Solutions Chapter 4 - ANSWERS TO QUESTIONS 1. (a) Under the...

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

View Full Document Right Arrow Icon

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

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ANSWERS TO QUESTIONS 1. (a) Under the time period assumption, an accountant is required to determine the effect of each accounting transaction on specific accounting periods. (b) An accounting time period that is one year in length is referred to as a fiscal year. 2. The two generally accepted accounting principles that pertain to adjusting the accounts are: The revenue recognition principle, which states that revenue should be recognized in the time period in which it is earned. The matching principle, which states that efforts (expenses) be matched with accomplishments (revenues) that they helped generate. 3. The law firm should recognize the revenue in April. The revenue recognition principle states that revenue should be recognized in the accounting period in which it is earned. 4. Expenses of $4,500 should be deducted from the revenues in April. Under the matching principle efforts (expenses) should be matched with accomplishments (revenues). 5. No, adjusting entries are required by the revenue recognition and matching principles. 6. The financial information in a trial balance may not be up-to-date because: (1) Some events are not journalized daily because it is not useful or efficient to do so. (2) The expiration of some costs occurs with the passage of time rather than as a result of recurring daily transactions. (3) Some items may be unrecorded because the transaction data are not known. 7. The two categories of adjusting entries are prepayments and accruals. Prepayments consist of revenues and expenses paid before they are earned or incurred. Accruals consist of revenues and expenses earned or incurred prior to payment. 8. In a prepaid expense adjusting entry, expenses are debited and assets are credited. 9. No. Depreciation is the process of allocating the cost of an asset to expense over its useful life. Depreciation results in the presentation of the book value of the asset, not its market value. 10. Depreciation expense is an expense account whose normal balance is a debit. This account shows the cost that has expired during the current accounting period. Accumulated depreciation is a contra asset account whose normal balance is a credit. The balance in this account is the depreciation that has been recognized from the date of acquisition to the balance sheet date. 11. Equipment............................................................................................................. $15,000 Less: Accumulated Depreciation......................................................................... 7,000 $8,000 12. In an unearned revenue adjusting entry, liabilities are debited and revenues are credited. 13. The sale of a three-year maintenance contract on December 29, 2007 will have no effect on the 2007 income statement but receipt of $100,000 on December 29, 2007 will increase an asset, cash, and a liability, unearned revenue. As Computer Technologies provides service to its customer during 2008, 2009, and 2010, the liability will decrease and revenue will be...
View Full Document

This note was uploaded on 03/01/2010 for the course ACCT 2301 taught by Professor White during the Spring '08 term at Central Texas College.

Page1 / 23

Solutions Chapter 4 - ANSWERS TO QUESTIONS 1. (a) Under the...

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