Answer to Question #159329 in Financial Math for sara

Question

Fifteen transactions or events affecting Drillmasters, Inc., are as follows:

 

1.     Made a year-end adjusting entry to accrue interest on a note payable that has the interest rate stated separately from the principal amount.

2.     A liability classified for several years as a long-term becomes due within the next 12 months.

3.     Recorded the regular weekly payroll, including payroll taxes, amounts withheld from employees, and the issuance of paychecks.

4.     Made arrangements to extend a bank loan due in 30 days for another 24 months.

5.     Made a monthly payment on a fully amortized installment note payable. (Assume this note is classified as a current liability.)

6.     Called bonds payable due in five years at a price above the carrying value of the liability in the accounting records.

7.     Made a monthly payment on an operating lease.

8.     Made a monthly payment on a capital lease. (Assume only six months remain in the lease term.)

9.     Recorded pension expense on a fully funded pension plan.

10. Recorded no pension post-retirement expense; the liability is unfunded, but 25% of the amount of expense will be funded within 12 months.

11. Recorded income taxes expense for the year, including a considerable amount of deferred taxes (assume deferred taxes are long-term liabilities).

12. Recorded an estimated liability for warranty claims.

13. Entered into a three-year commitment to buy all supplies from a particular supplier at a price 15% below market.

14. Received notice that a lawsuit has been filed against the company for $10 million. The amount of the company’s liability, if any, cannot be reasonably estimated at this time.

Instructions

Indicate the effects of each of these transactions upon the following elements of the company’s financial statements. Organize your answer in tabular form, using the column headings shown below. Use the following code letters to indicate the effects of each transaction on the accounting element listed in the column heading: I for increase, D for decrease, and NE for no effect.                                                                                                                                              

 

Answer 1

In the balance sheet, there can be both an increase and a decrease, since one operation can both increase and decrease, only increase, only decrease.