Question

X Company prepares monthly financial statements. Its accountant recorded the following October 1 transactions and the appropriate adjusting entries on October 31: On October 1, the company paid rent for the final three months of the year. Rent was $1,500 per month. On October 1, the company purchased equipment that cost $20,000, borrowing the full amount from a bank. The equipment has a life of four years and a salvage value at that time of $2,000. The company will repay the loan on December 31, along with interest at $152 per month.

8. What was the effect of the accountant's entries on total assets?

9. What was the effect of the accountant's entries on Net Income in October?

Answer 1

8
Equipment cost	20000
Prepaid Rent expired	-1500
Depreciation expense	-375
Effect on Total assets	18125
9
Rent expense	-1500
Depreciation expense	-375	=(20000-2000)/4/12
Interest expense	-152
Effect on net income	-2027