Exercise - Identifying the effect of product versus selling, general, and administrative cost on the income statement
Each of the following events describes acquinng an asset that requires a yearend adjusting entry.
1. Paid $11,900 cash on January 1 to purchase computer equipment to be used for administrative purposes. The equipment had an estimated expected use'lul life of four years and a $2,300 salvage value.
2. Paid $11,900 cash on January 1 to purchase manufacturing equipment. The equipment had an estimated expected useful life of four years and a $2,300 salvage value.
3. Paid $16,800 cash in advance on May 1 for a one-year rental contract on administrative offices.
Paid $16,800 cash in advance on May 1 for a one-year rental contract on manufacturing facilities.
Paid $1,400 cash to purchase supplies to be used by the marketing department At the end of the year, $370 of supplies was still on hand.
Paid $1,400 cash to purchase supplies to be used in the manufacturing process. At the end of the year, $370 of supplies was still on hand.
Required -
Show how the adjusting entry affects the amount of net income shown on the year-end financial statements. Assume a December 31 annual closing data. Also, in the Cash Flow column. indicate whether the cash flow is for operating activities (OA), investing activities (IA), or financing activities (FA). Use NA to indicate that an element was not affected by the event and enter '0' in the cell. The first event has been recorded as an example. Assume that any products that have been made have not been sold.