16 Mar Effect of product versus general, selling, and adm
Effect of product versus general, selling, and administrative cost on the income statement and statement of cash flows Each of the following asset acquisitions requires a year-end adjusting entry1. Paid $50,000 cash on January 1 to purchase a hamburger franchise that had an estimated expected useful life of 10 years and no salvage value.2. Paid $50,000 cash on January 1 to purchase a patent to manufacture a special product. The patent had an estimated expected useful life of 10 years.3. Paid $3,600 cash on April 1 for a one-year insurance policy on the administrative building.4. Paid $3,600 cash on April 1 for a one-year insurance policy on the manufacturing building.5. Paid $1,200 cash to purchase office supplies for the accounting department. At the end of the year, $300 of office supplies was still on hand.6. Paid $1,200 cash to purchase factory supplies. At the end of the year, $300 of factory supplies was still on hand.RequiredExplain how both acquiring the asset and recording the adjusting entry affect the amount of net income and the cash flow reported in the annual financial statements. In the Cash Flow Column, indicate whether the cash flow is associated with operating activities (OA), investing activities (IA), or financing activities (FA). Assume a December 31 annual closing date. The first event is shown as an example. Assume that any products that have been made have not been sold.
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