Laser Recording Systems produced disks for use in the home market. The following is an excerpt from Laser Recording Systems’ financial statements (all dollars in thousands).

Instructions

a. Can you tell from the discussion whether Laser Recording Systems has prepaid its legal expenses and is now making an adjustment to the asset account Prepaid Legal Expenses, or whether the company is handling the legal expense via an accrued expense adjustment?

b. Identify each of the adjustments Laser Recording Systems is discussing as one of the four types of possible adjustments discussed in the chapter. How is net income ultimately affected by each of the adjustments?

c. How did Laser Recording record the accrued interest?