Ch_03_Exercise_Answers - Exercises (510min.)E31...

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Exercises (5-10 min.) E 3-1 All amounts in millions Statement Report 1. Income statement Sales revenue………… $4,173 Operating expenses… 816 Balance sheet Accounts receivable… $ 408 Accounts payable…… 132 2. Cash basis would report only the cash collections of $4,136 from customers and the payment of operating expenses ($816). Chapter 3 Using Accrual Accounting to Measure Income 141
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(5-10 min.) E 3-2 All amounts in millions a. Income tax payable at December 31, 2003, is computed as follows: Beginning balance………………………………… $ 67 + Expense for the year……………………………… 80 Payments during the year………………………. . (59 ) = Ending balance (December 31, 2000) …………. . $ 88 Statement Report b. Income statement Income tax expense……. $ 80 Balance sheet Income tax payable……. $ 88 c. For profitability, use income tax expense . For financial position, use income tax payable . Chapter 3 Using Accrual Accounting to Measure Income 142
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(5-10 min.) E 3-3 Millions a. Revenue………………………………………………. $608 The revenue principle says to record revenue when it has been earned , regardless of when cash is collected. Therefore, report the amount of revenue earned, regardless of when the company collects cash. b. Total expense…………………………………….…. . $549 The matching principle governs accounting for expenses. c. The income statement reports revenues and expenses. The statement of cash flows reports cash receipts and cash payments. Chapter 3 Using Accrual Accounting to Measure Income 143
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(5-10 min.) E 3-4 a. Revenue principle (also accrual accounting) b. Matching principle c. Matching principle (also accrual accounting) d. Time-period concept e. Revenue principle (5-10 min.) E 3-5 Plant assets wear out and become obsolete as they are used in business, leaving less and less of the asset’s benefits for the future. Throughout the asset’s life, accountants gradually transfer part of the asset’s cost to an expense account called Depreciation Expense. Responses may vary. Chapter 3 Using Accrual Accounting to Measure Income 144
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(15-20 min.) E 3-6 Req. 1 Adjusting Entries DATE ACCOUNT TITLES DEBIT CREDIT a. Interest Receivable…………………………… 1,200 Interest Revenue…………………………. .. 1,200 b. Unearned Service Revenue ($800 – $300). . 500 Service Revenue…………………………… 500 c. Depreciation Expense………………………. . 6,200 Accumulated Depreciation………………. 6,200 d. Salary Expense ($9,000 × 2/5) ……………… 3,600 Salary Payable………………………. ……. . 3,600 e. Income Tax Expense ($20,000
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This note was uploaded on 10/12/2008 for the course MGMT 200 taught by Professor Greigg during the Spring '08 term at Purdue University-West Lafayette.

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Ch_03_Exercise_Answers - Exercises (510min.)E31...

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