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FRANKLIN COLLEGE BUSINESS 115 FINANCIAL ACCOUNTING PROFESSOR GEORGES ROCOURT SPRING SEMESTER 2008 FINANCIAL ACCOUNTING, 13 TH EDITION Williams, Haka, Bettner, & Carcello Homework Assignment for Chapter # 4 (Part # 2) – ANSWER SHEET Discussion Question # 7: The term, unearned revenue, describes amounts that have been collected from customers in advance and that have not yet been earned. As the company has an obligation to render services to these customers or to refund their advance payments, unearned revenue appears in the liability section of the balance sheet. As services are performed for these customers, the liability is reduced. Therefore, an adjusting entry is made transferring the balance of the unearned revenue account into a revenue account. Discussion Question # 9: In the income statement, the Insurance Expense account will be understated; hence total expenses will be understated, and net income will be overstated. In the balance sheet, the asset account, Unexpired Insurance, will be overstated, as will the amount for total assets. Offsetting this over- statement of assets will be an overstatement of retained earnings; hence owners’ equity will be overstated. Discussion Question # 10 Materiality refers to the relative importance of an item or an event to the users of financial statements. An item is “material” if knowledge of it might reasonably influence the decisions of financial statement users.
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