Reference no: EM132985605
a. On January 1, 2019, Frances Corporation started doing business and the owners contributed $200,000 capital in cash.
b. The company paid $24,000 to cover the rent for the office space for the 24-month period from January 1, 2019 to December 31, 2020.
c. On March 1, 2019, MSK Inc. entered into a consulting contract under which Frances Corporation promised to provide consulting to MSK Inc. for the 10-month period from March 1, 2019, to December 31, 2019. In return, MSK promised to pay a monthly consulting fee of $15,000, which was to be paid in January 2020. Frances fulfilled its contractual obligation during 2019.
d. On July 1, 2019, Frances purchased office equipment for $100,000 cash. The equipment has an estimated useful life of five years and no salvage value. The equipment was immediately placed into use. Frances uses the straight-line method of depreciation. It records depreciation expense in proportion to the number of months' usage.
e. Through November 30, 2019, the company had paid $66,000 to its employees for 11 months of salaries. Accrued salaries on December 31, 2019, were $6,000.
f. On December 31, 2019, Norbert Corporation advanced $20,000 to Frances Corporation for consulting services to be provided during 2020.
Problem 1. For each of these transactions, using the financial statement effect template, analyze the effects of the above transactions on financial statements
Problem 2. At the end of the year, analyze how the adjustment for accrual basis accounting affects the financial statements
Problem 3. If Frances recognized "rent expense" instead of "prepaid rent" on Jan. 1, discuss the effect of this error on the financial statements.
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