Question

A company incurred the following transactions:

Answer 1

Answer:

1. Reduction (-) in accruals.
2. Increase (+) in income tax payable
3. Increase (+) in interest accrual and interest expense
4. Increase in long-term liabilities (+)
5. &  6: Reduction in interest expense (-)

   7. Increase (+) in operating expense by  $2,960

   8. Increase (+) in income tax payable by $61,000 and increase in deferred       tax liability by $22,000

Explanation:

1. The wages accrual paid would lead to reduction in the wages accrual, as wages accruals would be debited while cash credit.
2. Real estate taxes not yet accrued for would lead to increase in income tax payable
3. Interest on bonds payable not yet accrued for would result in increase in interest payable on bonds and interest expense.
4. The outstanding bonds in an increase in bonds payable.
5. The premium associated with the bond would lead to reduction in interest expense, basically.
6. Same as (5) above.
7. The estimated warranty of $2,960 leads to increase in operating expense.
8. There would be an increase in income tax payable of $61,000 and deferred tax liability of $22,000.