Effects of adjusting journal entries on income statement accounts

(Learning Objectives 2 & 3) 20–25 min.

Sky Way, Corp., completed the following selected transactions and prepared these adjusting entries during January:

Requirements 1. State whether the transaction would increase revenues, decrease revenues, increase expenses, decrease expenses, or have no effect on revenues or expenses.
If revenues or expenses are affected, give the amount of the impact on revenues or expenses for January. Use the following format for your answer.

2. Compute January net income or net loss under the accrual basis of accounting.
3. State why the accrual basis of accounting results in an accurate measurement of income.AppendixLO1

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Jan 1 Prepaid insurance for January through March, $3,600. Performed service on account, $4,150. 6 8 12 Purchased office furniture on account, $2,200. Paid property tax expense, $1,160. Purchased office equipment for cash, $4,300. 18 Performed services and received cash, $1,600. 23 30 31 Collected $3,400 on account. Paid the account payable from the January 6 transaction. Paid salaries expense, $1,615. Recorded an adjusting entry for January insurance expense related to the January 1 transaction. Recorded an adjusting entry for unearned revenue now earned, $875.