Use the following information for questions 1-5: Stan's Surf Shack purchased five surfboards for $200 each. Later it purchased two additional surfboards for $250 each. Stan's sold a total of six surfboards during the period for $350 cash each. The company uses the perpetual inventory system and has not yet accrued any income taxes for the period. Indicate how the event described in the question affects the elements of the financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. Increase = I Decrease = D No Effect = NA(Note that "No Effect" means that the event does not affect that element of the financial statements or that the event causes an increase in that element that is offset by a decrease in
that same element.) Stan's pays the income taxes incurred for the current accounting period. AssetsLiabilitiesStk. EquityRevenuesExpensesNet IncomeStmt of Cash Flows???????
What will be an ideal response?
(D) (NA) (D) (NA) (I) (D) (D)
Payment of income tax will decrease assets (cash) and stockholders' equity (retained earnings). Expenses (income tax expense) increase, which decreases net income. It is reported as a cash outflow for operating activities.
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