Luton Inc Exercise

Luton Inc. has a year end of December 31 2009.

For each of the following transactions, show which figure would be shown in:
Income statement
Cash
Prepayment
Accruals

Transactions:

1.   Purchased a one year software license for $6,000 on November 1 2009.

The payment was made in full on November 1, 2009.

2.   Paid $1,300 of interest expense on January 3, 2010.

Interest is to be paid monthly and is for loans outstanding as of the month of December, 2009.

3.   Sold a training contract to be delivered on January 31, 2010.

The course fee is $2,000 which will be payable 30 days after the course.
There is also a development fee of $5,000 payable at the same time as the course fee.
The development will be carried out in December 2009 and January 2010 and will equal work being done in bot

Answers

Transaction 1 Dr Cr
Income statement (1,000)
Cash (6,000)
Prepayment 5,000
Accruals
(1,000) (1,000)

Transaction 2 Dr Cr
Income statement (10,000)
Cash -
Prepayment
Accruals 10,000
- -

Transaction 3 Dr Cr
Income statement 2,500
Cash -
Prepayment 2,500
Accruals - -
2,500 2,500
l work being done in both months.