Accountants need to record some things that happen that are not transactions with other companies.

For each of the items listed below, indicate how you think they should affect the accounting equation. For example, assume that a real estate company had received some rent from a tenant before the month started, and recorded the liability “unearned rent.” Then a month goes by, and the rent has now been earned. The effect of a month going by is that the liability is now decreased to zero. A revenue has been earned. The result of this revenue is that equity is also increased.

A. The company has loaned money to another company. Interest on the loan is due early next year. What is the effect of more interest becoming due, even though it has not yet been collected?

B. The company had recorded prepaid rent because it paid three months of rent to its landlord in advance. Now one month has passed.

C. The company sells a large number of different products. It records an asset for inventory when it buys the products. It does not bother to account for the costs of each items it sells at the time of the sale. It started the year with $2,000,000 of inventory. During the year, it paid

$10,000,000 for all its new purchases of inventory. At the end of the year, it counts all the remaining inventory, and realizes that only

$2,100,000 worth of inventory is left. However, its accounting records show a balance of $2,000,000 plus $10,000,000 = $12,000,000.

D. The company has promised its employees bonuses equal to 4% of the company’s profits for the year. Bonuses will be paid in the first month of the next year.

E. The company owns stock in a public company. The investment has been incredibly successful, and the value of the investment has increased by $3,000,000 this year.

F. The company owns a truck, which it depreciates over a life of eight years. What is the effect of one year going by?

G. The company owns a patent that it amortizes over 10 years. What is the effect of another year going by?