Chapter 5, Problem 5.21E

Exercise 5.21

LO 5, 6, 8

Transaction analysis-various accounts Prepare an answer sheet with the column headings shown here. For each of the following transactions or adjustments, indicate the effect of the transaction or adjustment on the appropriate balance sheet category and on net income by entering for each account affected the account name and amount and indicating whether it is an addition (+) or a subtraction (-). Transaction a has been done as an illustration. Net income is not affected by every transaction. In some cases only one column may be affected because all of the specific accounts affected by the transaction are included in that category.

1. Determined that the Allowance for Bad Debts account balance should be increased by $4,400.
2. Recognized bank service charges of $60 for the month.
3. Received $50 cash for interest accrued in a prior month.
4. Purchased five units of a new item of inventory⁷ on account at a cost of $70 each. Perpetual inventory is maintained.
5. Purchased 10 more units of the same item at a cost of $76 each. Perpetual inventory⁷ is maintained.
6. Sold eight of the items purchased (in e and f) and recognized the cost of goods sold using the FIFO cost flow assumption. Perpetual inventory⁷ is maintained.