Reference no: EM132465119

Use of Account Balances as a Basis for Adjustments

Four Star Video has been in the video rental business for five years. The following is a list of accounts for Four Star Video at May 31, 2017. It reflects the recurring transactions for the month of May but does not reflect any month-end adjustments.

Cash                                                  $4,000

Prepaid Rent                                          6,600

Video Inventory                                     25,600

Display Stands                                        8,900

Accumulated Depreciation                          5,180

Accounts Payable                                     3,260

Customer Subscriptions                              4,450

Capital Stock                                            5,000

Retained Earnings                                     22,170

Rental Revenue                                          9,200

Wage and Salary Expense                            2,320

Utilities Expense                                         1,240

Advertising Expense                                      600

• Four Star accrues income taxes using an estimated tax rate equal to 30% of the income for the month.

1. ActivityOperating
2. AccountsIncome Tax Payable Increase, Income Tax Expense Increase
3. Statement(s)Balance Sheet and Income Statement

Question 1: How does this entry affect the accounting equation?

Question 2: If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.