 1,525
	(To record cash received on accounts )