Identifying the effect of product versus general, selling, and administrative cost on the income


Identifying the effect of product versus general, selling, and administrative cost on the income statement and statement of cash flows

Required

Each of the following events describes acquiring an asset that requires a year-end adjusting entry. Explain how acquiring the asset and making the adjusting entry affect the amount of net income and the cash flow shown on the year-end financial statements. Also, in the Cash Flow column, indicate whether the cash flow is associated with operating activities (OA), investing activities (IA), or financing activities (FA). Use (NA) for no effect. Assume a December 31 annual closing date. The first event has been recorded as an example. Assume that any products that have been made have not been sold. 

Net Income

Cash Flow

Event No.Amount of

ChangeAmount of

Change

1. Make adjusting entry

NA

-7,000

1. Purchase of computer equipment

($1,500)

NA

1. Paid $7,000 cash on January 1 to purchase computer equipment to be used for administrative purposes. The equipment had an estimated expected useful life of four years and a $1,000 salvage value.

2. Paid $7,000 cash on January 1 to purchase manufacturing equipment. The equipment had an estimated expected useful life of four years and a $1,000 salvage value.

3. Paid $6,000 cash in advance on May 1 for a one-year rental contract on administrative offices.

4. Paid $6,000 cash in advance on May 1 for a one-year rental contract on manufacturing facilities.

5. Paid $1,000 cash to purchase supplies to be used by the marketing department. At the end of the year, $200 of supplies was still on hand.

6. Paid $1,000 cash to purchase supplies to be used in the manufacturing process. At the end of the year, $200 of supplies was still on hand.

 

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