Question

Each of the following asset acquisitions requires a year-end adjusting entry.
1. Paid $50,000 cash on January 1 to purchase a hamburger franchise that had an estimated expected useful life of 10 years and no salvage value.
2. Paid $50,000 cash on January 1 to purchase a patent to manufacture a special product. The patent had an estimated expected useful life of 10 years.
3. Paid $18,000 cash on April 1 for a one-year insurance policy on the administrative building.
4. Paid $18,000 cash on April 1 for a one-year insurance policy on the manufacturing building.
5. Paid $7,500 cash to purchase office supplies for the accounting department. At the end of the year, $1,000 of office supplies was still on hand.
6. Paid $7,500 cash to purchase factory supplies. At the end of the year, $500 of factory supplies was still on hand.

Required
Explain how the adjusting entry affects the amount of net income reported in the annual financial statements. The first event is shown as an example. Assume that any products that have been made have not been sold.
Net Income
Event No. Amount of Change
1. Adjusting Entry ......... (5,000)



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  • CreatedFebruary 07, 2014
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