Question

2. (4 pts) What would be the effect on the financial statements, of recording the purchase of a forklift for $20,000? A down payment of $4,000 was made and a six-month note at 10% interest was signed for life of four years and a $4,000 salvage value. Straight-line depreciation will be used. The truck was purchased January 1st and the company's year-end is December 31st For each type of account, indicate the dollar ($) amount of the increase or decrease that would result, or indicate that there would be no effect. Assets Liabilities Equity Revenue Expense Net Income Increase Decrease No Effect 3. (4 pts) What would be the effect on the financial statements, of recording the payment of the note in problem number 2? For each type of account, indicate the dollar ($) amount of the increase or decrease that would result, or indicate that there would be no effect. Assets Liabilities Equity Revenue Expense Net Income Increase Decrease No Effect 4. (4 pts) What would be the effect on the year-end financial statements, of failing to record depreciation on the truck purchased in problem number 2? For each type of account, indicate the dollar (S) amount of the misstatement that would result, or indicate that there would be no effect. Assets Liabilities Equity Revenue Expense Net Income Overstated Understated No Effect

Answer 1

2. Asset will increase by $20000 and cash will reduce by $4000 due to down payment. Liability will increase for bills payable.

	Assets	Liabilities	Equity	Revenue	Expense	Net income
Increase	20000	16000
Decrease	4000
No effect			No effect	No effect	No effect	No effect

3.As $16000 as notes payable amount and $800 interest paid. It will reduce cash as well liability to pay.

	Assets	Liabilities	Equity	Revenue	Expense	Net income
Increase
Decrease	16800	16800
No effect			no effect	no effect	no effect	no effect

4. As depreciation is an expense and if not recorded will reduce expenses and increase net income. Assets will be over recorded and as net income is increased, equity will also increase.

	Assets	Liabilities	Equity	Revenue	Expense	Net income
Increase	4000		4000			4000
Decrease					4000
No effect		no effect	no effect	no effect	no effect