Accounting: What the Numbers Mean 11th Edition by Wayne McManus,Daniel Viele,David Marshall

Exercise 37

Transaction analysis-various accounts Prepare an answer sheet with the column headings shown here. For each of the following transactions or adjustments, indicate the effect of the transaction or adjustment on the appropriate balance sheet category and on net income by entering for each account affected the account name and amount and indicating whether it is an addition (+) or a subtraction (?). Transaction a has been done as an illustration. Net income is not affected by every transaction. In some cases only one column may be affected because all of the specific accounts affected by the transaction are included in that category.

b. Determined that the Allowance for Bad Debts account balance should be decreased by $9,600 because expense during the year had been overestimated.
c. Wrote off an account receivable of $4,320.
d. Received cash from a customer in full payment of an account receivable of $1,500 that was paid within the 2% discount period. A Cash Discount Allowance account is maintained.
e. Purchased eight units of a new item of inventory on account at a cost of $120 each. Perpetual inventory is maintained.
f. Purchased 17 more units of the above item at a cost of $114 each. Perpetual inventory is maintained.
g. Sold 20 of the items purchased (in e and f ) and recognized the cost of goods sold using the LIFO cost flow assumption. Perpetual inventory is maintained.
h. Paid a one-year insurance premium of $1,440 that applied to the next fiscal year.
i. Recognized insurance expense related to the preceding policy during the first month of the fiscal year to which it applied.