E13-16b (financial statement impact of liability transactions)

E13-16B (Financial Statement Impact of Liability Transactions) Presented below is a list of possible transactions.

1. Accrued accumulated vacation pay.

2. Recorded sales of product and related warranties (assume sales warranty approach).

3. Recorded estimated liability for premium claims outstanding.

4. Borrowed $200,000 from the bank by signing a 1-year, $220,000, zero-interest-bearing note.

5. Recognized 3 months’ interest expense on the note from item 4 above.

6. Accrued warranty expense (assume expense warranty approach).

7. Issued an $55,000 note payable in payment on account.

8. Recorded accrued interest on a $55,000 note payable.

9. Paid warranty costs that were accrued in item 6 above.

10. Recorded a contingent loss on a lawsuit that the company will probably lose.

11. Recognized warranty revenue (see item 2).

12. Purchased inventory for $120,000 on account (assume perpetual system is used).

13. Paid warranty costs under contracts from item 2.

14. Recorded employer’s payroll taxes.

15. Recorded an asset retirement obligation.

16. Recorded wage expense of $12,000. The cash paid was $9,000; the difference was due to various

amounts withheld.

17. Recorded bonuses due to employees.

18. Recorded cash sales of $26,000, plus 5% sales tax.

Instructions

Set up a table using the format shown below and analyze the effect of the 18 transactions on the financial statement categories indicated.

#    Assets    Liabilities    Owners’ Equity    Net Income

1

Use the following code:

I: Increase D: Decrease NE: No net effect