On January 10, 2010, the first day of the spring semester, the cafeteria of The Defiance College purchased for cash enough paper napkins to last the entire 16-week semester. The total cost was $4,800.
Required:
Use the horizontal model to show the effects of recording the following:
a. The purchase of the paper napkins, assuming that the purchase was initially recorded as an expense.
b. At January 31, it was estimated that the cost of the paper napkins used during the first three weeks of the semester totaled $950. Use the horizontal model to show the adjustments that should be made as of January 31 so that the appropriate amount of expense will be shown in the income statement for the month of January.
c. Use the horizontal model to show the effects of the alternative way of recording the initial purchase of napkins.
d. Use the horizontal model to show the effects of the adjustment that should occur at January 31 if the initial purchase had been recorded as in c.
e. Consider the effects that entries a and b would have on the financial statements of The Defiance College. Compare these effects to those that would be caused by entries c and d. Are there any differences between these alternative sets of entries on the
1. Income statement for the month of January?
2. Balance sheet at January 31?