1. Made a monthly payment on a capital lease. (Assume only six months remain in the lease term.)
2. Recorded pension expense on a fully funded pension plan.
3. Recorded no pension post-retirement expense; the liability is unfunded, but 25% of the amount of expense will be funded within 12 months.
4. Recorded income taxes expense for the year, including a considerable amount of deferred taxes (assume deferred taxes are long-term liabilities).
5. Recorded an estimated liability for warranty claims.
6. Entered into a three-year commitment to buy all supplies from a particular supplier at a price 15% below market.
7. Received notice that a lawsuit has been filed against the company for $10 million. The amount of the company’s liability, if any, cannot be reasonably estimated at this time.

Instructions

Indicate the effects of each of these transactions upon the following elements of the company’s financial statements. Organize your answer in tabular form, using the column headings shown below. Use the following code letters to indicate the effects of each transaction on the accounting element listed in the column heading: I for increase, D for decrease, and NE for no effect.                                                                                                                                           

Income Statement

Balance Sheet

Transaction

Revenue

-

Expenses

=

Net Income

Assets

=

Current Liabilities

+

Long-Term Liabilities

+

Owners’ Equity