Prime Purchase is an electronics retailer. Indicate the effect of each of the following transactions (i.e. increase, decrease or no change) under the cash basis and accrual basis of accounting for Prime Purchase during 2021. For cash accounting, show changes in the cash account; for accrual accounting, show changes in the income statement.

Examples: Prime Purchase provided services and received $4,000 in cash. Answer: Cash basis: Increase $4,000 Accrual basis: Increase $4,000

1. On November 12th, Prime Purchase purchased inventory for $200,000. It paid $120,000 in cash and owed the rest on account.

2. Prime Purchase paid employees $12,000 in wages for work done during the year 2021. An additional $2,000 for 2021 wages will be paid in January 2022.

3. On December 15th, Prime Purchase paid $36,000 for a twelve-month fire insurance policy that runs from December 16th, 2021 to December 15th, 2022. Include the effect of any adjusting entry necessary on December 31st.

4. Prime Purchase sold merchandise for $100,000 (half in cash and half on account). This merchandise had been purchased by Prime Purchase for $75,000 on a prior accounting period.

5. On December 20th, Prime Purchase made $20,000 cash sales of gift certificates, which can be used to purchase merchandise at the store. None of the gift certificates was redeemed by December 31st.