Chapter+4+Sol+Q+BE+DOIT-3 - Chapter 4 Questions, Brief...

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Chapter 4 Questions, Brief Exercises, Just DOIT solutions ANSWERS TO QUESTIONS 1. (a) Under the periodicity assumption, an accountant is required to determine the effect of each accounting transaction on a specific accounting period. (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 expense recognition principle which states that efforts (expenses) be matched with results (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 $4,700 should be deducted from the revenues in April. Under the expense recognition principle efforts (expenses) should be matched with results (revenues). 5. No, adjusting entries are required by the revenue and expense recognition 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 deferrals and accruals. Deferrals consist of revenues collected and expenses paid before they are earned or incurred. Accruals consist of revenues earned and expenses incurred prior to collection or 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.
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Depreciation results in the presentation of the book value of the asset, not its fair 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—Equipment. ................................ 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, 2011 will have no effect on the 2011 income statement but receipt of $100,000 on December 29, 2011, 2012, and 2013 will increase an asset, Cash, and a liability, Unearned Revenue. As Data Technologies provides service to its customer during 2012, 2013, and 2014, the liability
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This note was uploaded on 12/05/2011 for the course ACCT 207 taught by Professor Hudchinson during the Fall '08 term at University of Delaware.

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Chapter+4+Sol+Q+BE+DOIT-3 - Chapter 4 Questions, Brief...

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