X Company prepares monthly financial statements. The following transactions occu
ID: 2598656 • Letter: X
Question
X Company prepares monthly financial statements. The following transactions occurred during January:
On January 1, a one-year store rental lease was signed for a total of $44,400, and rent for the first 3 months was paid in advance.
On January 1, equipment was purchased for $60,000 with a downpayment of $6,000 and a note for the remainder. The note along with annual interest of 7% was due in a year. The estimated life of the equipment is 10 years with a salvage value of $6,000.
Daily wages are $1,700 and are paid every Friday. The last day in January was a Tuesday.
8. The required adjusting entries on January 31 decreased net income by a total of
Explanation / Answer
On January 1, a one-year store rental lease was signed for a total of $44,400, and rent for the first 3 months was paid in advance. Rent expense (44400/12) $ 3,700 Prepaid rent $ 3,700 On January 1, equipment was purchased for $60,000 with a downpayment of $6,000 and a note for the remainder. The note along with annual interest of 7% was due in a year. The estimated life of the equipment is 10 years with a salvage value of $6,000. Depreciation expense(60000-6000)/120 months $ 450 Accumulated depreciation $ 450 Intrest expense (54000 x 7%/12) $ 315 Interest payable $ 315 Daily wages are $1,700 and are paid every Friday. The last day in January was a Tuesday. Wage expense (1700 x 2 days) $ 3,400 Wages payable $ 3,400 Total impact on net income Rent expense $ 3,700 Depreciation expense 450 Interest expense 315 Wage expense 3,400 Net income decreased by $ 7,865
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