Effect of adjusting entries on the accounting equation
Required
Each of the following independent events requires a year-end adjusting entry. Show how each event and its related adjusting entry affect the accounting equation. Assume a December 31 closing date. The first event is recorded as an example.
Total Assets |
|
| Stockholders’ Equity | ||||||
Event/Adjustment | Cash | + | Other Assets | = | Liabilities | + | Common Retained | + | Retained Earnings |
a | −7,200 |
| +7,200 |
| NA |
| NA |
| NA |
Adj. | NA |
| −5,400 |
| NA |
| NA |
| −5,400 |
a.Paid $7,200 cash in advance on April 1 for a one-year insurance policy.
b. Purchased $1,400 of supplies on account. At year’s end, $150 of supplies remained on hand.
c. Paid $8,400 cash in advance on March 1 for a one-year lease on office space.
d. Received a $18,000 cash advance for a contract to provide services in the future. The contract required a one-year commitment starting September 1 to be provided evenly over the year.
e. Paid $24,000 cash in advance on October 1 for a one-year lease on office space.
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