Short Answer Questions (2 points each) (show the effect of the transaction on each element) Do not leave blanks 1, I = increase D= decrease N = no effect 2 pts = 6-7 correct 1 pts = 3-5 correct 0 pts = 0-2 correct On January 1, 2016, Howard Company carried inventory at the lower of cost or market on an aggregate basis. The cost of the inventory was $19,456 but the current market value is $19,950. Assuming the perpetual inventory system is used, how will the inventory adjustment, if one is necessary, affect the financial statements? Assets Liabilities Equity Revenues Expenses Net Income Cash 2. The Baker Company purchased an asset on January 1, 2016 for $200,000. The asset had a $50,000 salvage value and a 10 year life. The asset was sold on January 1, 2018 for $174,000. Show how the sale will affect Baker's financial statements, assuming that Baker uses straight-line depreciation. Assets Liabilities Equity Revenues Expenses Net Income Cash 3. In preparing the bank reconciliation for Heath Company, a company employee found that the bank statement included an NFS check that the company had received from a customer paying its account at Heath Company. Assets Liabilities Equity Revenues Expenses Net Income Cash 4. A customer returned goods to Whetzel Co. that had been purchased for $60 on account. The goods had originally cost Whetzel $35. Frank credited the customer's account for the return. Assets Liabilities Equity Revenues Expenses Net Income Cash 5. The Fisher Company paid $28,000 to improve the quality of a manufacturing machine. How will this expenditure affect Fisher's financial statements? Assets Liabilities Equity Revenues 1 Expenses Net Income Cash