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Limelight Company records these journal entries: Prepaid insurance expired $53 Accrued rent expense $28 Salaries previously...

Limelight Company records these journal entries:

Prepaid insurance expired

$53

Accrued rent expense

$28

Salaries previously accrued are paid

$27

Common stock is issued for cash

$35

Required for Section 2:

Indicate the net effect of these journal entries (i.e., combined effect of all four journal entries) on the following items. Indicate the dollar amount of the net effect and the direction of the net effect. (Example: $13 Increase, or $8 Decrease, or No Effect.) Hint: Prepare the journal entries.

  1. Net Income
  2. Total Assets
  3. Total Liabilities
  4. Retained Earnings
  5. Total Equity
  6. Working Capital

Solutions

Expert Solution

Answer:

Net Effect Remarks
Net Income $81 Decrease -$51 - $28
Total Assets $45 Decrease -$53 - $27 + $35
Total Liabilities $1 Increase $28 - $27
Retained Earnings $81 Decrease Due to decrease in net income
Total Equity $46 Decrease $35 - $81
Working Capital $46 Decrease Due to decrease in assets and increase in liabilites

Explanation:

Retained earnings are decreased as the loss is transferred to Retained earnings. Loss of $81 is deducted from retained earnings.

Formula for Working Capital = Current Assets - Current Liabilities

as current assets decreased by $45 and Liabilities increased by $1 it ultimately decreases the working capital by $46

Journal entries are uploaded in the image format. Please fo through the image.

ekkarill92 answered 1 year ago
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