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Unformatted text preview: ANSWERS TO MULTIPLE CHOICE 1. b 2. a 3. c 4. b 5. d 6. d 7. a 8. d 9. d10. b 4. A contra-asset is an account related to an asset that is an offset or reduction to the asset's balance. Accumulated Depreciation is a contra-account to the equipment and buildings accounts. 6.(a) Income statement: Revenues (and Gains) - Expenses (and Losses) = Net Income (b) Balance sheet: Assets = Liabilities + Stockholders' Equity (c) Statement of cash flows: Changes in cash for the period = Cash from Operations + Cash from Investing Activities + Cash from Financing Activities (d) Statement of stockholders' equity: Ending Stockholders' Equity = (Beginning Contributed Capital + Stock Issuances - Stock Repurchases) + (Beginning Retained Earnings + Net Income - Dividends Declared) 10. An unadjusted trial balance is prepared after all current transactions have been journalized and posted to the ledger. It does not include the effects of the adjusting entries. The basic purpose of an unadjusted trial balance is to check the equalities of the accounting model (particularly, Debits = Credits) and to provide the data in a form convenient for further processing in the accounting information processing cycle. In contrast, an adjusted trial balance is prepared after the effects of all of the adjusting entries have been applied to the corresponding (prior) unadjusted trial balance amounts. The basic purpose of an adjusted trial balance is to insure that accuracy has been attained in applying the effect of the adjusting entries. The adjusted trial balance provides a second check in the model equalities (primarily Debits = Credits). It also provides data in a form convenient for further processing. 12. (a) Permanent accounts -- balance sheet accounts; that is, the asset, liability, and stockholders’ equity accounts (these are not closed at the end of each period). (b) Temporary accounts -- income statement accounts; that is, revenues, gains, expenses, and losses (these are closed at the end of each period). (c) Real accounts -- another name for permanent accounts. (d) Nominal accounts -- another name for temporary accounts. E4–3. Req. 1 The annual reporting period for this company is January 1 through December 31, 2010. Req. 2 (Adjusting entries) Both transactions are accruals because revenue has been earned and expenses incurred but no cash has yet been received or paid. ( a ) 1. Type: Accrued Expense 2. Amount: Given 3. Adjusting entry: December 31, 2010 Wage expense (+E, - SE) 6,000 Wages payable (+L) 6,000 To record wages earned by employees during 2010, but not yet paid by the company. This entry records the (a) 2010 expense, and (b) 2010 liability, which is necessary to conform to accrual accounting and the matching principle....
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