Explanation Accounting equation : Accounting equation is an accounting tool expressed in the form of equation, by creating a relationship between the resources or assets of a company, and claims on the resources by the creditors and the owners. Accounting equation is expressed as shown below: Assets = Liabilities + Stockholders' Equity Indicate the effects of each adjusting entry as follows: Transaction Assets Liabilities Stockholders’ equity a. NE Interest payable +$700 Interest expense -$700 b. NE Unearned revenue -$3,200 Rent revenue +$3,200 (Refer Working Note 1) c. Accounts receivable +$3,300 NE Service Revenue +$3,300 d. Prepaid insurance -$700 NE Insurance expense -$700 (Refer Working Note 2) e. NE Salaries and wages payable +$1,100 Salaries and wages expense -$1,100 f. Accumulated depreciation -equipment (xA) -$1,000 NE Depreciation expense -$1,000 g. NE Income tax payable +$9,000 Income tax expense -$9,000 (Refer Working Note 3) Table (1) Justification: a. Interest expense incurred at the end of the accounting period: This transaction increases the value of liabilities by $700, and decreases the value of stockholder’s equity by $700. b. Rent revenue recognized at the end of the accounting period: This transaction decreases the value of liabilities by $3,200, and increases the value of stockholder’s equity by $3,200. Working note 1: Calculate the value of unearned revenue: Unearned revenue= [ [ Revenue Number of months rent collected ] × ( Number of months between September 1, 2018 to December 1, 2018 ) ] = $ 4 , 800 6 months × 4 months =$800 × 4 = $ 3 , 200 c

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ISBN: 9781260159516

Author: PHILLIPS

Publisher: MCG

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Financial Transaction Analysis

The transaction analysis is done with the help of the accounting equation. The basic accounting equation is alternatively known as the balance sheet equation is based on the double-entry system which says that for each transaction happening in a business…

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Chapter 4, Problem 3CP

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Indicate the effects of each adjusting entry.

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Chapter 4, Problem 2CP

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Enter the amount of each transaction on individual items of the accounting equation. (Enter decreases to account balances with a minus sign. Enter as per the transaction order provided in the question data.)

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Indicate the effects of each adjusting entry .

Solution Summary: The author explains the accounting equation as an accounting tool expressed in the form of equation, by creating a relationship between the resources or assets of the company, and claims by the creditors and the owners.

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Indicate the effects of each adjusting entry.

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