Answer:
The impact on the accounting equation is as follows:
Assets $-1,005 (decline) = Liabilities $3,150 (increase) + Retained earnings $-4,155 (decline)
The necessary journal entries are outlined as below:
Explanation:
The accounting equation represents a company's balance sheet, stating that total assets equal liabilities plus equity.
Scenario (a)
Debit Prepaid insurance $6,200
Credit Cash $6,200
(To document payment for a one-year insurance policy)
Debit Insurance expense (0.25 × $6,200) $1,550
Credit Prepaid insurance $1,550
(To record the amortization of prepaid insurance - October to December)
Scenario (b)
Debit Cash $5,000
Credit Unearned revenue $5,000
(To document unearned service revenue)
Debit Unearned revenue (0.75 × $5,000) $3,750
Credit Sales revenue $3,750
(To record the amortization of unearned service revenue)
Scenario (c)
Debit Supplies $1,900
Credit Accounts payable $1,900
(To account for the purchase of supplies on credit)
Debit Supplies expenses ($1,900 - $245) $1,655
Credit Supplies $1,655
(To record the amortization of purchased supplies)
Scenario (d)
Debit Prepaid lease $11,280
Credit Cash $11,280
(Prepayment for office space)
Debit Rent paid (5/12 × $11,280) $4,700
Credit Prepaid lease $4,700
(To record amortization of prepaid office space from August to December)
The accounting equation based on the formula:
Assets = Liabilities + EquityCash -$6,200 + $5,000 - $11,280 + Prepayment $6,200 - $1,550 + $11,280 - $4700 + Supplies $1,900 - $1,655 = Unearned revenue $5,000 - $3,750 + Accounts payable $1,900
Cash $-12,480 + Prepayment $11,230 + Supplies $245 = Unearned revenue $1,250 + Accounts payable $1,900 + Retained earnings $-4,155
Assets $-1,005 (decline) = Liabilities $3,150 (increase) + Retained earnings $-4,155 (decline)
