Question

The Lerxst Company records these journal entries:

Depreciation	$75
Accrued Expense	$18
Earned portion of Unearned Revenue	$95
Dividends declared but not paid	$25

Indicate the NET EFFECT that these journal entries have on the following items. Indicate the combined dollar amount of the effect and the direction of the effect. (Example: $13 Increase, or $8 Decrease, or No Effect.)

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

Answer 1

Effect on net income = Earned portion of Unearned Revenue - Depreciation - Accrued Expense

= 95 - 75 - 18

= $2 increase

Effect on Total Assets = Depreciation

= $75 (Decrease)

Effect on total liabilities = Accrued Expense + Dividends declared but not paid - Earned portion of Unearned Revenue

= 18 + 25 - 95

= $52 (Decrease)

Effect on retained earnings = Earned portion of Unearned Revenue - Depreciation - Accrued Expense - Dividends declared but not paid

= 95 - 75 - 18 - 25

= $23 (Decrease)

Effect on total equity = Effect on retained earnings

= $23 (Decrease)

Effect on working capital = Earned portion of Unearned Revenue - Dividends declared but not paid - Accrued Expense

= 95 - 25 - 18

= $52 (Decrease)