Question

f. On July 1 of the current year, a three year insurance premium on equipment in the amount of $1140 was paid and debited in full to Prepaid Insurance on that date. Coverage began on July 1 of the current year. 

g. On October 1 of the current year, the company borrowed $7.200 from the local bank on a one year, 11 percent note payable. The principal plus interest is payable at the end of 12 months. 

h. The income before any of the adjustments or income taxes was $37000. The company's income tax rate is 30 percent. (Hint: Compute adjusted pre-tax income based on (a) through (g) to determine income tax expense) 

2. Using the following headings, indicate the effect of each adjusting entry and the amount of the effect. (Reminder: Assets Liabilities Stockholders' Equity, Revenues - Expenses - Net Income, and Net Income accounts are closed to Retained Earnings, a part of Stockholders' Equity.) (Enter negative amounts with a minus sign. Round your final answers to nearest whole dollar value.) 

Answer 1

Income after adjustments but before tax = $37000 - 3400 - 900 - 1190 - 1430 + 7000 - 190 - 252 = $36638

Income tax = $36638 x 30% = $10991

h.
Effect on
Assets : 0
Liabilities : $10991 (Income tax payable)
Stockholder's Equity : ($10991)

Revenue : 0
Expenses : $10991
Net Income : ($10991)