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Question & Answer: Consider the following transactions for Huskies Insurance Company: a. Equipment costing $36,600 is purchased at the beginning o…..

Consider the following transactions for Huskies Insurance Company a. Equipment costing $36,600 is purchased at the beginning of the year for cash. Depreciation on the equipment is $6,100 per year b On June 30, the company lends its chief financial officer $41,000; principal and interest at 7% are due in one year c. On October 1, the company receives $12,400 from a customer for a one-year property insurance policy. Deferred Revenue is credited Required Indicate by how much net income in the income statement is higher or lower if the adjustment is not recorded. Transaction Net Income 0. C. Total

Consider the following transactions for Huskies Insurance Company: a. Equipment costing $36,600 is purchased at the beginning of the year for cash. Depreciation on the equipment is $6,100 per year. b. On June 30, the company lends its chief financial officer $41,000: principal and interest at 7% are due in one year. c. On October 1, the company receives $12,400 from a customer for a one-year property insurance policy. Deferred Revenue is credited. Indicate by how much net income in the income statement is higher or lower if the adjustment is not recorded.

Expert Answer

 

Transaction Net income
a $                                          6,100 Lower
b $41,000*7%*6/12 = $1,435 Lower Interest for 6 months only will make impact on income statement
c $12,400/12*3 = $3,100 Higher 3 months income only will make impact on income statement
$                                          4,435 Lower
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