ch03 - Exercise Set B - Chapter 3 EXERCISES: SET B E3-1B...

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Explain the time period assumption. (SO 1) Compute cash and accrual accounting income. (SO 2) Identify the type of adjusting entry needed. (SO 4) Prepare adjusting entries from selected data. (SO 5, 6) EXERCISES: SET B E3-1B Cosima San has prepared the following list of statements about the time period assumption. 1. Adjusting entries are necessary only if a company has made accounting errors. 2. The IRS requires companies to file annual tax returns. 3. One transaction can affect several accounting periods. 4. Accounting time periods cannot be shorter than a quarter. 5. A time period lasting less than one year is called an interim period. 6. All fiscal years are calendar years, but not all calendar years are fiscal years. Instructions Identify each statement as true or false. If false, indicate how to correct the statement. E3-2B Onufer Industries collected $150,000 from customers in 2010. Of the amount collected, $30,000 was from revenue earned on account in 2009. In addition, Onufer earned $47,000 of revenue in 2010, which will not be collected until 2011. Onufer Industries also paid $100,000 for expenses in 2010. Of the amount paid, $30,000 was for expenses incurred on account in 2009. In addition, Onufer incurred $44,000 of expenses in 2010, which will not be paid until 2011. Instructions (a) Compute 2010 cash-basis net income. (b) Compute 2010 accrual-basis net income. E3-3B Lagasse Corporation encounters the following situations: 1. Lagasse purchased $1,400 of supplies in 2010; at year-end, $500 of supplies remain unused. 2. Lagasse incurs utility expense which is not yet paid in cash or recorded. 3. Lagasse’s employees worked 3 days in 2010, but will not be paid until 2011. 4. Lagasse earned service revenue but has not yet received cash or recorded the transaction. 5. Lagasse received cash for future services to be performed in 2011. 6. Lagasse paid $8,000 rent on October 1 for the 4 months starting October 1. 7. Lagasse performed consulting services for a client in December 2010. On December 31, it billed the client $3,300. 8. Lagasse paid cash for an expense and recorded an asset until the item was used up. 9. Lagasse collects $2,000 from a customer for services to be perfomed next year. 10. Lagasse purchased equipment on January 1, 2010; the equipment will be used for 5 years. 11. Lagasse borrowed $20,000 on October 1, 2010, signing a 10% one-year note payable. Instructions Identify what type of adjusting entry (prepaid expense, unearned revenue, accrued expense, ac- crued revenue) is needed in each situation, at December 31, 2010. E3-4B Pedro Sigala Company has the following balances in selected accounts on December 31, 2010. Accounts Receivable $ -0- Accumulated Depreciation—Equipment -0- Equipment 7,000 Interest Payable -0- Notes Payable 25,000 Prepaid Insurance 2,520 Salaries Payable -0- Supplies 2,650 Unearned Consulting Revenue 50,000 All the accounts have normal balances. The information below has been gathered at December 31, 2010. 1.
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ch03 - Exercise Set B - Chapter 3 EXERCISES: SET B E3-1B...

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