Indicate How Each Event Affects the Elements of Financial Statements $$\text { Increase } = \mathrm { I } \quad \text { Decrease } = \mathrm { D } \quad \text { No Effect } = \mathrm { N }$$

question 127

Short Answer

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. $$\text { Increase } = \mathrm { I } \quad \text { Decrease } = \mathrm { D } \quad \text { No Effect } = \mathrm { N }$$
An asset purchased for $14,000 that had a $4,000 salvage and a 4-year life was depreciated using straight line depreciation for two years. At the beginning of the third year, the total useful life of the asset is revised to 5 years. Show how the revised depreciation expense will affect the financial statements. $\begin{array}{|l|l|l|l|l|l|}\text { Assets Liabilities } & \text { Equity } & \text { Revenues } & \text { Expenses } & \begin{array}{c}\text { Net } \\\text { Income }\end{array} & \begin{array}{c}\text { Cash } \\\text { Flow }\end{array}\\\hline&&&\end{array}$

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Definitions:

Inventory System

A mechanism for tracking and managing items that a company holds in stock, covering aspects like ordering, storing, using, and selling these goods.

Perpetual

Continuing indefinitely without a predetermined end in the context of perpetual inventory systems that continually update to reflect buying and selling activities.

Credit Period

The amount of time the buyer is allowed in which to pay the seller.

Merchandise

Goods that are bought and sold in business transactions.