CHAPTER 9

CHAPTER 9 - CHAPTER 9 HOMEWORK SOLUTIONS Questions: 5....

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 9 HOMEWORK SOLUTIONS Questions: 5. Working capital is computed as total current assets minus total current liabilities. It is the amount of current assets that would remain if all current liabilities were paid, assuming no loss or gain on liquidation of those assets. 6. The current ratio is the percentage relationship of current assets to current liabilities. It is computed by dividing current assets by current liabilities. For example, assuming current assets of $200,000 and current liabilities of $100,000, the current ratio would be $200,000/$100,000 = 2.0 (for each dollar of current liabilities there are two dollars of current assets). The current ratio is influenced by the amount of current liabilities. Therefore, it is particularly important that liabilities be considered carefully before classifying them as current versus long term. The shifting of a liability from one of these categories to the other often may affect the current ratio significantly. This ratio is used by creditors because it is an important index of ability to meet short-term obligations. Thus, the proper classification of liabilities is particularly significant. 7. An accrued liability is an expense that was incurred before the end of the current period but has not been paid or recorded. Therefore, an accrued liability is recognized when such a transaction is recorded. A typical example is wages incurred during the last few days of the accounting period but not recorded because no payroll was prepared and paid that included these wages. Assuming wages of $2,000 were incurred, the adjusting entry to record the accrued liability and the wage expense would be as follows: December 31: Wage expense (+E, -SE)…………………………………… 2,000 Wages payable (+L) . ..... …………………………………. . 2,000
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
8. A deferred revenue (usually called unearned revenue or revenue collected in advance) is a revenue that has been collected in advance of being earned and recorded in the accounts by the entity. Because the amount already has been collected and the goods or services have not been provided, there is a liability to provide goods or services to the party who made the payment in advance. A typical example is the collection of rent on December 15 for one full month to January 15 when the accounting period ends on December 31. At the date of the collection of the rent the following entry usually is made: December 15: Cash (+A). .................................................................... 4,000 Rent revenue (+R, +SE) . ................................................... 4,000 On the last day of the period, the following adjusting entry should be made to
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 12

CHAPTER 9 - CHAPTER 9 HOMEWORK SOLUTIONS Questions: 5....

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online