Question

For each transaction below, write the net effect on Current Assets (CA), Total Equity (E), Gross Profit (GP), Net Income Before Taxes (NIBT), and Cash flows from operating activities (CFO).

• Write only the effect for the current period.
• Assume the company is a merchandising firm.
• If the net effect is negative, include a negative sign. If no effect, write 0.
• For CFO, positive net inflows are positive, net cash outflows are negative.
• For classifying interest expense, assume U.S. GAAP conventions.

Transaction	CA	Equity	GP	NI (pretax)	CFO
Accrued $114 of rent expense (on executive offices) which will be paid next year.	Answer	Answer	Answer	Answer	Answer
Paid suppliers $75 for inventory that was delivered last year.	Answer	Answer	Answer	Answer	Answer
Sold gift cards worth $11. Expect redemption within 1 year.	Answer	Answer	Answer	Answer	Answer
Customers buy merchandise (inventory value of $25) for $55 on store credit. Will pay next period. Ignore taxes.	Answer	Answer	Answer	Answer	Answer
Paid $15 of interest expense recognized this period.	Answer	Answer	Answer	Answer	Answer

Answer 1

	Current Assets (CA), Total Equity (E), Gross Profit (GP),
	Net Income Before Taxes (NIBT), and Cash flows from operating activities (CFO).
	Transaction	CA	Equity	GP	NI (pretax)	CFO	Remarks
	Accrued $114 of rent expense (on executive offices) which will be paid next year.	0	($114)	0	($114)	0	Current Liability will increase.Administrative expense will increase which will not change cost of goods sold.No effect on gross profit. No cash flow.Decrease in income will result in decreased Retained earning .Hence Equity will decrease
	Paid suppliers $75 for inventory that was delivered last year.	($75)	0	0	0	($75)	Accouts payable and cash will decreae.Since it is last years purchase, it will not change cost of goods sold.No effect on gross profit. Negative cash flow.No Change in income and nochange in Equity
	Sold gift cards worth $11. Expect redemption within 1 year.	$11	0	0	0	$11	Liability and cash will increae.No effect on gross profit. positive cash flow.No Change in income and nochange in Equity
	Customers buy merchandise (inventory value of $25) for $55 on store credit. Will pay next period. Ignore taxes.	$30	$30	$30	$30	0	Debit Account Receivable ($55) credit Inventory($25). Credit sales($55),Debit Cost of goods sold ($25). Net Income will increase by $30Current assets will increase by $30. gross profit , Net Income and Equity increase by $30.No effect on cash flow.
	Paid $15 of interest expense recognized this period.	($15)	($15)	0	($15)	($15)	Debit interest expense ($15) credit Cash($15). Net Income will decrease by $15 Current assets will decrease by $15. No Change ingross profit . Net Income and Equity decrease by $15.Cash flow negative $15