Answer:
The effects on the accounting equation are:
Asset $-1,005 (decrease) = Liabilities $3,150 (increase) + Retained earnings $-4,155 (decrease)
The required journals are as below:
Explanation:
Accounting equation shows a company's balance sheet - in that the total assets of a company equals liabilities and equity.
Scenario (a)
Debit Prepaid insurance $6,200
Credit Cash $6,200
<em>(To record payment for one-year insurance policy)</em>
Debit Insurance expense (0.25x$6,200) $1,550
Credit Prepaid insurance $1,550
<em>(To record amortization of prepaid insurance - October - December)</em>
Scenario (b)
Debit Cash $5,000
Credit Unearned revenue $5,000
<em>(To record unearned services revenue)</em>
Debit Unearned revenue (0.75 x $5,000) $3,750
Credit Sales revenue $3,750
<em>(To record amortization of unearned services revenue)</em>
Scenario (c)
Debit Supplies $1,900
Credit Accounts payable $1,900
<em>(To record purchase of supplies on account)</em>
Debit Supplies expenses ($1,900 - $245) $1,655
Credit Supplies $1,655
<em>(To record amortization of supplies)</em>
Scenario (d)
Debit Prepaid lease $11,280
Credit Cash $11,280
<em>(Payment of office space in advance)</em>
Debit Rent paid (5/12 x $11,280) $4,700
Credit Prepaid lease $4,700
<em>(Amortization of prepaid office space - August - December)</em>
The required accounting equation using the formula: Assets = Liabilities + Equity
Cash -$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
Asset $-1,005 (decrease) = Liabilities $3,150 (increase) + Retained earnings $-4,155 (decrease)
