ch03
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ch03

Course Number: ACC 220 , Winter 2008

College/University: South Central College

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CHAPTER 3 ADJUSTING THE ACCOUNTS SUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOM'S TAXONOMY Item 1. 2. 3. 4. 5. 6. 7. 8. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 135. 136. 137. 138. 139. 140. SO 1 1 1 1 1 2 2 2 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 3 3, 8 4 4 BT C K K C K C K Item 9. 10. 11. 12. 13. 14. 15. 16. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72....

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3 ADJUSTING CHAPTER THE ACCOUNTS SUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOM'S TAXONOMY Item 1. 2. 3. 4. 5. 6. 7. 8. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 135. 136. 137. 138. 139. 140. SO 1 1 1 1 1 2 2 2 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 3 3, 8 4 4 BT C K K C K C K Item 9. 10. 11. 12. 13. 14. 15. 16. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 141. 142. 143. 144. 145. 146. SO 2 2 3 3 3 3 4 4 2 2 3 3 3 3 3 3 3 3 4 4 4 4 4 4 4 4 4 4 4 4 4,5 5 5 5,6 BT K K K K K K C K K C AN C AN K C C AN C AN AN K AN AN AN AN AN AN AN C C AN AN AN AN Item 17. 18. 19. 20. 21. 22. 23. SO 5 5 5 5 5 5 5 BT C K C C C C K Item 25. 26. 27. a 28. a 29. 30. 31. 32. 98. 99. 100. 101. 102. 103. 104. 105. 106. 107. 108. 109. 110. 111. 112. 113. 114. 115. 116. 117. 153. 154. 155. 156. 157. 158. 170. 171. SO 5 6 7 8 8 5 2 3 5 5 5 5 5 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7 6 6 6 5-7 5-7 7 6 7 BT K K K C C C K K C K C AN AN C C AN AN AN C AN AN AN AP C AN K K C AN AN AN AN AN AN K K a a Item 33. 34. 35. 36. 37. SO 3 5 6 7 5 BT K C C K C True-False Statements Multiple Choice Questions K K K C K K C C C K K K K K C C C C C C AN AN AN AN C AN 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 147. 148. 149. 150. 151. 152. 4 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5,6 5,6 5,6 5,6 5,6 5,6 AN C 118. 119. a 120. a 121. a 122. a 123. 124. 125. 126. 127. 128. 129. 130. 131. 132. 133. 134. 8 8 8 8 8 8 2 2 2 4 4 5 6 6 6 7 7 C C AN C AN AN C K K K K AN AN C AN C K AN AN K AN AN C K K C AN AN AN AN AN C Exercises a 159. 160. 7 8 AP AN Completion Statements 161. 1 K 164. 2 K 167. 5 K 162. 1 K 165. 2 K 168. 5 K 163. 2 K 166. 5 K 169. 5 K a This topic is dealt with in an Appendix to the chapter 3-2 Test Bank for Financial Accounting, Fifth Edition Brief Exercises 177. 178. 179. 5, 8 5 5 AN AN AN 180. 181. 182. 5 5 5 AN AN AN 183. 184. 185. 5 6 7 AN AN AP 186. 187. 188. 3 3 7 AN AN K SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE Item 1. 2. 3. 6. 7. 8. 9. 11. 12. 13. 15. 16. 68. 17. 18. 19. 20. 21. 22. 23. 24. Type TF TF TF TF TF TF TF TF TF TF TF TF MC TF TF TF TF TF TF TF TF Item 4. 5. 38. 10. 31. 48. 49. 14. 32. 33. 69. 70. 71. 25. 30. 34. 37. 79. 80. 81. 82. 83. 84. 107. 108. 109. 110. 111. Type TF TF MC TF TF MC MC TF TF TF MC MC MC TF TF TF TF MC MC MC MC MC MC MC MC MC MC MC Item 39. 40. 41. 50. 51. 52. 53. 60. 61. 62. 72. 73. 74. 85. 86. 87. 88. 89. 90. 91. 92. Type Item Type Item Type MC MC MC MC MC MC MC MC MC Ex MC MC MC MC MC MC Ex Ex Ex Ex Ex Item 161. 162. Type C C Item Type Study Objective 1 MC 42. MC 45. MC 43. MC 46. MC 44. MC 47. Study Objective 2 MC 54. MC 58. MC 55. MC 59. MC 56. MC 124. MC 57. MC 125. Study Objective 3 MC 63. MC 66. MC 64. MC 67. MC 65. MC 137. Study Objective 4 MC 75. MC 78. MC 76. MC 127. MC 77. MC 128. Study Objective 5 MC 93. MC 101. MC 94. MC 102. MC MC MC MC MC MC 95. 96. 97. 98. 99. 100. MC MC MC MC MC MC 129. 143. 144. 145. 146. 147. 126. 135. 136. 163. 138. 186. 187. 139. 140. 141. 148. 149. 150. 151. 152. 156. 157. 166. MC Ex Ex C Ex BE BE Ex Ex Ex Ex Ex Ex Ex Ex Ex Ex C 164. 165. C C 142. 143. Ex Ex 167. 168. 169. 177. 178. 179. 180. 181. 182. 183. C C C BE BE BE BE BE BE BE Study Objective 6 26. 35. 103. 104. 105. 106. TF TF MC MC MC MC 112. 113. 114. 130. 131. MC MC MC MC MC 132. 146. 147. 148. 149. MC Ex Ex Ex Ex 150. 151. 152. 153. 154. Ex Ex Ex Ex Ex 155. 156. 157. 170. 184. Ex Ex Ex C BE Adjusting the Accounts Study Objective 7 27. 36. 28. 29. TF TF TF TF 115. 116. MC MC 117. 133. 118. 119. MC 134. MC 157. MC 156. Ex 158. a Study Objective 8 MC 120. MC 122. MC 121. MC 123. C = Completion Ex = Exercise Ex Ex MC MC 159. 171. 138. 160. Ex C Ex Ex 185. 188. 177. 3-3 BE BE BE Note: TF = True-False MC = Multiple Choice BE = Brief Exercises The chapter also contains one set of ten Matching questions and four Short-Answer Essay questions. 3-4 Test Bank for Financial Accounting, Fifth Edition CHAPTER STUDY OBJECTIVES 1. Explain the time period assumption. The time period assumption assumes that the economic life of a business can be divided into artificial time periods. 2. Explain the accrual basis of accounting. Accrual-basis accounting means that events that change a company's financial statements are recorded in the periods in which the events occur, rather than in the periods in which the company receives or pays cash. 3. Explain why adjusting entries are needed. Adjusting entries are made at the end of an accounting period. They ensure that revenues are recorded in the period in which they are earned and that expenses are recognized in the period in which they are incurred. 4. Identify the major types of adjusting entries. The major types of adjusting entries are prepaid expenses, unearned revenues, accrued revenues, and accrued expenses. 5. Prepare adjusting entries for prepayments. Prepayments are either prepaid expenses or unearned revenues. Adjusting entries for prepayments are required at the statement date to record the portion of the prepayment that represents the expense incurred or the revenue earned in the current accounting period. 6. Prepare adjusting entries for accruals. Accruals are either accrued revenues or accrued expenses. Adjusting entries for accruals are required to record revenues earned and expenses incurred in the current accounting period that have not been recognized through daily entries. 7. Describe the nature and purpose of an adjusted trial balance. An adjusted trial balance shows the balances of all accounts, including those that have been adjusted, at the end of an accounting period. Its purpose is to show the effects of all financial events that have occurred during the accounting period. a 8. Prepare adjusting entries for the alternative treatment of prepayments. Prepayments may be initially debited to an expense account. Unearned revenues may be credited to a revenue account. At the end of the period, these accounts may be overstated. The adjusting entries for prepaid expenses are a debit to an asset account and a credit to an expense account. Adjusting entries for unearned revenues are a debit to a revenue account and a credit to a liability account. Adjusting the Accounts 3-5 TRUE-FALSE STATEMENTS 1. Because accounting often requires estimates to be made to assess the effect of a transaction, the shorter the time period, the easier it becomes to determine the proper adjustments. The time period assumption states that the economic life of a business entity can be divided into artificial time periods. The time period assumption is often referred to as the matching principle. A company's calendar year and fiscal year are always the same. Accounting time periods that are one year in length are referred to as interim periods. Income will always be greater under the cash basis of accounting than under the accrual basis of accounting. The cash basis of accounting is not in accordance with generally accepted accounting principles. The matching principle requires that assets be matched with liabilities. Accrual basis accounting requires that expenses be recognized when incurred regardless of when paid. The revenue recognition principle dictates that revenue be recognized in the accounting period in which cash is received. Adjusting entries impact only revenue and expense accounts. An adjusting entry always involves two balance sheet accounts. Adjusting entries are often made because some business events are not recorded as they occur. Adjusting entries are recorded in the general journal but are not posted to the accounts in the general ledger. Revenue received before it is earned and expenses paid before being used or consumed are both initially recorded as liabilities. Accrued revenues are revenues which have been received but not yet earned. The book value of a depreciable asset is always equal to its market value because depreciation is a valuation technique. Accumulated Depreciation is a liability account and has a credit normal account balance. Uneaned Revenue is reported on the income statement. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 3-6 20. Test Bank for Financial Accounting, Fifth Edition Accumulated Depreciation is deducted from a long-term asset account and reported on the balance sheet. Unearned revenue is a prepayment that requires an adjusting entry when services are performed. Prepaid expenses are recorded as assets initially and then charged to expense as they expire with the passage of time or are consumed in the course of business. A contra asset account is subtracted from a related account in the balance sheet. If prepaid costs are initially recorded as expenses, no adjusting entries will be required in the future. The cost of a depreciable asset less accumulated depreciation reflects the book value of the asset. Accrued revenues are revenues that have been earned and received before financial statements have been prepared. Financial statements can be prepared from the information provided by an adjusted trial balance. The adjusting entry at the end of the period to record an expired cost may be different depending on whether the cost was initially recorded as an asset or an expense. Rent received in advance and credited to a rent revenue account which is still unearned at the end of the period, will require an adjusting entry crediting a liability account for the amount still unearned. An adjusting entry to record the expiration of insurance intially recorded as an asset requires a credit to Prepaid Insurance. The matching principle requires that expenses be matched with revenues. In general, adjusting entries are required each time financial statements are prepared. Every adjusting entry affects one balance sheet account and one income statement account. If depreciation expense is not recorded, both assets and expenses will be understated. If an unearned revenue account is not adjusted for revenues earned during the period, liabilities will be overstated and revenue will be understated. An adjusted trial balance should be prepared before the adjusting entries are made. If a prepaid expense account is not adjusted for the portion of the asset which has expired, both assets and expenses are overstated. 21. 22. 23. a 24. 25. 26. 27. a 28. a 29. 30. 31. 32. 33. 34. 35. 36. 37. Adjusting the Accounts 3-7 Answers to True-False Statements Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item a Ans. 1. 2. 3. 4. 5. 6. F T F F F F 7. 8. 9. 10. 11. 12. T F T F F F 13. 14. 15. 16. 17. 18. T F F F F F 19. 20. 21. 22. 23. 24. F T T T T F 25. 26. 27. a 28. a 29. a 30. T F T T T T 31. 32. 33. 34. 35. 36. T T T F T F 37. F MULTIPLE CHOICE QUESTIONS 38. Monthly and quarterly time periods are called a. calender periods. b. fiscal periods. c. interim periods. d. quarterly periods. The time period assumption states that a. a transaction can only affect one period of time. b. estimates should not be made if a transaction affects more than one time period. c. adjustments to the enterprise's accounts can only be made in the time period when the business terminates its operations. d. the economic life of a business can be divided into artificial time periods. An accounting time period that is one year in length, but does not begin on January 1, is referred to as a. a fiscal year. b. an interim period. c. the time period assumption. d. a reporting period. Adjustments would not be necessary if financial statements were prepared to reflect net income from a. monthly operations. b. fiscal year operations. c. interim operations. d. lifetime operations. Management usually desires ________ financial statements and the IRS requires all businesses to file _________ tax returns. a. annual, annual b. monthly, annual c. quarterly, monthly d. monthly, monthly The time period assumption is also referred to as the a. calendar assumption. b. cyclicity assumption. c. periodicity assumption. d. fiscal assumption. 39. 40. 41. 42. 43. 3-8 44. Test Bank for Financial Accounting, Fifth Edition In general, the shorter the time period, the difficulty of making the proper adjustments to accounts a. is increased. b. is decreased. c. is unaffected. d. depends on if there is a profit or loss. Which of the following is not a common time period chosen by businesses as their accounting period? a. Daily b. Monthly c. Quarterly d. Annually Which of the following time periods would not be referred to as an interim period? a. Monthly b. Quarterly c. Semi-annually d. Annually The fiscal year of a business is usually determined by a. the IRS. b. a lottery. c. the business. d. the SEC. Which of the following are in accordance with generally accepted accounting principles? a. Accrual basis accounting b. Cash basis accounting c. Both accrual basis and cash basis accounting d. Neither accrual basis nor cash basis accounting Horton Enterprises performed services on July 30, billed the customer on August 3, and received payment on September 7. The revenue should be recognized in a. December. b. July. c. August. d. September. In a service-type business, revenue is considered earned a. at the end of the month. b. at the end of the year. c. when the service is performed. d. when cash is received. The matching principle matches a. customers with businesses. b. expenses with revenues. c. assets with liabilities. d. creditors with businesses. 45. 46. 47. 48. 49. 50. 51. Adjusting the Accounts 52. 3-9 Jim's Tune-up Shop follows the revenue recognition principle. Jim services a car on July 31. The customer picks up the vehicle on August 1 and mails the payment to Jim on August 5. Jim receives the check in the mail on August 6. When should Jim show that the revenue was earned? a. July 31 b. August 1 c. August 5 d. August 6 A company spends $10 million dollars for an office building. Over what period should the cost be written off? a. When the $10 million is expended in cash b. All in the first year c. Over the useful life of the building d. After $10 million in revenue is earned The matching principle states that expenses should be matched with revenues. Another way of stating the principle is to say that a. assets should be matched with liabilities. b. efforts should be matched with accomplishments. c. owner withdrawals should be matched with owner contributions. d. cash payments should be matched with cash receipts. A dress shop makes a large sale for $1,000 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The dress shop follows GAAP and applies the revenue recognition principle. When is the $1,000 considered to be earned? a. December 5 b. December 10 c. November 30 d. December 1 A furniture factory's employees work overtime to finish an order that is sold on February 28. The office sends a statement to the customer in early March and payment is received by mid-March. The overtime wages should be expensed in a. February. b. March. c. the period when the workers receive their checks. d. either in February or March depending on when the pay period ends. Expenses sometimes make their contribution to revenue in a different period than when the expense is paid. When wages are incurred in one period and paid in the next period, this often leads to which account appearing on the balance sheet at the end of the time period? a. Due from Employees b. Due to Employer c. Wages Payable d. Wages Expense Under accrual-basis accounting a. cash must be received before revenue is recognized. b. net income is calculated by matching cash outflows against cash inflows. c. events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received. d. the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles. 53. 54. 55. 56. 57. 58. 3 - 10 59. Test Bank for Financial Accounting, Fifth Edition Adjusting entries are required a. yearly. b. quarterly. c. monthly. d. every time financial statements are prepared. On January 10, its first period of operations, Rebel Enterprises purchased supplies for $3,000 and debited the supplies account for that amount. At January 30, an inventory of supplies showed $1,000 of supplies on hand. At January 30, a. no adjusting journal entry is required. b. the adjusting journal entry should charge the supplies consumed to Supplies Expense. c. the adjusting journal entry should include a debit to Supplies Expense for $1,000. d. the adjusting journal entry should include a debit to Supplies for $2,000. A small company may be able to justify using a cash basis of accounting if they have a. sales under $1,000,000. b. no accountants on staff. c. few receivables and payables. d. all sales and purchases on account. On January 7, Scopes Industries purchased supplies for $5,000 and debited Supplies Expense for that amount. At January 30, an inventory of supplies showed $2,000 of supplies on hand. At January 30, a. no adjusting journal entry is required. b. the adjusting journal entry should include a debit to Supplies Expense for $1,000. c. the adjusting journal entry should include a debit to Supplies for $2,000. d. if no adjusting journal entry is made, both Supplies and Supplies Expense will be overstated by $3,000. When salaries are accrued at the end of an accounting period, the two accounts affected will be a. balance sheet accounts. b. income statement accounts. c. Salaries Payable and Salaries Expense. d. Salaries Expense and Cash. If Salaries earned but not paid at the end of an accounting period are not accrued, a. Salaries Expense will be overstated. b. Salaries Payable will be overstated. c. Both Salaries Expense and Salaries Payable will be understated. d. Net income will be understated. If a resource has been consumed but a bill has not been received at the end of the accounting period, then a. an expense should be recorded when the bill is received. b. an expense should be recorded when the cash is paid out. c. an adjusting entry should be made recognizing the expense. d. it is optional whether to record the expense before the bill is received. On January 1, Ergon Enterprises purchased a 12-month insurance policy for $1,800. recorded the unexpired expense as an asset. The monthly adjusting entry at January 31 a. is not required. b. should include a debit to Prepaid Insurance for $1,800. c. should include a debit to Prepaid Insurance for $150. d. should include a debit to Insurance Expense for $150. They 60. 61. 62a. 63. 64. 65. 66. Adjusting the Accounts 67. Adjusting entries are a. not necessary if the accounting system is operating properly. b. usually required before financial statements are prepared. c. made whenever management desires to change an account balance. d. made to balance sheet accounts only. 3 - 11 68. Beltway Company pays weekly salaries for a 5-day week of $2,000 every Friday, January 31 falls on a Thursday. The monthly adjusting entry at January 31 a. should pay salaries of $1,600. b. should accrue salaries of $400. c. should accrue salaries of $1,600. d. should record unearned salaries of $400. On January 1, the Seigel Law Firm received a $12,000 cash retainer for legal services to be rendered ratably over the next 6 months. The full amount was credited to the liability account Unearned Legal Fees. Which of the following statements is true regarding adjusting entries for this liability account? a. the adjusting journal entry at the end of each month should include a debit to Unearned Legal Fees and a credit to Fees Earned for $2,000. b. the adjusting journal entry at the end of each month should include a debit to Unearned Legal Fees and a credit to Cash for $2,000. c. the adjusting journal entry at the end of January should include a debit to Unearned Legal Fees and a credit to Fees Earned for $12,000. d. No adjusting entries should be made until the full amount of the retainer has been earned as of June 30. Adjusting entries can be classified as a. postponements and advances. b. accruals and prepayments. c. prepayments and postponements. d. accruals and advances. Weymeyer Realty generates revenue through its many rental properties. As of August 31, the company has not collected $6,000 of August rental payments because of delinquencies. The monthly adjusting journal entry at August 31 a. is not required until the past due rent payments are collected b. will include a debit to Cash and a credit to Rent Revenue of $6,000. c. will include a debit to Unearned Rent and a credit to Rent Revenue for $200. d. will include a debit to Rent Receivable and a credit to Rent Revenue for $6,000. On January 30, Tensing Company purchased supplies of $2,000. The supplies were all consumed in February. Which of the following statements is true regarding the accounting for these supplies. a. The supplies should be recorded as an asset in January and no adjusting entry is needed until the supplies are used in February. b. The supplies should be charged to Supplies Expense in January and no adjusting entry is needed until the supplies are used in February. c. The supplies should not be recorded in the accounting records until used in February. d. The adjusting journal entry at the end of January will include a debit to Supplies Expense and a credit to Supplies for $2,000. 69. 70. 71. 72. 3 - 12 73. Test Bank for Financial Accounting, Fifth Edition On February 28, Hilary Inc. receives the month's utility bill which is due on March 15. Which of the following statements is true regarding the accounting for February utilities? a. The expense should be accrued in February by debiting Utilities Expense and crediting Cash. b. The expense should be accrued in February by debiting Utilities Expense and crediting Utilities Payable. c. The adjusting entry at February 28 should include a debit to Utilities Payable and a credit to Utilities Expense. d. The adjusting entry at February 28 should include a debit to Prepaid Utilities and a credit to Cash. Southeastern Louisiana University sold season tickets for the 2006 football season for $160,000. A total of 8 games will be played during September, October and November. In September, three games were played. The adjusting journal entry at September 30 a. is not required. No adjusting entries will be made until the end of the season in November. b. will include a debit to Cash and a credit to Ticket Revenue for $40,000. c. will include a debit to Unearned Ticket Revenue and a credit to Ticket Revenue for $60,000. d. will include a debit to Ticket Revenue and a credit to Unearned Ticket Revenue for $53,333. Southeastern Louisiana University sold season tickets for the 2006 football season for $160,000. A total of 8 games will be played during September, October and November. In September, two games were played. In October, three games were played. The balance in Unearned Revenue at October 31 is a. $0 b. $40,000 c. $60,000 d. $100,000 Southeastern Louisiana University sold season tickets for the 2006 football season for $160,000. A total of 8 games will be played during September, October and November. Assuming all the games are played, the Unearned Revenue balance that will be reported on the December 31 balance sheet will be a. $0 b. $60,000 c. $100,000 d. $160,000 At March 1, 2006, Candy Inc. had supplies on hand of $500. During the month, Candy purchased supplies of $1,200 and used supplies of $1,500. The March 31 adjusting journal entry should include: a. a debit to the supplies account for $1,500 b. a credit to the supplies account for $500 c. a debit to the supplies account for $1,200 d. a credit to the supplies account for $1,500 Quirk Company purchased office supplies costing $4,000 and debited Office Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $1,600 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be a. Debit Office Supplies Expense, $1,600; Credit Office Supplies, $1,600. b. Debit Office Supplies, $2,400; Credit Office Supplies Expense, $2,400. c. Debit Office Supplies Expense, $2,400; Credit Office Supplies, $2,400. d. Debit Office Supplies, $1,600; Credit Office Supplies Expense, $1,600. If an adjustment is needed for unearned revenues, the a. liability and related revenue are overstated before adjustment. b. liability and related revenue are understated before adjustment. c. liability is overstated and the related revenue is understated before adjustment. d. liability is understated and the related revenue is overstated before adjustment. 74. 75. 76. 77. 78. 79. Adjusting the Accounts 80. 3 - 13 At March 1, 2006, CookieTime Inc. had supplies on hand of $1,500. During the month, Candy purchased supplies of $1,900 and used supplies of $1,800. The March 31 balance sheet should report what balance in the supplies account? a. $1,500 b. $1,600 c. $1,800 d. $1,900 Dorting Company purchased a computer system for $3,600 on January 1, 2006. The company expects to use the computer system for 3 years. It has no salvage value. Monthly depreciation expense on the asset is: a. $0 b. $100 c. $1,200 d. $3,600 Fleet Services Company purchased equipment for $5,000 on January 1, 2006. The company expects to use the equipment for 5 years. It has no salvage value. What balance would be reported on the December 21, 2006 balance sheet for Accumulated Depreciation? a. $0 because Accumulated Depreciation is reported on the Income Statement b. $1,000 c. $4,000 d. $5,000 Hardy Company purchased a computer for $2,400 on December 1. It is estimated that annual depreciation on the computer will be $480. If financial statements are to be prepared on December 31, the company should make the following adjusting entry: a. Debit Depreciation Expense, $480; Credit Accumulated Depreciation, $480. b. Debit Depreciation Expense, $40; Credit Accumulated Depreciation, $40. c. Debit Depreciation Expense, $1,920; Credit Accumulated Depreciation, $1,920. d. Debit Office Equipment, $2,400; Credit Accumulated Depreciation, $2,400. Meyer Realty Company received a check for $21,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent was credited for the full $21,000. Financial statements will be prepared on July 31. Meyer Realty should make the following adjusting entry on July 31: a. Debit Unearned Rent, $3,500; Credit Rental Revenue, $3,500. b. Debit Rental Revenue, $3,500; Credit Unearned Rent, $3,500. c. Debit Unearned Rent, $21,000; Credit Rental Revenue, $21,000. d. Debit Cash, $21,000; Credit Rental Revenue, $21,000. 81. 82. 83. 84. 85. Maple Tree Inc. purchased a 12-month insurance policy on March 1, 2006 for $900. At March 31, 2006, the adjusting journal entry to record expiration of this asset will include a. a debit to Prepaid Insurance and a credit to Cash for $900. b. a debit to Prepaid Insurance and a credit to Insurance Expense for $100. c. a debit to Insurance Expense and a credit to Prepaid Insurance for $75 d. a debit to Insurance Expense and a credit to Cash for $75. Ogletree Enterprises purchased a 18-month insurance policy on May 31, 2006 for $3,600. The December 31, 2006 balance sheet would report Prepaid Insurance of a. $0 because Prepaid Insurance is reported on the Income Statement. b. $1,400 c. $2,200 d. $3,600 86. 3 - 14 87. Test Bank for Financial Accounting, Fifth Edition At March 1, J.C. Retro Inc. reported a balance in Supplies of $200. During March, the company purchased supplies for $750 and consumed supplies of $800. If no adjusting entry is made for supplies a. stockholders' equity will be overstated by $800. b. expenses will be understated by $750. c. assets will be understated by $150. d. net income will be understated by $800. FMI Inc. pays its rent of $120,000 annually on January 1. If the February 29 monthly adjusting entry for prepaid rent is omitted, which of the following will me true a. Failure to make the adjustment does not affect the February financial statements. b. Expenses will be overstated by $10,000 and net income and stockholders' equity will be understated by $10,000. c. Assets will be overstated by $20,000 and net income and stockholders' equity will be understated by $20,000. d. Assets will be overstated by $10,000 and net income and stockholders' equity will be overstated by $10,000. At December 31, 2006, before any year-end adjustments, Karr Company's Insurance Expense account had a balance of $725 and its Prepaid Insurance account had a balance of $1,900. It was determined that $1,500 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be a. $1,500. b. $725. c. $2,225. d. $1,125. On January 1, 2006, P.T. Oracle Company purchased a computer system for $3,240. The company expects to use the system for 3 years. The asset has no salvage value. The book value of the system at December 31, 2007 is a. $0 b. $1,080 c. $2,160 d. $3,240 A new accountant working for Metcalf Company records $800 Depreciation Expense on store equipment as follows: Dr. Cr. Depreciation Expense .................................................... Cash .................................................................... 800 800 88. 89. 90. 91. The effect of this entry is to a. adjust the accounts to their proper amounts on December 31. b. understate total assets on the balance sheet as of December 31. c. overstate the book value of the depreciable assets at December 31. d. understate the book value of the depreciable assets as of December 31. 92. From an accounting standpoint, the acquisition of productive facilities can be thought of as a longterm a. accrual of expense. b. accrual of revenue. c. accrual of unearned revenue. d. prepayment for services. Adjusting the Accounts 93. In computing depreciation, the number of years of useful life of the asset is a. known with certainty. b. an estimate. c. always fixed at 5 years. d. always fixed at 3 years. 3 - 15 94. On January 1, 2006, E.D. Reardon Inc. purchased equipment for $30,000. The company is depreciating the equipment at the rate of $400 per month. At January 31, 2007, the balance in Accumulated Depreciation is a. $400 debit b. $4,800 credit c. $5,200 credit d. $26,600 debit On January 1, 2006, M. Johnson Company purchased equipment for $30,000. The company is depreciating the equipment at the rate of $700 per month. The book value of the equipment at December 31, 2006 is a. $0 b. $8,400 c. $21,600 d. $30,000 If a business has several types of long-term assets such as equipment, buildings, and trucks, a. there should be only one accumulated depreciation account. b. there should be separate accumulated depreciation accounts for each type of asset. c. all the long-term asset accounts will be recorded in one general ledger account. d. there won't be a need for an accumulated depreciation account. Which of the following would not result in unearned revenue? a. Rent collected in advance from tenants b. Services performed on account c. Sale of season tickets to football games d. Sale of two-year magazine subscriptions If business pays rent in advance and debits a Prepaid Rent account, the company receiving the rent payment will credit a. cash. b. prepaid rent. c. unearned rent revenue. d. accrued rent revenue. Unearned revenue is classified as a. an asset account. b. a revenue account. c. a contra-revenue account. d. a liability. If a business has received cash in advance of services performed and credits a liability account, the adjusting entry needed after the services are performed will be a. debit Unearned Revenue and credit Cash. b. debit Unearned Revenue and credit Service Revenue. c. debit Unearned Revenue and credit Prepaid Expense. d. debit Unearned Revenue and credit Accounts Receivable. 95. 96. 97. 98. 99. 100. 3 - 16 101. Test Bank for Financial Accounting, Fifth Edition White Laundry Company purchased $6,500 worth of laundry supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the laundry supplies indicated only $3,000 on hand. The adjusting entry that should be made by the company on June 30 is a. Debit Laundry Supplies Expense, $3,000; Credit Laundry Supplies, $3,000. b. Debit Laundry Supplies Expense, $3,500; Credit Laundry Supplies, $3,000. c. Debit Laundry Supplies, $3,500; Credit Laundry Supplies Expense, $3,500. d. Debit Laundry Supplies Expense, $3,500; Credit Laundry Supplies, $3,500. On July 1 the Watson Shoe Store paid $6,000 to Ace Realty for 4 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by Watson Shoe Store is a. Debit Rent Expense, $6,000; Credit Prepaid Rent, $1,500. b. Debit Prepaid Rent, $1,500; Credit Rent Expense, $1,500. c. Debit Rent Expense, $1,500; Credit Prepaid Rent, $1,500. d. Debit Rent Expense, $6,000; Credit Prepaid Rent, $6,000. If an adjusting entry is not made for an accrued revenue, a. assets will be overstated. b. expenses will be understated. c. stockholders' equity will be understated. d. revenues will be overstated. If an adjusting entry is not made for an accrued expense, a. expenses will be overstated. b. liabilities will be understated. c. net income will be understated. d. stockholders' equity will be understated. Failure to prepare an adjusting entry at the end of the period to record an accrued expense would cause a. net income to be understated. b. an overstatement of assets and an overstatement of liabilities. c. an understatement of expenses and an understatement of liabilities. d. an overstatement of expenses and an overstatement of liabilities. Failure to prepare an adjusting entry at the end of a period to record an accrued revenue would cause a. net income to be overstated. b. an understatement of assets and an understatement of revenues. c. an understatement of revenues and an understatement of liabilities. d. an understatement of revenues and an overstatement of liabilities. Deb Smiley has performed $500 of CPA services for a client but has not billed the client as of the end of the accounting period. What adjusting entry must Deb make? a. Debit Cash and credit Unearned Revenue b. Debit Accounts Receivable and credit Unearned Revenue c. Debit Accounts Receivable and credit Service Revenue d. Debit Unearned Revenue and credit Service Revenue Deb Smiley, CPA, has billed her clients for services performed. She subsequently receives payments from her clients. What entry will she make upon receipt of the payments? a. Debit Unearned Revenue and credit Service Revenue b. Debit Cash and credit Accounts Receivable c. Debit Accounts Receivable and credit Service Revenue d. Debit Cash and credit Service Revenue 102. 103. 104. 105. 106. 107. 108. Adjusting the Accounts 109. 3 - 17 Clark Real Estate signed a four-month note payable in the amount of $8,000 on September 1. The note requires interest at an annual rate of 12%. The amount of interest to be accrued at the end of September is a. $320. b. $80. c. $960. d. $107. A gift shop signs a three-month note payable to help finance increases in inventory for the Christmas shopping season. The note is signed on November 1 in the amount of $40,000 with annual interest of 12%. What is the adjusting entry to be made on December 31 for the interest expense accrued to that date, if no entries have been made previously for the interest? a. Interest Expense ........................................................................ 800 Interest Payable ............................................................... 800 b. Interest Expense ........................................................................ 1,200 Interest Payable ............................................................... 1,200 c. Interest Expense ........................................................................ 800 Cash ................................................................................ 800 d. Interest Expense ........................................................................ 800 Note Payable .................................................................... 800 Trent Tables paid employee wages on and through Friday, January 26, and the next payroll will be paid in February. There are three more working days in January (2931). Employees work 5 days a week and the company pays $800 a day in wages. What will be the adjusting entry to accrue wages expense at the end of January? a. Wages Expense ......................................................................... 800 Wages Payable ................................................................ 800 b. Wages Expense ......................................................................... 4,000 Wages Payable ................................................................ 4,000 c. Wages Expense ......................................................................... 2,400 Wages Payable ................................................................ 2,400 d. No adjusting entry is required. A company shows a balance in Salaries Payable of $40,000 at the end of the month. The next payroll amounting to $50,000 is to be paid in the following month. What will be the journal entry to record the payment of salaries? a. Salaries Expense ....................................................................... 50,000 Salaries Payable .............................................................. 50,000 b. Salaries Expense ....................................................................... 50,000 Cash ................................................................................ 50,000 c. Salaries Expense ....................................................................... 10,000 Cash ................................................................................ 10,000 d. Salaries Expense ....................................................................... 10,000 Salaries Payable ........................................................................ 40,000 Cash ................................................................................ 50,000 The accounts of a business before an adjusting entry is made to record an accrued revenue reflect an a. understated liability and an overstated owner's capital. b. overstated asset and an understated revenue. c. understated expense and an overstated revenue. d. understated asset and an understated revenue. 110. 111. 112. 113. 3 - 18 114. Test Bank for Financial Accounting, Fifth Edition Carter Guitar Company borrowed $10,000 from the bank signing a 9%, 3-month note on September 1. Principal and interest are payable to the bank on December 1. If the company prepares monthly financial statements, the adjusting entry that the company should make for interest on September 30, would be a. Debit Interest Expense, $900; Credit Interest Payable, $900. b. Debit Interest Expense, $75; Credit Interest Payable, $75. c. Debit Note Payable, $900; Credit Cash, $900. d. Debit Cash, $225; Credit Interest Payable, $225. The adjusted trial balance is prepared a. after financial statements are prepared. b. before the trial balance. c. to prove the equality of total assets and total liabilities. d. after adjusting entries have been journalized and posted. An adjusted trial balance a. is prepared after the financial statements are completed. b. proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made. c. is a required financial statement under generally accepted accounting principles. d. cannot be used to prepare financial statements. Which of the statements below is not true? a. An adjusted trial balance should show ledger account balances. b. An adjusted trial balance can be used to prepare financial statements. c. An adjusted trial balance proves the mathematical equality of debits and credits in the ledger. d. An adjusted trial balance is prepared before all transactions have been journalized. Al is a barber who does his own accounting for his shop. When he buys supplies he routinely debits Supplies Expense. Al purchased $1,500 of supplies in January and his inventory at the end of January shows $600 of supplies remaining. What adjusting entry should Al make on January 31? a. Supplies Expense ....................................................................... 600 Supplies ............................................................................ 600 b. Supplies Expense ....................................................................... 1,500 Cash ................................................................................. 1,500 c. Supplies ..................................................................................... 600 Supplies Expense ............................................................. 600 d. Supplies Expense ....................................................................... 900 Supplies ............................................................................ 900 Alternative adjusting entries do not apply to a. accrued revenues and accrued expenses. b. prepaid expenses. c. unearned revenues. d. prepaid expenses and unearned revenues. 115. 116. 117. a 118. a 119. Adjusting the Accounts a 3 - 19 120. Joe is a lawyer who requires that his clients pay him in advance of legal services rendered. Joe routinely credits Legal Service Revenue when his clients pay him in advance. In June Joe collected $8,000 in advance fees and completed 75% of the work related to these fees. What adjusting entry is required by Joe's firm at the end of June? a. Unearned Revenue .................................................................... 6,000 Legal Service Revenue ..................................................... 6,000 b. Unearned Revenue .................................................................... 2,000 Legal Service Revenue ..................................................... 2,000 c. Cash ......................................................................................... 8,000 Legal Service Revenue ..................................................... 8,000 d. Legal Service Revenue .............................................................. 2,000 Unearned Revenue .......................................................... 2,000 Burton Enterprises purchased a Delivery Truck on March 1, 2006 for $29,000. The company is depreciating the truck at the rate of $500 per month. Failure to make an adjusting entry for depreciation at March 31 will have what impact on the financial statements? a. Assets will be overstated by $29,000 b. Assets will be overstated by $500 c. Net income will be understated by $500 d. Liabilities will be understated by $28,500 Media Links Inc. sold annual subscriptions to their magazinefor $12,000 in July, 2006. The magazine comes out monthly. The new subscribers will begin receiving magazines in August. Media Links recorded the subscriptions by debiting Cash and crediting Subscription Revenue. If the company makes no adjusting entry for subscriptions in July, what will be the impact on the financial statements? a. Unearned Revenue will be overstated by $11,000. b. Unearned Revenue will be understated by $12,000. c. Accounts Receivable will be understated by $12,000 d. Subscription Revenue will be understated by $1,000. a 121. a 122. 3 - 20 a Test Bank for Financial Accounting, Fifth Edition On January 2, 2006, Federal Savings and Loan purchased a general liability insurance policy for $1,800 for coverage for the calendar year. The entire $1,800 was charged to Insurance Expense on January 2, 2006. If the firm prepares monthly financial statements, the proper adjusting entry on January 31, 2006, will be: a. Insurance Expense ..................................................................... 1,650 Prepaid Insurance ............................................................. 1,650 b. Prepaid Insurance ...................................................................... 1,650 Insurance Expense ........................................................... 1,650 c. Insurance Expense ..................................................................... 150 Prepaid Insurance ............................................................. 150 d. Prepaid Insurance ...................................................................... 150 Insurance Expense ........................................................... 150 Which of the following statements concerning accrual-basis accounting is incorrect? a. Accrual-basis accounting follows the revenue recognition principle. b. Accrual-basis accounting is the method required by generally accepted accounting principles. c. Accrual-basis accounting recognizes expenses only when they are paid. d. Accrual-basis accounting follows the matching principle. The revenue recognition principle dictates that revenue be recognized in the accounting period a. before it is earned. b. after it is earned. c. in which it is earned. d. in which it is collected. An expense is recorded under the cash basis only when a. services are performed. b. it is earned. c. cash is paid. d. it is incurred. For prepaid expense adjusting entries a. an expense--liability account relationship exists. b. prior to adjustment, expenses are overstated and assets are understated. c. the adjusting entry results in a debit to an expense account and a credit to an asset account. d. none of these. Expenses paid and recorded as assets before they are used are called a. accrued expenses. b. interim expenses. c. prepaid expenses. d. unearned expenses. 123. 124. 125. 126. 127. 128. Adjusting the Accounts 129. 3 - 21 Demaet Cruise Lines purchased a five-year insurance policy for its ships on April 1, 2006 for $120,000. Assuming that April 1 is the effective date of the policy, the adjusting entry on December 31, 2006 is a. Prepaid Insurance....................................................................... 18,000 Insurance Expense ............................................................. 18,000 b. Insurance Expense ..................................................................... 18,000 Prepaid Insurance ............................................................... 18,000 c. Insurance Expense ..................................................................... 24,000 Prepaid Insurance ............................................................... 24,000 d. Insurance Expense ..................................................................... 6,000 Prepaid Insurance ............................................................... 6,000 Gardner Company purchased a truck from Kutner Co. by issuing a 6-month, 10% note payable for $60,000 on November 1. On December 31, the accrued expense adjusting entry is a. No entry is required. b. Interest Expense ......................................................................... 6,000 Interest Payable .................................................................. 6,000 c. Interest Expense ......................................................................... 12,000 Interest Payable .................................................................. 12,000 d. Interest Expense ......................................................................... 1,000 Interest Payable .................................................................. 1,000 If the adjusting entry for depreciation is not made, a. assets will be understated. b. stockholders' equity will be understated. c. net income will be understated. d. expenses will be understated. Cathy Cline, an employee of Merlin Company, will not receive her paycheck until April 2. Based on services performed from March 15 to March 30 her salary was $900. The adjusting entry for Merlin Company on March 31 is a. Salaries Expense .......................................................................... 900 Salaries Payable ................................................................... 900 b. No entry is required. c. Salaries Expense .......................................................................... 900 Cash ..................................................................................... 900 d. Salaries Payable ........................................................................... 900 Cash ..................................................................................... 900 Which of the following statements related to the adjusted trial balance is incorrect? a. It shows the balances of all accounts at the end of the accounting period. b. It is prepared before adjusting entries have been made. c. It proves the equality of the total debit balances and the total credit balances in the ledger. d. Financial statements can be prepared directly from the adjusted trial balance. 130. 131. 132. 133. 134. Financial statements are prepared directly from the a. general journal. b. ledger. c. trial balance. d. adjusted trial balance. 3 - 22 Test Bank for Financial Accounting, Fifth Edition Answers to Multiple Choice Questions Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item a Ans. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. c d a d b c c a d c a b c b 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. a 62. 63. 64. 65. a c b c a c c d b c c c c c 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. d b c a b d a b c c a d c c 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. b b b b a c c a d c b c d b 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106. 107. c c b b c d b d c c b c b c 108. 109. 110. 111. 112. 113. 114. 115. 116. 117. a 118. a 119. a 120. a 121. b b a c d d b d b d c a d b 122. a 123. 124. 125. 126. 127. 128. 129. 130. 131. 132. 133. 134. b b c c c c c b d d a b d Adjusting the Accounts 3 - 23 EXERCISES Ex. 135 Prepare the monthly adjusting journal entries for Charlotte Ruston Inc. for the month ending March 31, 2006 using the following information (you may omit explanations for the transactions): 1. The balance in Supplies at March 1, 2006 is $2,000. The company made no purchases of supplies during March. An inventory of supplies on hand at March 31 reported supplies of $800. 2. The company pays weekly salaries for a 5-day week of $3,500 every Friday. March 31 falls on a Tuesday. 3. The company has an outstanding note payable of $10,000 due at December 31, 2006. Interest is accrued monthly on the note. The annual rate is 6%. 4. The company depreciates its plant and equipment at the rate of $4,000 per month. 5. The company purchased a 18-month insurance policy for $2,250 on January 1, 2006. Solution 135 1. (10 min.) $1,200 $1,200 $1,400 $1,400 $50 $50 $4,000 $4,000 $125 $125 Supplies Expense Supplies Salaries Expense Salaries Payable Interest Expense Interest Payable Depreciation Expense Accumulated Depreciation Insurance Expense Prepaid Insurance 2. 3. 4. 5. Ex. 136 Reiley Company prepared the following income statement using the cash basis of accounting: REILEY COMPANY Income Statement, Cash Basis For the Year Ended December 31, 2005 Service revenue (does not include $40,000 of services rendered on account because the collection will not be until 2006) .................................................... Expenses (does not include $25,000 of expenses on account because payment will not be made until 2006) ............................................................... Net income............................................................................................................. $370,000 220,000 $150,000 Additional data: 1. Depreciation on a company automobile for the year amounted to $6,000. This amount is not included in the expenses above. 2. On January 1, 2005, paid for a two-year insurance policy on the automobile amounting to $1,800. This amount is included in the expenses above. 3 - 24 Test Bank for Financial Accounting, Fifth Edition Instructions (a) Recast the above income statement on the accrual basis in conformity with generally accepted accounting principles. Show computations and explain each change. (b) Explain which basis (cash or accrual) provides a better measure of income. (15 min.) Solution 136 (a) REILEY COMPANY Income Statement For the Year Ended December 31, 2005 Service revenue ............................................................................................. Expenses ....................................................................................................... Net income ..................................................................................................... $410,000 250,100 $159,900 Service revenue should include the $40,000 for services performed on account. The accrual basis states that revenue is reflected in the period when the service is performed. ($370,000 + $40,000 = $410,000). Expenses should include the $25,000 for expenses incurred but not yet paid. The accrual basis states that expenses should be reflected in the period when incurred. Expenses also should only include half of the $1,800 insurance premium since $900 applies to 2005. The other $900 is an asset and should be reflected on the balance sheet as prepaid insurance. The $6,000 of depreciation for the automobile is included as an expense in 2005. ($220,000 + $25,000 $900 + $6,000 = $250,100). (b) The accrual basis of accounting provides a better measure of income than the cash basis. The accrual basis is required under generally accepted accounting principles and recognizes revenues when earned and expenses when incurred. Revenues and expenses recognized under the accrual basis are related to the economic environment in which they occur and thus allow trends to be more meaningfully interpreted. The cash basis often fails to recognize revenue the in period when earned and expenses when incurred. Additionally, expenses are not matched with revenues when earned; therefore, the matching principle is violated. Ex. 137 Before month-end adjustments are made, the February 28 trial balance of Ed's Enterprise contains revenue of $9,000 and expenses of $4,400. Adjustments are necessary for the following items: Depreciation for February is $1,300. Revenue earned but not yet billed is $3,300. Accrued interest expense is $700. Revenue collected in advance that is now earned is $3,500. Portion of prepaid insurance expired during February is $400. Instructions Calculate the correct net income for Ed's Income Statement for February. Adjusting the Accounts Solution 137 (5 min.) $ 4,600 $3,500 3,300 1,300 700 400 6,800 11,400 3 - 25 Net Income before Adjustments ($9,000 4,400) Add: Unearned Revenues Accrued Revenues Subtract: Depreciation Expense Interest Expense Insurance Expense Net Income after Adjustments Ex. 138 2,400 $ 9,000 On December 31, 2005, Gomez Company prepared an income statement and balance sheet and failed to take into account three adjusting entries. The incorrect income statement showed net income of $40,000. The balance sheet showed total assets, $120,000; total liabilities, $45,000; and stockholders' equity, $75,000. The data for the three adjusting entries were: (1) Depreciation of $7,000 was not recorded on equipment. (2) Wages amounting to $8,000 for the last two days in December were not paid and not recorded. The next payroll will be in January. (3) Rent of $12,000 was paid for two months in advance on December 1. The entire amount was debited to Rent Expense when paid. Instructions Complete the following tabulation to correct the financial statement amounts shown (indicate deductions with parentheses): Stockholders' Item Incorrect balances Effects of: Depreciation Wages Rent Correct Balances Solution 138 (5 min.) Net Income $40,000 (7,000) (8,000) 6,000 $31,000 Total Assets $120,000 (7,000) 8,000 6,000 $119,000 $53,000 Total Liabilities $45,000 Stockholders' Equity $75,000 (7,000) (8,000) 6,000 $66,000 Net Income $ 40,000 Total Assets $120,000 Total Liabilities $ 45,000 Equity $ 75,000 Item Incorrect balances Effects of: Depreciation Wages Rent Correct Balances 3 - 26 Test Bank for Financial Accounting, Fifth Edition Ex. 139 Indicate (a) the type of adjustment (prepaid expense, unearned revenue, accrued revenue, or accrued expense), and (b) the accounts before adjustment (overstated or understated) for each of the following: 1. 2. 3. 4. Supplies of $200 have been used. Salaries of $600 are unpaid. Rent received in advance totaling $300 has been earned. Services provided but not recorded total $500. (7 min.) (b) Accounts before Adjustment Assets Overstated Expenses Understated Expenses Understated Liabilities Understated Liabilities Overstated Revenues Understated Assets Understated Revenues Understated Solution 139 (a) Type of Adjustment 1. Prepaid Expense 2. Accrued Expense 3. Unearned Revenue 4. Accrued Revenue Ex. 140 Ellis Company accumulates the following adjustment data at December 31. 1. Revenue of $800 collected in advance has been earned. 2. Salaries of $600 are unpaid. 3. Prepaid rent totaling $450 has expired. 4. Supplies of $550 have been used. 5. Revenue earned but unbilled total $750. 6. Utility expenses of $200 are unpaid. 7. Interest of $250 has accrued on a note payable. Instructions (a) For each of the above items indicate: 1. The type of adjustment (prepaid expense, unearned revenue, accrued revenue, or accrued expense). 2. The account relationship (asset/liability, liability/revenue, etc.). 3. The status of account balances before adjustment (understatement or overstatement). 4. The adjusting entry. (b) Assume net income before the adjustments listed above was $16,500. What is the adjusted net income? Adjusting the Accounts 3 - 27 Prepare your answer in the tabular form presented below. Account Balances Before Adjustment (Understatement or Overstatement) Type of Adjustment Account Relationship Adjusting Entry Solution 140 (a) (20 min.) Account Balances Before Adjustment (Understatement or Overstatement) Liab. O Rev. U Exp. U Liab. U Exp. U Asset O Exp. U Asset O Asset U Rev. U Exp. U Liab. U Exp. U Liab. U R = O = U = Type of Account Adjustment Relationship 1. Unearned revenue. L/R Adjusting Entry Unearned Revenue 800 Service Revenue 800 Salary Expense 600 Salaries Payable Rent Expense Prepaid Rent Supplies Expense Supplies 450 450 550 550 2. Accrued expense. E/L 600 3. Prepaid expense. E/A 4. Prepaid expense. E/A 5. Accrued revenue. A/R Accounts Receivable 750 Service Revenue 750 Utilities Expense 200 Accounts Payable Interest Expense 250 Interest Payable 6. Accrued expense. E/L 200 7. Accrued expense. E/L 250 Codes: A = L = E = (b) Asset Liability Expense Revenue Overstatement Understatement $16,500 $800 750 600 450 550 200 250 1,550 18,050 Net income before adjustments ................................................... Add: Unearned revenue (1) ...................................................... Accrued revenue (5) ........................................................ Less: Accrued salaries (2) ......................................................... Prepaid rent expired (3) ................................................... Supplies used (4) ............................................................. Accrued utilities (6) .......................................................... Accrued interest (7) ......................................................... Adjusted net income .................................................................... 2,050 $16,000 3 - 28 Test Bank for Financial Accounting, Fifth Edition Ex. 141 The adjusted trial balance of the Nance Company includes the following balance sheet accounts that frequently require adjustment. For each account, indicate (a) the type of adjusting entry (prepaid expenses, unearned revenues, accrued revenues, or accrued expenses) and (b) the related account in the adjusting entry. (a) (b) Balance Sheet Account Type of Adjusting Entry Related Account 1. Supplies 2. Accounts Receivable 3. Prepaid Insurance 4. Accumulated Depreciation-- Equipment 5. Interest Payable 6. Salaries Payable 7. Unearned Revenue Solution 141 (15 min.) (a) Type of Adjusting Entry Prepaid Expense Accrued Revenue Prepaid Expense Prepaid Expense Accrued Expense Accrued Expense Unearned Revenues (b) Related Account Supplies Expense Service Revenue Insurance Expense Depreciation Expense Interest Expense Salaries Expense Service Revenue Balance Sheet Account 1. Supplies 2. Accounts Receivable 3. Prepaid Insurance 4. Accumulated Depreciation-- Equipment 5. Interest Payable 6. Salaries Payable 7. Unearned Revenue Adjusting the Accounts Ex. 142 3 - 29 Match the statements below with the appropriate terms by entering the appropriate letter code in the spaces provided. TERMS: A. Prepaid Expenses B. Unearned Revenues C. Accrued Revenues D. Accrued Expenses STATEMENTS: ___ ___ ___ ___ ___ ___ ___ ___ 1. A revenue not yet earned; collected in advance. 2. Office supplies on hand that will be used in the next period. 3. Interest revenue collected; not yet earned. 4. Rent not yet collected; already earned. 5. An expense incurred; not yet paid or recorded. 6. A revenue earned; not yet collected or recorded. 7. An expense not yet incurred; paid in advance. 8. Interest expense incurred; not yet paid. (5 min.) 5. 6. 7. 8. D C A D Solution 142 1. 2. 3. 4. B A B C Ex. 143 The Royals, a semi-professional baseball team, prepare financial statements on a monthly basis. Their season begins in April, but in March the team engaged in the following transactions: (a) (b) Paid $150,000 to Wichita City as advance rent for use of Wichita City Stadium for the six month period April 1 through September 30. Collected $300,000 cash from sales of season tickets for the team's 20 home games. This amount was credited to Unearned Ticket Revenue. During the month of April, the Royals played four home games and five road games. Instructions Prepare the adjusting entries required at April 30 for the transactions above. You may omit the explantions for the transactions. 3 - 30 Test Bank for Financial Accounting, Fifth Edition Solution 143 (5 min.) 25,000 25,000 (a) Rent Expense ............................................................................... Prepaid Rent ....................................................................... ($150,000 6 = $25,000) (b) Unearned Ticket Revenue............................................................. Ticket Revenue ................................................................... ($300,000 20 = $15,000; $15,000 4 = $60,000) 60,000 60,000 Ex. 144 Use the following information to prepare adjusting journal entries for Roadsters Inc at June 30, 2006. 1. Roadsters has performed but not billed customers for services of $3,000. 2. The Supplies account balance is $2,090. An inventory of supplies on hand at the end of June shows supplies with a cost of $1,050 on hand. 3. Salaries earned but not to be paid until the next pay day on July 5 total $4,200. 4. Roadsters accepted a deposit of $500 in May for work to be performed in June. The project is now complete. 5. Roadsters rents warehouse space to another business, Rhino Imports, for $1,000 per month. Rhino has not yet paid June rent. 6. Roadsters owes $20,000 on a Note Payable. Interest is accrued monthly at an annual rate of 9%. Solution 144 1. Accounts Receivable Service Revenue 2. Supplies Expense Supplies Salaries Expense Salaries Payable Unearned Revenue Service Revenue Rent Receivable Rent Revenue Interest Expense Interest Payable $3,000 $3,000 $1,040 $1,040 $4,200 $4,200 $500 $500 $1,000 $1,000 $150 $150 3. 4. 5. 6. Adjusting the Accounts Ex. 145 3 - 31 The following information is available for BlueStar Company for the month ending December 31, 2006: 1. Supplies used during the month totalled $1,596. 2. BlueStar paid the annual premium of $6,000 on their insurance on December 1. 3. BlueStar performed services valued at $14,000 during the last week of December. Their clients have not yet been billed. 4. BlueStar pays their staff for a 5-day work week each Friday. The weekly payroll totals $3,450. December 31 falls on a Wednesday. 5. BlueStar has a 5-year note payable to SouthTrust Bank for $40,000 due on July 31, 2009. Interest is payable annually on July 31 and is accrued monthly at the annual rate of 7.5%. Use the information to determine the balance to be reported on the December 31 financial statements for the following accounts: Account Supplies Prepaid Insurance Accounts Receivable Salaries Payable Interest Payable Unadjusted balance, 12/31/2006 $2,040 $6,000 $32,000 $0 $1,000 Adjusted balance, 12/31/2006 Solution 145 Account Supplies Prepaid Insurance Accounts Receivable Salaries Payable Interest Payable (a) (b) (c) (d) (e) Unadjusted balance, 12/31/2006 $2,040 $6,000 $32,000 $0 $1,000 Adjusted balance, 12/31/2006 $444(a) $5,500(b) $46,000(c) $2,070(d) $1,250(e) $2,040 - $1,596 = $444 $6,000/ 12 = $500 insurance expense per month $6,000 balance - $500 expired cost = $5,500 $32,000 + $14,000 = $46,000 $3,450/ 5 = $690 salary expense per day * 3 days = $2,070 $25,000 (7.5%) (1/12) = $250; $1,000 + $250 = $1,250 3 - 32 Ex. 146 Test Bank for Financial Accounting, Fifth Edition Baer Coat Company purchased equipment on June 1 for $54,000, paying $12,000 cash and signing a 12%, 2-month note for the remaining balance. The equipment is expected to depreciate $12,000 each year. Baer Coat Company prepares monthly financial statements. Instructions (a) Prepare the general journal entry to record the acquisition of the equipment on June lst. (b) Prepare any adjusting journal entries that should be made on June 30th. (c) Show how the equipment will be reflected on Baer Coat Company's balance sheet on June 30th. Solution 146 (10 min.) 54,000 12,000 42,000 (a) June 1 Equipment ..................................................................... Cash ..................................................................... Notes Payable ...................................................... (To record acquisition of equipment and signing of a 2-month, 12% note) (b) June 30 Depreciation Expense ................................................... Accumulated Depreciation--Equipment ............... (To record monthly depreciation) $12,000 12 = $1,000/month 30 Interest Expense ........................................................... Interest Payable.................................................... (To accrue interest on notes payable) $42,000 12% 1/12 = $420 (c) Assets Equipment Less: Accumulated Depreciation--Equipment Ex. 147 1,000 1,000 420 420 $54,000 1,000 $53,000 Unruh Company prepares monthly financial statements. Below are listed some selected accounts and their balances in the September 30 trial balance before any adjustments have been made for the month of September. UNRUH COMPANY Trial Balance (Selected Accounts) September 30, 2005 -------------------------------------------------------------------------------------- Debit Credit Office Supplies ..................................................................................... $ 2,700 Prepaid Insurance ................................................................................ 4,200 Office Equipment .................................................................................. 16,200 Accumulated Depreciation--Office Equipment ..................................... $ 900 Unearned Rent Revenue ...................................................................... 1,200 Adjusting the Accounts 3 - 33 (Note: Debit column does not equal credit column because this is a partial listing of selected account balances) An analysis of the account balances by the company's accountant provided the following additional information: 1. A physical count of office supplies revealed $1,200 on hand on September 30. 2. A two-year life insurance policy was purchased on June 1 for $4,800. 3. Office equipment depreciated $5,400 per year. 4. The amount of rent received in advance that remains unearned at September 30 is $500. Instructions Using the above additional information, prepare the adjusting entries that should be made by Unruh Company on September 30. Solution 147 (10 min.) 1,500 1,500 1. Office Supplies Expense ................................................................ Office Supplies ...................................................................... (To record the amount of office supplies used) 2. Insurance Expense......................................................................... Prepaid Insurance ................................................................. (To record insurance expired $4,800 24) 3. Depreciation Expense .................................................................... Accumulated Depreciation--Office Equipment ...................... (To record monthly depreciation $5,400 12) 4. Unearned Rent Revenue ................................................................ Rent Revenue ....................................................................... (To record rent revenue earned) Ex. 148 200 200 450 450 700 700 Prepare the required end-of-period adjusting entries for each independent case listed below. Case 1 Starr Company began the year with a $3,000 balance in the Office Supplies account. During the year, $8,500 worth of additional office supplies were purchased. A physical count of office supplies on hand at the end of the year revealed that $6,400 worth of office supplies had been used during the year. No adjusting entry has been made until year end. Case 2 Eaton Company has a calendar year-end accounting period. On July 1, the company purchased office equipment for $30,000. It is estimated that the office equipment will depreciate $400 each month. No adjusting entry has been made until year end. 3 - 34 Test Bank for Financial Accounting, Fifth Edition Case 3 Ward Realty is in the business of renting several apartment buildings and prepares monthly financial statements. It has been determined that 3 tenants in $600 per month apartments and one tenant in the $1,000 per month apartment had not paid their August rent as of August 31st. Solution 148 (10 min.) 6,400 6,400 Case 1--December 31 Office Supplies Expense.................................................... Office Supplies ....................................................... (To record office supplies used during the year) Case 2--December 31 Depreciation Expense........................................................ Accumulated Depreciation--Office Equipment ....... (To record depreciation expense for six months) $400 6 months = $2,400 Depreciation Case 3--August 31 Rent Receivable ................................................................ Rent Revenue ........................................................ (To accrue rent earned but not yet received) Ex. 149 2,400 2,400 2,800 2,800 Logan Insurance Agency prepares monthly financial statements. Presented below is an income statement for the month of June that is correct on the basis of information considered. LOGAN INSURANCE AGENCY Income Statement For the Month Ended June 30 -------------------------------------------------------------------------------------- Revenues Premium Commission Revenue................................................... $35,000 Expenses Salary expense ............................................................................ $6,000 Advertising expense .................................................................... 800 Rent expense .............................................................................. 4,200 Depreciation expense .................................................................. 2,800 Total expenses ............................................................................ 13,800 Net income ........................................................................................... $21,200 Additional Data: When the income statement was prepared, the company accountant neglected to take into consideration the following information: 1. A utility bill for $2,000 was received on the last day of the month for electric and gas service for the month of June. 2. A company insurance salesman sold a life insurance policy to a client for a premium of $28,000. The agency billed the client for the policy and is entitled to a commission of 20%. 3. Supplies on hand at the beginning of the month were $3,000. The agency purchased additional supplies during the month for $2,500 in cash and $2,200 of supplies were on hand at June 30. Adjusting the Accounts 3 - 35 4. The agency purchased a new car at the beginning of the month for $16,800 cash. The car will depreciate $4,200 per year. 5. Salaries owed to employees at the end of the month total $5,300. The salaries will be paid on July 5. Instructions Prepare a correct income statement. Solution 149 (15 min.) LOGAN INSURANCE AGENCY Income Statement For the Month Ended June 30 -------------------------------------------------------------------------------------- Revenues Premium Commission Revenue ($35,000 + $5,600) ................... $40,600 Expenses Salary expense ($6,000 + $5,300)............................................... $11,300 Advertising expense .................................................................... 800 Rent expense .............................................................................. 4,200 Depreciation expense ($2,800 + $350) ........................................ 3,150 Utilities expense ($0 + $2,000) .................................................... 2,000 Supplies expense ($0 + $3,300) .................................................. 3,300 Total expenses ................................................................... 24,750 Net income........................................................................................... $15,850 Ex. 150 One part of eight adjusting entries is given below. Instructions Indicate the account title for the other part of each entry. 1. Unearned Revenue is debited. 2. Prepaid Rent is credited. 3. Accounts Receivable is debited. 4. Depreciation Expense is debited. 5. Utilities Expense is debited. 6. Interest Payable is credited. 7. Service Revenue is credited (give two possible debit accounts). 8. Interest Receivable is debited. Solution 150 1. 2. 3. 4. (5 min.) 5. 6. 7. 8. Utilities Payable Interest Expense Accounts Receivable or Unearned Revenue Interest Revenue Service Revenue Rent Expense Service Revenue Accumulated Depreciation 3 - 36 Ex. 151 Test Bank for Financial Accounting, Fifth Edition For each of the following accounts, indicate (a) the type of adjusting entry (prepaid expense, accrued revenue, etc.) and (b) the related account in the adjusting entry. 1. 2. 3. 4. 5. Depreciation Expense Salaries Payable Service Revenue Supplies Unearned Revenue Solution 151 1. 2. 3. 4. 5. (5 min.) Type of Entry Prepaid expense Accrued expense Accrued revenue Prepaid expense Unearned revenue Related Account Accum. Depreciation Salaries Expense Accounts Receivable Supplies Expense Service Revenue Account Depreciation Expense Salaries Payable Service Revenue Supplies Unearned Revenue Adjusting the Accounts Ex. 152 3 - 37 Prepare the necessary adjusting entry for each of the following (you may omit explantions for the transactions): 1. Services provided but unrecorded totaled $700. 2. Accrued salaries at year-end are $1,000. 3. Depreciation for the year is $600. Solution 152 (5 min.) 700 700 1,000 1,000 600 600 1. Accounts Receivable ...................................................................... Service Revenue ................................................................... 2. Salaries Expense ........................................................................... Salaries Payable.................................................................... 3. Depreciation Expense .................................................................... Accumulated Depreciation ..................................................... Ex. 153 The following ledger accounts are used by the Ottawa Greyhound Park: Accounts Receivable Prepaid Printing Prepaid Rent Unearned Admissions Revenue Interest Payable Printing Expense Rent Expense Interest Expense Admissions Revenue Concessions Revenue Instructions For each of the following transactions below, prepare the journal entry (if one is required) to record the initial transaction and then prepare the adjusting entry, if any, required on September 30, the end of the fiscal year. (a) On September 1, paid rent on the track facility for three months, $180,000. (b) On September 1, sold season tickets for admission to the racetrack. The racing season is year-round with 25 racing days each month. Season ticket sales totaled $900,000. (c) On September 1, borrowed $200,000 from First National Bank by issuing a 9% note payable due in three months. (d) On September 5, schedules for 20 racing days in September, 25 racing days in October, and 15 racing days in November were printed for $3,000. (e) The accountant for the concessions company reported that gross receipts for September were $140,000. Ten percent is due to Ottawa and will be remitted by October 10. 3 - 38 Test Bank for Financial Accounting, Fifth Edition Solution 153 (15 min.) 180,000 180,000 (a) Journal Entry Prepaid Rent .......................................................................... Cash ............................................................................. Adjusting Entry Rent Expense ........................................................................ Prepaid Rent ................................................................. 60,000 60,000 (b) Journal Entry Cash ...................................................................................... Unearned Admissions Revenue .................................... Adjusting Entry Unearned Admissions Revenue ............................................. Admissions Revenue..................................................... ($900,000 12 = $75,000) 900,000 900,000 75,000 75,000 (c) Journal Entry Cash ...................................................................................... Note Payable................................................................. Adjusting Entry Interest Expense .................................................................... Interest Payable ............................................................ ($200,000 .09 1 12 = $1,500) 200,000 200,000 1,500 1,500 (d) Journal Entry Prepaid Printing ..................................................................... Cash ............................................................................. Adjusting Entry Printing Expense .................................................................... Prepaid Printing............................................................. ($3,000 20 60 = $1,000) 3,000 3,000 1,000 1,000 (e) Journal Entry None Adjusting Entry Accounts Receivable ............................................................. Concessions Revenue .................................................. 14,000 14,000 Adjusting the Accounts Ex. 154 3 - 39 Determine the impact on the accounting equation (overstated or understated assets, liabilities or stockholders' equity) if the following adjusting journal entries are omitted by Menken International for the month of August, 2006. 1. Plant and equipment are depreciated at the rate of $10,000 per month. 2. Supplies used during the month totalled $3,500. 3. Prepaid insurance of $1,200 expired during the month. 4. Unearned revenues of $5,000 were earned during the month. 5. Service revenue of $4,500 was earned but not billed at the end of the month. Solution 154 1. 2. 3. 4. 5. (5 min.) Assets overstated and Stockholders' Equity overstated. Assets overstated and Stockholders' Equity overstated. Assets overstated and Stockholders' Equity overstated. Liabilities overstated and Stockholders' Equity understated. Assets understated and Stockholders' Equity understated. Ex. 155 Determine the dollar impact (understated or overstated) on assets, liabilties, revenues and expenses if the Noblett Company omits adjusting journal entries for the following items for the month of April 2006, its first month of operations: 1. 2. 3. 4. 5. 6. On Friday of each week, Noblett Company pays its staff weekly wages amounting to $5,000 for a five-day work week. April 30 falls on a Monday. The unadjusted balance in Supplies is $4,000. An inventory of supplies at April 30 reports $500 of supplies on hand. On April 1, Noblett purchased equipment for a cost of $22,000. Noblett expects to use the equipment for 5 years. It has no salvage value. Noblett borrowed $20,000 by signing a 5-year Note Payable to Compass Bank on April 1. The interest rate on the loan is 8%. Noblett purchased a 12-month insurance policy on April 2 for $3,600. Noblett earned service revenue of $30,000 during the month. As of the end of the month, it had not yet billed customers for $2,500 of services. (10 min.) Assets Liabilties $1,000 Under $3,500 Over $367 Over $133 Under $300 Over $2,500 Under $2,500 Under Revenues Expenses $1,000 Under $3,500 Under $367 Under $133 Under $300 Under Solution 155 Omitted entry 1 2 3 4 5 6 3 - 40 Ex. 156 Test Bank for Financial Accounting, Fifth Edition Presented below is the Trial Balance and Adjusted Trial Balance for Jennings Company on December 31. JENNINGS COMPANY Trial Balance December 31 -------------------------------------------------------------------------------------- Before Adjustment After Adjustment Dr. Cr. Dr. Cr. Cash $ 2,000 $ 2,000 Accounts Receivable 2,800 3,900 Prepaid Rent 2,100 1,500 Supplies 1,200 800 Automobile equipment 18,000 18,000 Accumulated depreciation-- Automobile equipment $ 1,300 $ 1,500 Accounts Payable 2,700 3,000 Notes Payable 10,000 10,000 Interest Payable 120 Salaries Payable 600 Unearned Revenue 4,460 4,360 Common Stock 7,200 7,200 Dividends 3,200 3,200 Service Revenue 8,000 9,200 Salaries Expense 2,060 2,660 Utilities Expense 1,800 2,100 Rent Expense 500 1,100 Supplies Expense 400 Depreciation Expense-- Automobile Equipment 200 Interest Expense 120 Totals $33,660 $33,660 $35,980 $35,980 Instructions Prepare in journal form, with explanations, the adjusting entries that explain the changes in the balances from the trial balance to the adjusted trial balance. Solution 156 (15 min.) 1,100 1,100 Accounts Receivable ............................................................................ Service Revenue ......................................................................... (To record revenue earned but not yet received) Rent Expense....................................................................................... Prepaid Rent................................................................................ (To record expiration of prepaid rent) Supplies Expense................................................................................. Supplies....................................................................................... (To record supplies used) 600 600 400 400 Adjusting the Accounts Solution 156 (cont.) 200 3 - 41 Depreciation Expense--Automobile Equipment ................................... Accumulated Depreciation--Automobile Equipment.................... (To record depreciation expense) Salaries Expense ................................................................................. Salaries Payable ......................................................................... (To record salaries owed, not yet paid) Interest Expense .................................................................................. Interest Payable .......................................................................... (To record accrued interest payable) Unearned Revenue .............................................................................. Service Revenue ......................................................................... (To record revenue earned) Utilities Expense .................................................................................. Accounts Payable........................................................................ (To record receipt of utility bill) Ex. 157 200 600 600 120 120 100 100 300 300 Compute the net income for 2005 based on the following amounts presented on the adjusted trial balance of Pryor Company. Accumulated Depreciation Depreciation Expense Salaries Expense Service Revenue Unearned Revenue $20,000 10,000 15,000 45,000 8,000 Solution 157 (5 min.) $45,000 $10,000 15,000 25,000 $20,000 Service Revenue Depreciation Expense Salaries Expense Net Income 3 - 42 Ex. 158 Test Bank for Financial Accounting, Fifth Edition T.O. Bainbridge Company began operations on June 1, 2006. The company adopted the calender year for accounting purposes. During 2006, the company earned revenues of $45,000. They have collected all but $5,000 as of December 31. The company incurred rent, interest, salaries and utilities expenses of $33,000. At December 31, 2006, they owed $3,000 in accounts payable. In addition, Bainbridge paid cash for supplies of $1,000 of which $300 remain at December 31. 1. 2. Calculate Bainbridge's accrual basis net income for 2006. Calculate Bainbridge's cash basis net income for 2006. Solution 158 (10 minutes) 1. Revenues earned $45,000 Expenses incurred $33,000 Supplies consurmed $700 = $11,300 2. Cash basis revenues (cash collections) = $45,000 5,000 = $40,000 Cash basis expenses (cash disbursements) = $33,000 3,000 + 1,000 = $31,000 Cash basis net income = $40,000 31,000 = $9,000 Ex. 159 The adjusted trial balance of Ryan Financial Planners appears below. Using the information from the adjusted trial balance, you are to prepare for the month ending December 31: 1. an income statement. 2. a statement of retained earnings. 3. a balance sheet. RYAN FINANCIAL PLANNERS Adjusted Trial Balance December 31, 2005 -------------------------------------------------------------------------------------- Debit Credit Cash..................................................................................................... $ 4,400 Accounts Receivable ............................................................................ 2,200 Office Supplies ..................................................................................... 1,800 Office Equipment .................................................................................. 15,000 Accumulated Depreciation--Office Equipment ..................................... $ 4,000 Accounts Payable................................................................................. 3,800 Unearned Revenue .............................................................................. 5,000 Common Stock ..................................................................................... 10,000 Retained Earnings ................................................................................ 4,400 Dividends ............................................................................................. 2,500 Service Revenue .................................................................................. 3,700 Office Supplies Expense ...................................................................... 600 Depreciation Expense .......................................................................... 2,500 Rent Expense....................................................................................... 1,900 $30,900 $30,900 Adjusting the Accounts Solution 159 1. (20 min.) 3 - 43 RYAN FINANCIAL PLANNERS Income Statement For the Month Ended December 31, 2005 -------------------------------------------------------------------------------------- Revenues Service Revenue ......................................................................... $ 3,700 Expenses Depreciation expense .................................................................. $2,500 Rent expense .............................................................................. 1,900 Office supplies expense .............................................................. 600 Total expenses ...................................................................... 5,000 Net loss ............................................................................................... $(1,300) RYAN FINANCIAL PLANNERS Statement of Retained Earnings For the Month Ended December 31, 2005 -------------------------------------------------------------------------------------- Retained Earnings, December 1 .......................................................... $4,400 Less: Net loss .................................................................................... $1,300 Dividends ................................................................................. 2,500 3,800 Retained Earnings December 31 ......................................................... $600 RYAN FINANCIAL PLANNERS Balance Sheet December 31, 2005 -------------------------------------------------------------------------------------- Assets Cash .................................................................................................... $ 4,400 Accounts receivable ............................................................................. 2,200 Office supplies ..................................................................................... 1,800 Office equipment .................................................................................. $15,000 Less: Accumulated depreciation--office equipment ........................... 4,000 11,000 Total assets ................................................................................. $19,400 Liabilities and Stockholders' Equity Liabilities Accounts payable ........................................................................ Unearned revenue....................................................................... Total liabilities ........................................................................ Stockholders Equity Common Stock............................................................................ Retained Earnings ....................................................................... Total liabilities and stockholders' equity ................................. 3. 2. $3,800 5,000 $ 8,800 10,000 600 10,600 $19,400 3 - 44 a Test Bank for Financial Accounting, Fifth Edition Ex. 160 1. Flynn Company prepares monthly financial statements. On July 1, the Office Supplies account had a balance of $3,000. During July, additional office supplies were purchased for $3,800 and that amount was debited to Office Supplies Expense. On July 31, a physical count of office supplies revealed that there was $2,700 on hand. Prepare the adjusting journal entry that Flynn Company should make on July 31. 2. Reese Rental Agency prepares monthly financial statements. On September 1, a check for $9,600 was received from a tenant for six months' rent. The full amount was credited to Rent Revenue. Prepare the adjusting entry the company should make on September 30. a Solution 160 (5 min.) Office Supplies Expense ............................................... Office Supplies ..................................................... (To record supplies used) Rent Revenue ............................................................... Unearned Rent Revenue ...................................... (To record unearned rent) 300 300 1. July 31 2. Sept. 30 8,000 8,000 Adjusting the Accounts 3 - 45 COMPLETION STATEMENTS 161. A business can compute net income for a month, a quarter or a year because the __________________________ allows that the economic life of a business can be divided into artificial time periods. An accounting period that is one year in length is referred to as a ______________ year. The ______________ principle requires that revenue be recorded in the period when earned regardless of when the cash is collected. In a service company, revenue is earned when the service is ______________. The matching principle attempts to match ______________ with ______________. Expenses paid and recorded in an asset account before they are used or consumed are called ______________. Revenue received and recorded as a liability before it is earned is referred to as ______________. Failure to adjust a prepaid expense account for the amount expired will cause ______________ to be understated and ________________ to be overstated. Failure to record depreciation will cause ________________ to be overstated and __________________ to be understated Accumulated Depreciation is a ___________________________ account and has a normal __________________ balance. An accrued expense is an expense that has been ____________________ but not ______________________. An adjusted trial balance proves the ______________ of the total debit and credit balances after all ______________ entries have been made. 162. 163. 164. 165. 166. 167. 168. 169. 170. 171. Answers to Completion Statements 161. 162. 163. 164. 165. 166. time period assumption fiscal revenue recognition performed expenses, revenues prepaid expenses, unearned revenue 167. 168. 169. 170. 171. expenses, assets assets, expenses contra-asset, credit incurred, paid or recorded equality, adjusting 3 - 46 Test Bank for Financial Accounting, Fifth Edition MATCHING 172. Match the items below by entering the appropriate code letter in the space provided. A. B. C. D. E. Adjusted trial balance Time period assumption Revenue recognition principle Prepaid expenses Matching principle F. G. H. I. J. Accrued revenues Cash basis accounting Accumulated depreciation Accrued expenses Book value ____ 1. A listing of accounts and their balances after all adjusting entries have been made and posted. ____ 2. Examples include Supplies and Prepaid Insurance ____ 3. Cost less accumulated depreciation ____ 4. Divides the economic life of a business into artificial time periods ____ 5. Requires that the cost of a long-term asset be allocated to expense over the periods it will be used ____ 6. A contra asset account ____ 7. Recognition of revenue when it is earned ____ 8. Revenues earned but not yet received ____ 9. Expenses incurred but not yet paid ____ 10. Records revenue when cash is received and expenses when cash is paid Answers to Matching 1. 2. 3. 4. 5. A D J B E 6. 7. 8. 9. 10. H C F I G Adjusting the Accounts 3 - 47 SHORT-ANSWER ESSAY QUESTIONS S-A E 173 The income statement is an important financial statement used by individuals who are interested in the operations of a business enterprise. Explain how the time period assumption and the revenue recognition and matching principles provide guidance to accountants in preparing an income statement. Solution 173 The time period assumption divides the economic life of an accounting entity, such as a business enterprise, into arbitrary time periods. The revenue recognition and matching principles are the basic rules for allocating revenues and expenses to these arbitrary time periods under accrualbasis accounting. The revenue recognition principle dictates the time period to which revenue is to be allocated and recognized; that is, on which income statement the revenue is to be reported. The matching principle dictates the time period to which costs are allocated and recognized as expenses; that is, on which income statement the expenses are to be reported and matched against revenues in the determination of net income. S-A E 174 In developing an accounting information system, it is important to establish procedures whereby all transactions that affect the components of the accounting equation are recorded. Why then, is it often necessary to adjust the accounts before financial statements are prepared even in a properly designed accounting system? Identify the major types of adjustments that are frequently made and give a specific example of each. Solution 174 Account balances must be adjusted before financial statements are prepared, even in a properly designed accounting system, because (1) some of the recorded transactions have been recognized prematurely and (2) some effects on components of the accounting equation have not been recorded. Prepayments and deferrals are types of adjustments of recorded transactions that must be allocated to future periods as well as the current period. Examples of deferral-type adjustments are: prepaid rent, prepaid insurance, and unearned revenue. Accruals are adjustments for unrecorded transactions that must be recognized in the current period. Examples of accrual-type adjustments are: salaries and wages payable, interest payable, and interest receivable. S-A E 175 (Ethics) Marsh and Linton is a manufacturing company that specializes in writing instruments. The past year was a difficult one for the company, as it sought to retain its share in a market in which the largest competitors were also rapid innovators. Marsh and Linton introduced a new product late in the year, even though testing was not complete. It was a pen designed with two cartridges: one supplying ink and the other correction fluid. A person could then switch easily between writing and correcting errors. It was priced fairly high, and was never heavily advertised. Even so, the Correct-O-Pen, as the product was named, was an overwhelming success. 3 - 48 Test Bank for Financial Accounting, Fifth Edition S-A E 175 (cont.) The success of the product has Fran Henley, the manager of the New Products division, worried, however. She was concerned that quality problems would begin occurring, since the longevity of the pen and stability of the correction fluid formulation had not been tested. She did not want sales personnel to get the bonuses that appeared to be indicated, since they might aggressively promote a product that would fail in use. She preferred to complete testing of the pen first, so that more confidence could be placed in the results. Top management, however, declined the tests. Ms. Henley then instructed you, the accountant, not to prorate payroll taxes or rent expense for the rest of the year, but to show them as current expenses in total. In this way, the new product would appear to be only slightly profitable. Required: 1. Describe the alternatives that you as an accountant would have in this situation. 2. Indicate which alternative is best. Solution 175 1. The choices include: 1. Follow the manager's instructions. 2. Explain to the manager why you cannot follow her instructions. 3. Report the manager's actions to her superior. 4. Resign. There are probably other alternatives as well. Students should be able to come up with at least #1 and #2. Of the choices, #1 is unethical because it will cause the financial statements to be misleading. #3 and #4 are rather drastic measures that do not seem to be indicated, at least not yet. #2, therefore, is the best choice. 2. S-A E 176 (Communication) A new sales representative, Mark Yount, has just received his copy of the month-end financial reports. He is puzzled by the term "unearned revenue." He left the following e-mail message for you on the company's bulletin board system: What is this??? Creative Accounting, or what??? Line item 12 on year-to-date financials shows over $25Gs in Unearned Revenue!!! Come on, guys! Either we earned it, or we didn't . . . Right??! Is this how you guys lower our commissions? Reply to m.yount@sbd Required: Write a response to send to Mark. Adjusting the Accounts Solution 176 3 - 49 Since the answer is being prepared for a "bulletin board" type system, it can be in informal language and can respond in kind to the humor. However, proper grammar and spelling are essential, as is the message about what unearned revenue really is. A proposed message follows: Mark--What a pleasant surprise to hear from you! Maybe you can teach those other guys in your department something about living in the present! Do you know some of them still write me notes on paper??? Unbelievable, right??! Now to your question. Your unearned revenue is the sales you made that us smart guys in accounting didn't figure you had earned, so we just took it away from you! Might as well save the company some dough for our own bonuses, right?? Seriously, Mark--unearned revenue is the result of your getting customers of the kind we like--they pay in advance! When they pay before we can even get their products made or shipped, we can't count the money they pay us as revenue. What we actually have is a liability--an obligation to make and ship products. So that's how we (smart guys) in accounting count it--as a liability. You happened to have about 25% of your sales that fit in that category. When production can catch up with orders, you'll get credit for the sales. You will receive your commissions the same month the company records the revenue as earned. (Take heart--It'll seem like Christmas all over again.) Thanks again for actually using the system. Talk to me again sometime. . . Reply to mking@sbd Brief Exercises BE 177 On January 1, 2006, J.C. Cohen Company purchased a general liability insurance policy for $3,600 to provide coverage for the calendar year. 1. 2. If the company recorded the policy as an asset when purchased, what is the monthly adjusting journal entry that should be recorded at January 31, 2006? If the company expensed the cost of the policy on January 1, 2006, what is the monthly adjusting entry that should be recorded at January 31, 2006? 177 Solution 1. Insurance Expense Prepaid Insurance 2. Prepaid Insurance Insurance Expense 300 300 3,300 3,300 3 - 50 Test Bank for Financial Accounting, Fifth Edition BE 178 On June 1, during its first month of operations, Eggemeister Enterprises purchased supplies for $3,500 and debited the supplies account for that amount. At January 30, an inventory of supplies showed $1,200 of supplies on hand. What adjusting journal entry should be made for June? 178 Solution Supplies Expense Supplies 2,300 2,300 BE 179 On January 1, the Biddle & Biddle, CPAs received a $9,000 cash retainer for legal services to be rendered ratably over the next 3 months. The full amount was credited to the liability account Unearned Revenue. Assuming that the revenue is earned ratably over the 3 month period, what adjusting journal entry should be made at January 31? 179 Solution Unearned Revenue Fees Earned 3,000 3,000 BE 180 On February 1, the Acts Tax Service received a $2,000 cash retainer for tax preparation services to be rendered ratably over the next 4 months. The full amount was credited to the liability account Unearned Revenue. Assuming that the revenue is earned ratably over the 4 month period, what balance would be reported on the February 28 balance sheet for Unearned Revenue? 180 Solution Revenue earned monthly = $2,000/ 4 months = $500 per month Feb 28 balance in Unearned Revenue = $2,000 - $500 revenue earned in February = $1,500 BE 181 Hans Albert Enterprises purchased computer equipment on May 1, 2006 for $5,000. The company expects to use the equipment for 3 years. It has no salvage value. 1. What adjusting journal entry should the company make at the end of each month if monthly financials are prepared (round answer to the nearest dollar)? 2. What is the book value of the equipment at May 31, 2006? Solution 181 1. Depreciation Expense Accumulated Depreciation 2. Cost Accumulated Depreciation Book value $5,000 - 139 $4,861 139 139 Adjusting the Accounts 3 - 51 BE 182 Hampton International purchased software on October 1, 2006 for $10,800. The company expects to use the software for 3 years. It has no salvage value. 1. What adjusting journal entry should the company make at the end of each month if monthly financials are prepared? 2. What balance will be reported on the December 31, 2006 balance sheet for Accumulated Depreciation? Solution 182 1. Depreciation Expense Accumulated Depreciation 2. 300 300 Balance in Accumulated Depreciation at December 31, 2006: 3 months * $300 per month = $900 BE 183 Better Publications. sold annual subscriptions to their magazine for $24,000 in December, 2006. The magazine is published monthly. The new subscribers received their first magazine in January, 2007. 1. What adjusting entry should be made in January if the subscriptions were originally recorded as a liability? 2. What amount will be reported on the January 2007 balance sheet for Unearned Revenue? Solution 183 1. Unearned Revenue Subscription Revenue 2. Unearned Revenue at January 31: $24,000 2,000 = $22,000 2,000 2,000 BE 184 River Ridge Music School borrowed $20,000 from the bank signing a 10%, 6-month note on November 1. Principal and interest are payable to the bank on May 1. If the company prepares monthly financial statements, what adjusting entry should the company make at November 30 with regard to the note (round answer to the nearest dollar)? Solution 184 Interest Expense (20,000 * 10% * 1/12) Interest Payable 167 167 BE 185 The adjusted trial balance of Ninty-Six Inc. on December 31, 2006 includes the following accounts: Accumulated Depreciation, $6,000; Depreciation Expense, $2,000; Note Payable $7,500; Interest Expense $150; Utilities Expense, $300; Rent Expense, $500; Service Revenue, $19,600; Salaries Expense, $4,000; Supplies, $200; Supplies Expense, $1,200; Wages Payable, $600. Prepare an income statement for the month of December. 3 - 52 Test Bank for Financial Accounting, Fifth Edition 185 Solution Ninty-Six Inc. Income Statement For the month ending December 31,2006 Service Revenue Expenses: Depreciation expense Interest expense Utilities expense Rent expense Salaries expense Supplies expense Net Income $19,600 $2,000 150 300 500 4,000 1,200 8,150 $11,450 BE 186 Identify the impact on the balance sheet if the following information is not used to adjust the accounts. 1. Supplies consumed totalled $3,000. 2. Interest accrues on notes payable at the rate of $200 per month. 3. Insurance of $450 expired during the month. 4. Plant and equipment are depreciated at the rate of $1,200 per month. BE 186 Solution 1. Assets overstated and Stockholders' Equity overstated by $3,000. 2. Liabilities understated and Stockholders' Equity overstated by $200. 3. Assets overstated and Stockholders' Equity overstated by $450. 4. Assets overstated and Stockholders' equity overstated by $1,200. BE 187 Determine the impact on the balance sheet accounts if the following information is not used to adjust the accounts of Lake Castle Company for the month of January, 2006. Round answers to the nearest dollar. 1. The company rents extra office space to Franz, CPAs. Franz pays the $12,000 rent annually on January 1. 2. The company has an outstanding loan to its President in the amount of $100,000. The loan accrues interest at the annual rate of 4%. Principle and interest are due January 1, 2010. 3. The company completed work on a project during January that was not yet billed to the client. The client will be charged $2,500. 187 Solution 1. Liabilities overstated and Stockholders' equity understated by $1,000. 2. Assets understated and Stockholders' equity understated by $333. 3. Assets understated and Stockholders' equity understated by $2,500. Adjusting the Accounts BE 188 Identify the type of account and the normal balance for each of the following accounts: 1. 2. 3. 4. 5. 6. Accumulated Deprecation Depreciation Expense Interest Expense Interest Payable Unearned Revenue Service Revenue 3 - 53 Solution 188 Account Accumulated Deprecation Depreciation Expense Interest Expense Interest Payable Unearned Revenue Service Revenue Type of account Contra asset Expense Expense Liability Liability Revenue Normal balance Credit Debit Debit Credit Credit Credit

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South Central College - ACC - 220
CHAPTER 4COMPLETION OF THE ACCOUNTING CYCLESUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOM'S TAXONOMYItem 1. 2. 3. 4. 5. 6. 7. 8. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 130. 131. 132. 133. 134. 153. 154. 155.aS
South Central College - ACC - 220
CHAPTER 5ACCOUNTING FOR MERCHANDISING OPERATIONSSUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOM'S TAXONOMYItem 1. 2. 3. 4. 5. 6. 7. 8. 9. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 135. 136. 137. 138. 155. 156. SO 1 1
South Central College - ACC - 220
CHAPTER 6INVENTORIESSUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOM'S TAXONOMYItem 1. 2. 3. 4. 5. 6. 7. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 119. 120. 121. 122. 123. 140. 141. 155. 156.aSO 1 1 1 1 1 2 2 1 1 1 1 1 1 1
South Central College - ACC - 220
CHAPTER 7ACCOUNTING PRINCIPLESSUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOM'S TAXONOMYItem 1. 2. 3. 4. 5. 6. 7. 8. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 124. 125. 126. 127. 143. 144. 145. SO 1 1 1 1 1 2 2 2 1 1 1 1
South Central College - ACC - 220
CHAPTER 8INTERNAL CONTROL AND CASHSUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOM'S TAXONOMYItem 1. 2. 3. 4. 5. 6. 7. 8. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 130. 131. 0. 132. 133. 134. 151. 152. 153. 154. SO 1
South Central College - ACC - 220
CHAPTER 9ACCOUNTING FOR RECEIVABLESSUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOM'S TAXONOMYItem 1. 2. 3. 4. 5. 6. 7. 8. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 134. 135. 136. 137. 138. 156. 157. 158. SO 1 1 1
South Central College - ACC - 220
CHAPTER 10PLANT ASSETS, NATURAL RESOURCES, AND INTANGIBLE ASSETSSUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOM'S TAXONOMYItem 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77.
South Central College - ACC - 220
CHAPTER 11LIABILITIESSUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOM'S TAXONOMYItem 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 143. 144. 145. 146. 147. SO 1 1 1 1 2 2 2 2 2 2 1 1 1 1 1 1
South Central College - ACC - 220
CHAPTER 12CORPORATIONS: ORGANIZATION, STOCK TRANSACTIONS, DIVIDENDS AND RETAINED EARNINGSSUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOM'S TAXONOMYItem 1. 2. 3. 4. 5. 6. 7. 8. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 12
South Central College - ACC - 220
CHAPTER 13REPORTING AND ANALYZING INVESTMENTSSUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOM'S TAXONOMYItem 1. 2. 3. 4. 5. 6. 7. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 106. 107. 108. 121. 122. 123. 138. 139. SO 1 1 2 2 2 2 2 1 1
South Central College - ACC - 220
CHAPTER 14THE STATEMENT OF CASH FLOWSSUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOM'S TAXONOMYItem 1. 2. 3. 4. 5. 6. 7. 8. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 123. 124. 125. 126. 127. 144. 145. 146.aSO 1 1 1 1
South Central College - ACC - 220
CHAPTER 15FINANCIAL STATEMENT ANALYSISSUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOM'S TAXONOMYItem 1. 2. 3. 4. 5. 6. 7. 8. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 137. 138. 139. 140. 141. 142. 163. 164. 165.
South Central College - ACC - 220
Achievement Test 1: Chapters 1 and 2 Financial Accounting, 5eName _ Instructor _ Section # _ Date _Part Points ScoreI 54II 26III 10IV 10Total 100PART I - MULTIPLE CHOICE (54 points) Instructions: Designate the best answer for each of
South Central College - ACC - 220
Achievement Test 2: Chapters 3 and 4 Financial Accounting, 5eName _ Instructor _ Section # _ Date _Part Points ScoreI 39II 12III 24IV 8V 17Total 100PART I - MULTIPLE CHOICE (39 points) Instructions: Designate the best answer for eac
South Central College - ACC - 220
Achievement Test 3: Chapters 5 and 6 Financial Accounting, 5eName _ Instructor _ Section # _ Date _Part Points ScoreI 36II 26III 18IV 10V 10Total 100PART I - MULTIPLE CHOICE (36 points) Instructions: Designate the best answer for ea
South Central College - ACC - 220
Achievement Test 4: Chapters 7 and 8 Financial Accounting, 5eName _ Instructor _ Section # _ Date _Part Points ScoreI 30II 10III 20IV 10V 10VI 10VII 10Total 100PART I - MULTIPLE CHOICE (30 points) Instructions: Designate the bes
South Central College - ACC - 220
Achievement Test 5: Chapters 9 and 10 Financial Accounting, 5eName _ Instructor _ Section # _ Date _Part Points ScoreI 24II 18III 5IV 10V 13VI 15VII 15Total 100PART I - MULTIPLE CHOICE (24 points) Instructions: Designate the bes
South Central College - ACC - 220
Achievement Test 6: Chapters 11-13 Financial Accounting, 5eName _ Instructor _ Section # _ Date _Part Points ScoreI 40II 14III 6IV 12V 6VI 6VII 16Total 100PART I - MULTIPLE CHOICE (40 points) Instructions: Designate the best ans
South Central College - ACC - 220
Achievement Test 7 Chapters 14-15 Financial Accounting, Fifth EditionName _ Instructor _ Section # _ Date _Part Points ScoreI 32II 12III 20IV 24V 12Total 100PART I -- MULTIPLE CHOICE (32 points) Instructions Designate the best answe
South Central College - ACC - 220
South Central College - ACC - 220
South Central College - ACC - 220
South Central College - ACC - 220
Berkeley - PEIS - 100
9.26.06 Lecture Writers all had some aspect of morality in their writings.even if it was different from ours Mercantile system: grew up requiring that government maintained favorable balance of trade.import few goods and protect their own wealth, and
Berkeley - PEIS - 100
m10.19.06 Lecture Mill, Tocqueville, Veblen All deal with industrialization Mill p. 16 "No society in which these liberties are not on the whole respected is free." Freedom is pursuing our own good in our own way, not impeding others to do the same.
Berkeley - PEIS - 100
10.31.06 Karl Marx Dont really think of him in the same category as other liberal political economists. Makes a critique of liberalism, even though his own idea of political economy has elements of it. Proposes the solution (communist manifesto) befo
Berkeley - PEIS - 100
"Challenges to and critiques of Euro-centric conceptions of capitalism" historical context and the problem of generalization the problem of the unit of analysis: from national to global perspective Historical context and the problem of generalization
Berkeley - PEIS - 100
Marxist Debates about "imperialism" in the run-up to the Bolshevik Revolution (1917-18) 1. The emergence of social reformism and Marxist defense of "imperialism" a. R. Hilferding, E. Bernstein, K. Kautsky) - ultraimperialsm 2. The radicals and the op
Berkeley - PEIS - 100
Malthus: Took a very practical perspective on political atmosphere Very violent time in Europe from 1780s-1815. Govnt was spending a lot of money to finance the war, therefore increasing inflation. France embargoed british isles, which made it diffic
Berkeley - PEIS - 100
12-7-06 Final: three short answers.answer 2 from last midterm to present and two essay questions.whole course. CURRENT EVENTS. Schumpeter-pg. 90.a purely capitalist world can offer no fertile soil to imperialist impulses. That does not mean it cannot
Berkeley - PEIS - 100
9/7/06 Lecture Regicide led to commonwealth Interregnum an effort to rewrite the English constitution by the parliament to deal with competing interests between monarchy and army. A protectorate is created till 1659. Hobbes-is this a return to the st
Berkeley - PEIS - 100
Marx's thinking on value: Original idea of the value of an object or a commodity consists of: the natural contribution, as well as the labor expended to make the raw material into the object. Now that there is capitalism, is the way that value is det
Berkeley - PEIS - 100
Dec. 14 5-8 PM 100 GPB-final Keynes-probably the most influential economist in the 1900s, after Milton Friendman Bridge between classical economists and contemporary theories. "The general theory of employment, theory, and money" Three questions: 1.
Santa Clara - FNCE - 125
Solutions to Chapter 7 Net Present Value and Other Investment Criteria NPV = $6,750 + $4,500 + $18,000 = $15,750 NPV= $6,750 NPV= $6,75015.a.r = 0% r = 50% r = 100%$4,500 1.50 $4,500 2.00$18,000 1.502 $18,000 2.002$4,250 $0b.IRR = 100
Santa Clara - FNCE - 125
Solutions to Chapter 6 Valuing Stocks 1. No, this does not invalidate the dividend discount model. The dividend discount model allows for the fact that firms may not currently pay dividends. As the market matures, and Amazon's growth opportunities mo
Santa Clara - FNCE - 125
Solutions to Chapter 5 Valuing Bonds1.a.Coupon rate = 6%, which remains unchanged. The coupon payments are fixed at $60 per year. When the market yield increases, the bond price will fall. The cash flows are discounted at a higher rate. At a lo
Santa Clara - FNCE - 125
Solutions to Chapter 1 The Corporation and the Financial Manager1.Investment decisions: Should a new computer be purchased? Should the firm develop a new drug? Should the firm shut down an unprofitable factory? Financing decisions: Should the fir
Santa Clara - MGMT - 80
CHAPTER 4 SUMMARY 1. The term ethics refers to accepted principles of right or wrong that govern the conduct of a person, the members of a profession, or the actions of an organization. Business ethics are the accepted principles of right or wrong go
Santa Clara - MGMT - 80
CHAPTER 2 SUMMARY 1. Political systems can be assessed according to 2 dimensions: a. The degree to which they emphasize collectivism as opposed to individualism b. The degree to which they are democratic or totalitarian 2. Collectivism is an ideology
Santa Clara - FNCE - 125
Solutions to Chapter 2 Why Corporations Need Financial Markets and Institutions 1. The story of Apple Computer provides three examples of financing sources: equity investments by the founders of the company, trade credit from suppliers and investment
Santa Clara - MGMT - 80
Chapter SixThe Political Economy of International Trade6-3Opening Case Since 1974, international trade in the textile industry has been governed by a system of quotas known as the MultiFiber Agreement- Designed to protect textile producers in
Santa Clara - FNCE - 125
Solutions to Chapter 4 The Time Value of Money $100/(1.08)10 = $46.32 $100/(1.08)20 = $21.45 $100/(1.04)10 = $67.56 $100/(1.04)20 = $45.64 (1.08)10 = $215.89 (1.08)20 = $466.10 (1.04)10 = $148.02 (1.04)20 = $219.111.a. b. c. d.2.a. b. c. d.
Santa Clara - MGMT - 80
CHAPTER 3 SUMMARY 1. Culture is a complex whole that includes knowledge, beliefs, art, morals, law, customs, and other capabilities acquired by people as members of society. 2. Values and norms are the central components of a culture. Values are abst
Santa Clara - MGMT - 80
CHAPTER 1 SUMMARY 1. Over the past two decades, we have witnessed the globalization of markets and production. 2. The globalization of markets implies that national markets are merging into one hug marketplace. However, it is important not to push th
Santa Clara - MGMT - 80
Chapter SevenForeign Direct Investment7-3Foreign Direct Investment in the World Economy The flow of FDI refers to the amount of FDI undertaken over a given time period The stock of FDI refers to the total accumulated value of foreign owned ass
Santa Clara - MGMT - 80
Chapter FiveInternational Trade Theory5-3Overview of Trade Theory Free Trade occurs when a government does not attempt to influence, through quotas or duties, what its citizens can buy from another country or what they can produce and sell to a
Santa Clara - MGMT - 80
Chapter FourEthics in International Business4-3Introduction Business ethics are the accepted principles of right or wrong governing the conduct of business people An ethical strategy is a strategy or course of action that does not violate the
Santa Clara - MGMT - 80
Chapter ThreeDifferences in Culture3-4What is Culture?"Culture is that complex whole which includes knowledge, belief, art, morals, law, custom, and other capabilities acquired by man as a member of society." - Edward TylorMcGraw-Hill/Irwin
Santa Clara - MGMT - 80
Chapter TwoNational Differences in Political Economy2-3Political Economy A term that stresses that the political, economic, and legal systems of a country are interdependent; they interact and influence each other, and in doing so they affect t
Oklahoma State - AGEC - 5403
AGEC 5403 Production Economics Topic 1: A Historical Perspective I. Evolution of the neoclassical theory of the firm.A. Classical period - Adam Smith (1723-1790) and David Ricardo (1772-1823) 1. Smith 1776 An Inquiry into the Nature and Causes of th
Oklahoma State - AGEC - 5403
Topic 2: Physical Properties of Single Variable Factor Production Functions I. Output is measured in physical rather then money terms and is referred to as total physical product (TPP). We will use y to represent TPP. A. y = f(x1|x2,.,xn) 1. Called e
Ouachita Baptist - ENG - 101
Ruth Bryan Doug Sonheim English Studies February 1, 2008Sigmund Freud, "The Destiny of Oedipus" Freud's whole response to Oedipus is that there must be something within it that the contemporary audience, us, can identify with and understand. He say
Ouachita Baptist - ENG - 101
Ruth Bryan Dr. Doug Sonheim English Studies February 4, 2008 "My Papa's Waltz" Response Roethke's My Papa's Waltz can be viewed in two very distinct ways, either as child abuse, or an intimate moment between father and son. Rovelli's response discuss
Ouachita Baptist - MSSNS - 101
Ruth Bryan Intro to Chr. Miss. Franklin April 14, 2008 Destiny of the Unevangelized Paper I have read 100% of this book. The view that I can identify most with from the book "What About Those Who Have Never Heard" by Fackre, Nash, and Sanders is Incl
Ouachita Baptist - LIBARTS - 101
The Real Inconvenient TruthLiberal Arts Essay #3Ruth Bryan Dr. Eubanks April 16, 2008The Real Inconvenient Truth Al Gore's movie "An Inconvenient Truth" is highly controversial and there is much support for both sides of the arguments surroundin
Ouachita Baptist - BIBLE - 101
"New Life in Christ"An Exegetical Paper on Ephesians 4:25-32By Ruth BryanInterpreting the Bible Dr. Ray Franklin Spring 2008Ephesians 4:25-32: Paul gives an explanation of the new self which Christians are to take on, and examples of the Chri
Baylor - SPA - 2320
La teologa de la liberacin de Latinoamrica concentra en reconstruyendo el infraestructura de la economa, detestando la influencia de otras pases, y uniendo las personas de la pas para evitar servidumbre. La teologa de la liberacin junta todos los cri
Baylor - ANT - 1301
Chapter 1: The Essence of Anthropology 1. The Development of Anthropology 2. The Anthropological Perspective 3. Anthropology and Its Fields a. Physical Anthropology i. Paleoanthropology ii. Human Growth, Adaptation, and Variation iii. Forensic Anthro
Baylor - SPA - 2320
Review for Spanish Exam 1 El Eclipse by Augusto Monterroso About the author: From Guatemala Short, satirical fiction About the story: 500th anniversary of the arrival of the Spaniards in the Americas Envisions the meeting of the indigenous American a
Baylor - SPA - 2320
Spanish Exam 3 ReviewEl indulto-Emilia Pardo BaznEmilia Pardo Bazn was passionate about love for the countryside, landscape, customs, and the typical language of her region. She utilizes the characters in her works and their circumstances in order
Baylor - SPA - 2320
Spanish Exam 2 ReviewLa Chusma-Ana Mara MatuteElementos del Cuento: o o o o o o Plot-el trama Characters-los personajes (principal o secundario) Tone-el tono Theme-el tema Setting-el ambiente, el trasfondo Argument-el argumento (premise, inferred