Professional Documents
Culture Documents
Accounting 04
Accounting 04
(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.
7.
The two categories of adjusting entries are deferrals and accruals. Deferrals 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 .................................................................................................
Less: Accumulated Depreciation..............................................................
$15,000
9,000
$6,000
4-1
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, 2009 will have no effect on the
2009 income statement but receipt of $100,000 on December 29, 2009 will increase an asset,
cash, and a liability, unearned revenue. As Computer Technologies provides service to its
customer during 2010, 2011, and 2012, the liability will decrease and revenue will be recognized.
Accrual accounting rules require that revenue be recognized as it is earned rather than when
cash is received.
14.
This promotion plan sounds like a bad idea for two reasons.
(1) GAAP requires that the sale of a gift card be recorded as unearned revenue (a liability)
rather than sales revenue. Revenue recognition is delayed until the gift card is used or
expires. Mickeys plan will not help the company meet its target revenue unless customers
use the cards by year-end.
(2) Selling a $50 card for $40 will probably not help the company meet its target net income.
Although this promotion may result in additional sales revenue as the cards are used, the
income resulting from the cards will be much less than usual since they eliminate $10 of
normal gross profit.
15.
16.
17.
Net income was understated $300 because prior to adjustment revenues are understated by
$800 and expenses are understated by $500. The difference in this case is $300 ($800 $500).
18.
1,100
4,900
6,000
19.
20.
21.
Disagree. An adjusting entry affects only one balance sheet account and one income statement
account.
22.
Tootsie Roll reports Accounts Receivable. This suggests that it records revenue when it has
delivered goods, even though it hasnt received payment. If it used a cash basis it wouldnt record
revenue until cash was received, and it would therefore not establish receivables.
23.
Financial statements can be prepared from an adjusted trial balance because the balances of all
accounts have been adjusted to show the effects of all financial events that have occurred during
the accounting period.
4-2
(a) Information presented on an accrual basis is useful because it reveals important information
about the relationship between efforts and results. This information is useful in predicting
future results. Trends in revenues and expenses are thus more meaningful.
(b) Information presented on a cash basis is useful for predicting the future availability of cash.
Cash basis financial statements provide useful information about a companys sources and
uses of cash.
25.
The amount shown in the adjusted trial balance column for an account equals the account
balance in the ledger after adjusting entries have been journalized and posted.
26.
(1)
(2)
(3)
(4)
27.
Financial information is used by managers to direct and evaluate a companys performance. The
sooner such information is made available; the sooner changes can be made to get a company
back on track. A virtual close speeds up the reporting process and allows managers to react
much faster to changing economic conditions.
28.
Income Summary is a temporary account that is used in the closing process. The account is
debited for expenses and credited for revenues. The difference, either net income or net loss, is
then closed to Retained Earnings.
29.
The post-closing trial balance contains only balance sheet accounts. Its purpose is to prove the
equality of the permanent account balances that are carried forward into the next accounting period.
30.
The accounts that will not appear in the post-closing trial balance are: Depreciation Expense;
Dividends; and Service Revenue.
31.
The steps that involve journalizing are (1) journalize the transactions, (2) journalize the adjusting
entries, and (3) journalize the closing entries.
32.
The three trial balances are the (1) trial balance, (2) adjusted trial balance, and (3) post-closing
trial balance.
33.
Earnings management is the planned timing of revenues, expenses, gains, and losses to smooth out
bumps in net income. Such action is undertaken to help a company meet target financial numbers.
Quality of earnings indicates the level of full and transparent information that a company provides to
users of financial statements.
34.
4-3
Recording improper adjusting entries. Some adjusting entries require estimates and judgment to
properly recognize revenue and match expenses. By recognizing revenue sooner and delaying
the recognition of expenses, earnings can be overstated in early periods and understated in
subsequent periods. This type of management is most prevalent with multi-year contracts and
prepaid expenses.
*35. The worksheet is a working paper designed to make it easier to prepare adjusting entries and
financial statements.
*36. The columns of the worksheet from left to right are two columns each for the trial balance,
adjustments, adjusted trial balance, income statement, and balance sheet.
4-4
Cash
$100
0
0
+800
2,500
0
Net Income
$0
40
+1,300
0
0
600
(1)
Type of Adjustment
(2)
Accounts Before Adjustment
(a)
Prepaid Expenses
Assets Overstated
Expenses Understated
(b)
Accrued Revenues
Assets Understated
Revenues Understated
(c)
Accrued Expenses
Expenses Understated
Liabilities Understated
(d)
Unearned Revenues
Liabilities Overstated
Revenues Understated
4-5
Advertising Supplies
8,800 12/31
7,400
12/31 Bal. 1,400
7,400
7,400
Depreciation Expense......................................
Accumulated Depreciation
Equipment .............................................
2,200
2,200
Accumulated Depreciation
Equipment
12/31
2,200
Depreciation Expense
12/31
2,200
Balance Sheet:
Equipment...................................................................
Less: Accumulated Depreciation.............................
$22,000
2,200
$19,800
10,800
2,700
Prepaid Insurance
7/1
10,800 12/31
12/31 Bal. 8,100
4-6
2,700
12/31
10,800
2,700
Insurance Expense
2,700
Cash ..................................................................
Unearned Insurance Revenue.................
10,800
2,700
10,800
2,700
Insurance Revenue
12/31
2,700
31
31
300
1,400
Salaries Expense......................................
Salaries Payable ...............................
780
300
1,400
780
Account
(2)
Related Account
(a)
Accounts Receivable
Accrued Revenues
Service Revenue
(b)
Prepaid Insurance
Prepaid Expenses
Insurance Expense
(c)
Equipment
Not required
(d)
Accum. Depreciation
Equipment
Prepaid Expenses
(e)
Notes Payable
Not required
(f)
Interest Payable
Accrued Expenses
Interest Expense
(g)
Unearned Service
Revenue
Unearned Revenues
Service Revenue
Depreciation Expense
4-7
$32,000
$13,000
3,500
1,800
1,200
1,000
20,500
$11,500
$17,200
10,000
27,200
6,000
$21,200
4-8
Accumulated Depreciation
Depreciation Expense
Retained Earnings
Dividends
Service Revenue
Supplies
Accounts Payable
Balance Sheet
Income Statement
Retained Earnings Statement and Balance Sheet
Retained Earnings Statement
Income Statement
Balance Sheet
Balance Sheet
Closing Entries
Green Fees Revenue................................
Income Summary ..............................
(To close revenue account)
16,000
16,000
11,900
4,100
Retained Earnings....................................
Dividends ...........................................
(To close dividends to retained
earnings)
1,000
8,400
2,500
1,000
4,100
1,000
(b)
Retained Earnings
1,000
20,000
4,100
7/31 Bal. 23,100
4-9
4-10
(c)
(e)
(i)
(d)
(h)
(b)
(g)
(f)
(a)
2.
3.
4.
300
1,600
500
4,000
300
1,600
500
4,000
DO IT! 4-2
1.
2.
3.
1,100
200
1,600
1,100
200
1,600
DO IT! 4-3
Income statement: Service Revenue, Utilities Expense
Balance sheet: Accounts Receivable, Accumulated Depreciation, Notes
Payable, Common Stock.
4-11
DO IT! 4-4
Dec. 31 Income Summary ...................................................... 29,000
Retained Earnings .............................................
(To close net income to retained earnings)
29,000
22,000
4-12
SOLUTIONS TO EXERCISES
EXERCISE 4-1
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
8.
1.
7.
3.
6.
4.
2.
5.
EXERCISE 4-2
(a) Since the sales effort is not complete until the flight actually occurs,
revenue should not be recognized until December. Southwest Airlines
should recognize the revenue in December when the customer has
been provided with the flight.
(b) If Ultimate Electronics is reasonably certain of collection, revenue should
be recognized at the time of sale. If the company has concerns over the
collectibility of the accounts receivable, revenue should not be recognized
until the time that collection is reasonably assured.
(c) Revenue should be recognized on a per game basis over the season
from April through October.
(d) Interest revenue should be accrued and recognized by RBC evenly over
the term of the loan.
(e) Revenue should be recognized when the sweater is shipped to the
customer in September provided there is reasonable assurance of
collectibility.
EXERCISE 4-3
(a)
(b)
(c)
(d)
(e)
(f)
4-13
EXERCISE 4-4
$ 33,640
+ 3,400
2,800
+ 1,300
1,160
2,000
+ 2,400
1,400
+ 1,600
$ 34,980
4-14
EXERCISE 4-5
(a)
BOULDER COMPANY
Income Statement
For the Six Months Ended April 30, 2010
Revenues
Repair services ($32,150 + $350).....................
Expenses
Income tax expense..........................................
Wages expense ($2,600 + $420) ......................
Rent expense ($1,225 $175) ..........................
Utilities expense ...............................................
Depreciation expense [($9,200 5) X 6/12].....
Advertising expense.........................................
Total expenses ...........................................
Net income ................................................................
(b)
$32,500
$10,000
3,020
1,050
970
920
375
16,335
$16,165
BOULDER COMPANY
Balance Sheet
April 30, 2010
Assets
Current Assets
Cash................................................................
Accounts receivable ......................................
Prepaid rent ....................................................
Total current assets................................
Property, plant, and equipment
Equipment.......................................................
Less: Accumulated depreciation.................
Total assets ...........................................................
$27,780
350
175
9,200
920
$28,305
8,280
$36,585
420
36,165
$36,585
4-15
EXERCISE 4-6
Item
(1)
Type of Adjustment
(2)
Accounts Before Adjustment
(a)
Accrued Revenues
Assets Understated
Revenues Understated
(b)
Prepaid Expenses
Assets Overstated
Expenses Understated
(c)
Accrued Expenses
Expenses Understated
Liabilities Understated
(d)
Unearned Revenues
Liabilities Overstated
Revenues Understated
(e)
Accrued Expenses
Expenses Understated
Liabilities Understated
(f)
Prepaid Expenses
Assets Overstated
Expenses Understated
4-16
EXERCISE 4-7
1.
2.
3.
Jan. 31
31
31
31
4.
5.
31
31
680
Utilities Expense............................................
Utilities Payable .....................................
520
Depreciation Expense...................................
Accumulated Depreciation
Dental Equipment ..............................
400
Interest Expense............................................
Interest Payable .....................................
500
2,000
1,200
680
520
400
500
2,000
1,200
4-17
EXERCISE 4-8
1.
2.
3.
4.
5.
6.
7.
Oct. 31
31
31
31
31
31
31
2,000
100
50
800
Accounts Receivable.....................................
Service Revenue ....................................
200
70
1,400
2,000
100
50
800
200
70
1,400
EXERCISE 4-9
MARX CO.
Income Statement
For the Month Ended July 31, 2010
Revenues
Service revenue ($5,500 + $700) .............................
Expenses
Wages expense ($2,300 + $300)..............................
Utilities expense .......................................................
Supplies expense ($900 $200)..............................
Insurance expense ...................................................
Depreciation expense ..............................................
Total expenses..................................................
Net income........................................................................
4-18
$6,200
$2,600
800
700
350
150
4,600
$1,600
(For Instructor Use Only)
EXERCISE 4-10
Computation
Answer
(a) Supplies balance = $1,000
Supplies expense
Add: Supplies (1/31)
Less: Supplies purchased
Supplies (1/1)
$ 950)
700)
(650)
$1,000)
Service revenue
Unearned revenue (1/31/10)
Cash received in Jan.
Unearned revenue (12/31/09)
$2,500
1,200
3,700
1,800
$1,900
$2,000
750
2,750
1,800
$ 950
4-19
EXERCISE 4-11
Jan. 31
31
31
2,000
3,270
1,270
2,000
1,800
950
520
1,270
EXERCISE 4-12
(a) July 10
14
15
20
(b) July 31
31
31
31
4-20
Supplies..........................................................
Cash ........................................................
200
Cash ................................................................
Service Revenue ....................................
4,100
1,200
Cash ................................................................
Unearned Service Revenue...................
600
750
Accounts Receivable.....................................
Service Revenue ....................................
500
1,200
900
200
4,100
1,200
600
750
500
1,200
900
EXERCISE 4-13
Aug. 31
31
31
31
31
31
600
2,000
Insurance Expense...............................................
Prepaid Insurance.........................................
1,500
1,200
1,100
900
600
2,000
1,500
1,200
1,100
900
EXERCISE 4-14
IVY COMPANY
Income Statement
For the Year Ended August 31, 2010
Revenues
Service revenue .....................................................
Rent revenue ..........................................................
Total revenues................................................
Expenses
Salaries expense....................................................
Rent expense .........................................................
Office supplies expense........................................
Insurance expense ................................................
Depreciation expense............................................
Total expenses ...............................................
Net income .....................................................................
$34,600
14,100
$48,700
$18,100
12,000
2,000
1,500
1,200
34,800
$13,900
4-21
$ 5,600
13,900
19,500
2,800
$16,700
IVY COMPANY
Balance Sheet
August 31, 2010
Assets
Current Assets
Cash .........................................................................
Accounts receivable ...............................................
Office supplies ........................................................
Prepaid insurance ...................................................
Total current assets ........................................
Office equipment .....................................................
Less: Accum. depreciationoffice equipment .....
Total assets......................................................
$10,900
9,400
500
2,500
$23,300
$16,000
4,800
11,200
$34,500
4-22
$ 5,800
1,100
900
$ 7,800
10,000
16,700
26,700
$34,500
EXERCISE 4-15
Aug. 31
31
31
31
Service Revenue..............................................
Rent Revenue...................................................
Income Summary.....................................
34,600
14,100
Income Summary.............................................
Salaries Expense .....................................
Rent Expense ...........................................
Office Supplies Expense .........................
Insurance Expense ..................................
Depreciation Expense .............................
34,800
Income Summary.............................................
Retained Earnings ...................................
13,900
2,800
48,700
18,100
12,000
2,000
1,500
1,200
13,900
2,800
4-23
SOLUTIONS TO PROBLEMS
PROBLEM 4-1A
(a)
1.
2.
3.
4.
5.
(b)
Cash ..................................................................
Accounts Receivable ...............................
19,000
38,000
Cash ..................................................................
Unearned Rent Revenue..........................
89,000
59,000
Accounts Receivable.......................................
Dues Revenue...........................................
162,000
Cash .................................................................
Accounts Receivable ($162,000 $15,000)...
147,000
Accounts Receivable
2006 Bal. 19,000
4.
162,000 1.
19,000
5.
147,000
2007 Bal. 15,000
4-24
38,000
89,000
59,000
162,000
147,000
2.
3.
19,000
$ 19,000
89,000
147,000
$255,000
Dues Revenue
4.
162,000
2007 Bal. 162,000
Rent Revenue
2.
38,000
3.
59,000
2007 Bal. 97,000
Cash
1.
19,000
3.
89,000
5.
147,000
2007 Bal. 255,000
PROBLEM 4-2A
(a)
1.
Date
2007
April 30
2.
3.
4.
5.
6.
7.
30
30
30
30
30
30
Account Titles
Debit
Supplies Expense.....................................
Supplies ($1,000 $320) ..................
680
Phone Expense.........................................
Phone Payable ..................................
120
Rent Expense............................................
Prepaid Rent......................................
($2,700 3 months)
900
2,200
Salaries Expense......................................
Salaries Payable ...............................
1,460
300
2,800
Credit
680
120
900
2,200
1,460
300
2,800
(b)
4/30 Bal.
Cash
9,300
Prepaid Rent
4/30 Bal. 2,700 4/30
4/30 Bal. 1,800
Accounts Receivable
4/30 Bal. 5,000
4/30
2,800
4/30 Bal. 7,800
4/30 Bal.
4/30 Bal.
Supplies
1,000 4/30
320
900
680
4-25
5,100
Phone Payable
4/30
4/30 Bal.
120
120
Salaries Payable
4/30
4/30 Bal.
1,460
1,460
Salaries Expense
4/30 Bal. 3,800
4/30
1,460
4/30 Bal. 5,260
Insurance Expense
4/30 Bal.
400
Depreciation Expense
4/30
300
4/30 Bal.
300
Rent Expense
4/30
900
4/30 Bal.
900
Phone Expense
4/30
120
4/30 Bal.
120
Supplies Expense
4/30
680
4/30 Bal.
680
Common Stock
4/30 Bal. 25,000
Service Revenue
4/30 Bal. 9,000
4/30
2,200
4/30
2,800
4/30 Bal. 14,000
4-26
DO IT NOW CONSULTING
Adjusted Trial Balance
April 30, 2007
Cash .....................................................................
Accounts Receivable..........................................
Prepaid Rent........................................................
Supplies ...............................................................
Office Equipment ................................................
Accumulated DepreciationOffice
Equipment .......................................................
Accounts Payable ...............................................
Phone Payable ....................................................
Salaries Payable .................................................
Unearned Service Revenue................................
Common Stock....................................................
Service Revenue .................................................
Salaries Expense ................................................
Insurance Expense .............................................
Depreciation Expense ........................................
Rent Expense ......................................................
Phone Expense ...................................................
Supplies Expense ...............................................
Debit
$ 9,300
7,800
1,800
320
20,000
Credit
5,260
400
300
900
120
680
$46,880
300
5,100
120
1,460
900
25,000
14,000
$46,880
4-27
PROBLEM 4-3A
(a) 1. March 31
2.
31
3.
31
31
4.
31
5.
31
6.
31
400
1,400
370
300
375
1,300
960
400
1,400
370
300
375
1,300
960
(b)
3/31 Bal.
Cash
2,700
Prepaid Insurance
3/31 Bal. 2,400 3/31
3/31 Bal. 2,000
4-28
3/31 Bal.
3/31 Bal.
400
Supplies
3,300 3/31
1,900
1,400
Land
3/31 Bal. 25,000
Mortgage Payable
3/31 Bal. 50,000
Accumulated Depreciation
Lodge
3/31
370
3/31 Bal.
370
Furniture
3/31 Bal. 22,400
Accumulated Depreciation
Furniture
3/31
300
3/31 Bal.
300
Accounts Payable
3/31 Bal.
9,200
960
960
375
375
Common Stock
3/31 Bal. 72,000
Rent Revenue
3/31 Bal. 11,000
3/31
1,300
3/31 Bal. 12,300
Salaries Expense
3/31 Bal. 3,000
3/31
960
3/31 Bal. 3,960
Utilities Expense
3/31 Bal.
800
Advertising Expense
3/31 Bal.
400
Interest Expense
3/31
375
3/31 Bal.
375
Insurance Expense
3/31
400
3/31 Bal.
400
4-29
Depreciation ExpenseFurniture
3/31
300
3/31 Bal.
300
Depreciation LodgeLodge
3/31
370
3/31 Bal.
370
(c)
WELCOME INN
Adjusted Trial Balance
March 31, 2007
Cash...................................................................
Prepaid Insurance ............................................
Supplies ............................................................
Land...................................................................
Lodge.................................................................
Accumulated DepreciationLodge................
Furniture............................................................
Accumulated DepreciationFurniture...........
Accounts Payable ............................................
Unearned Rent Revenue..................................
Salaries Payable ...............................................
Interest Payable................................................
Mortgage Payable.............................................
Common Stock .................................................
Rent Revenue ...................................................
Salaries Expense..............................................
Utilities Expense...............................................
Advertising Expense........................................
Interest Expense...............................................
Insurance Expense...........................................
Supplies Expense.............................................
Depreciation ExpenseLodge .......................
Depreciation ExpenseFurniture ..................
4-30
Debit
$ 2,700
2,000
1,900
25,000
85,000
Credit
370
22,400
300
9,200
1,500
960
375
50,000
72,000
12,300
3,960
800
400
375
400
1,400
370
300
$147,005
$147,005
WELCOME INN
Income Statement
For the Month Ended March 31, 2007
Revenues
Rent revenue ...................................................
Expenses
Salaries expense .............................................
Supplies expense............................................
Utilities expense..............................................
Advertising expense .......................................
Insurance expense..........................................
Interest expense..............................................
Depreciation expenselodge........................
Depreciation expensefurniture...................
Total expenses ........................................
Net income ..............................................................
$12,300
$3,960
1,400
800
400
400
375
370
300
8,005
$ 4,295
WELCOME INN
Retained Earnings Statement
For the Month Ended March 31, 2007
Retained earnings, March 1 ...................................
Add: Net income ...................................................
Retained earnings, March 31 .................................
0
4,295
$4,295
4-31
$ 2,700
1,900
2,000
$
6,600
25,000
$85,000
370
22,400
300
84,630
22,100
131,730
$138,330
$ 9,200
1,500
960
375
$ 12,035
50,000
$ 62,035
72,000
4,295
76,295
$138,330
PROBLEM 4-4A
(a) June 30
30
30
30
30
30
30
(b)
Accounts Receivable.....................................
Dues Revenue ........................................
400
600
690
750
100
500
900
400
600
690
750
100
500
900
$15,000
1,200
$16,200
11,000
1,800
750
690
660
100
15,000
$ 1,200
(For Instructor Use Only)
4-33
0
1,200
1,200
450
$ 750
$ 7,890
1,900
1,410
1,800
$13,000
18,000
750
17,250
$30,250
$11,500
18,750
$30,250
4-35
PROBLEM 4-5A
1.
2.
3.
4.
4-36
Dec. 31
Dec. 31
Dec. 31
Dec. 31
6,000
5,560
600
2,496
6,000
5,560
600
2,496
PROBLEM 4-6A
(a) 1. April 30
2.
3.
4.
5.
6.
7.
30
30
30
30
30
30
Tuition Revenue..........................................
Unearned Tuition Revenue ..................
70,000
7,200
3,000
80
2,560
530
4,140
300
15,200
70,000
7,200
3,000
3,170
4,140
300
15,200
4-37
(c)
$170,000
$96,140
15,200
7,200
6,480
4,260
3,000
2,400
1,830
300
136,810
$ 33,190
4-38
PROBLEM 4-7A
Cash
6,040 8/10
1,200 8/20
2,800 8/22
780 8/25
1,920
3,120
2,500
380
2,900
Accounts Receivable
8/1 Bal.
2,910 8/5
1,200
8/27
3,130
8/31 Bal. 4,840
8/1 Bal.
8/17
8/31 Bal.
Supplies
1,030 8/31
860
960
930
Store Equipment
8/1 Bal. 10,000
8/15
2,000
8/31 Bal. 12,000
Accumulated Depreciation
Store Equipment
8/1 Bal.
600
8/31
320
8/31 Bal.
920
8/20
8/31
8/10
Accounts Payable
2,500 8/1 Bal.
8/15
8/17
8/31 Bal.
2,300
2,000
860
2,660
Unearned
Service Revenue
800 8/1 Bal.
8/29
8/31 Bal.
1,260
780
1,240
Salaries Payable
1,420 8/1 Bal.
8/31
8/31 Bal.
1,420
1,540
1,540
Common Stock
8/1 Bal. 10,000
8/31 Bal. 10,000
Retained Earnings
8/1 Bal.
8/31 Bal.
4,400
4,400
4-39
2,800
3,130
800
6,730
Depreciation Expense
8/31
320
8/31 Bal.
320
Salaries Expense
8/10
1,700
8/25
2,900
8/31
1,540
8/31 Bal. 6,140
Rent Expense
8/22
380
8/31 Bal.
380
Supplies Expense
8/31
930
8/31 Bal.
930
4-40
General Journal
Date
Aug. 5
10
12
15
17
20
22
25
27
29
Account Titles
Cash .................................................................
Accounts Receivable ..............................
Debit
1,200
Salaries Payable..............................................
Salaries Expense ............................................
Cash .........................................................
1,420
1,700
Cash .................................................................
Service Revenue .....................................
2,800
2,000
Supplies ...........................................................
Accounts Payable ...................................
860
2,500
380
2,900
Accounts Receivable......................................
Service Revenue .....................................
3,130
Cash .................................................................
Unearned Service Revenue ....................
780
Credit
1,200
3,120
2,800
2,000
860
2,500
380
2,900
3,130
780
4-41
Cash ............................................
Accounts Receivable .................
Supplies ......................................
Store Equipment ........................
Accumulated Depreciation ........
Accounts Payable ......................
Unearned Service Revenue .......
Salaries Payable .........................
Common Stock ...........................
Retained Earnings......................
Service Revenue ........................
Salaries Expense........................
Rent Expense .............................
Supplies Expense ......................
Depreciation Expense................
(e)
Aug. 31
31
31
31
4-42
Dr.
$ 1,920
4,840
1,890
12,000
Cr.
After
Adjustment
Dr.
$ 1,920
4,840
960
12,000
$
600
2,660
2,040
10,000
4,400
5,930
920
2,660
1,240
1,540
10,000
4,400
6,730
4,600
380
6,140
380
930
320
$25,630 $25,630 $27,490 $27,490
1.
Supplies Expense...........................................
Supplies ($1,890 $960).........................
930
2.
Salaries Expense ............................................
Salaries Payable .....................................
1,540
3.
Depreciation Expense ....................................
Accum. Depr.Store Equipment ..........
320
4.
Unearned Service Revenue ...........................
Service Revenue .....................................
800
Cr.
930
1,540
320
800
(For Instructor Use Only)
($6,730)
$6,140
930
380
320
7,770)
($1,040)
$4,400
(1,040)
$3,360
4-43
$ 1,920
4,840
960
$ 7,720
12,000
920
11,080
$18,800
4-44
$ 2,660
1,240
1,540
$ 5,440
10,000
3,360
13,360
$18,800
PROBLEM 4-8A
(a)
General Journal
Date
Jan. 1
1
3
5
12
18
20
21
25
31
31
Account Titles
Cash..................................................................
Common Stock ........................................
Debit
18,000
Equipment........................................................
Cash ..........................................................
Accounts Payable....................................
12,000
940
7,200
4,100
900
Salaries Expense.............................................
Cash ..........................................................
2,600
Cash..................................................................
Accounts Receivable...............................
2,300
2,850
450
Dividends .........................................................
Cash ..........................................................
600
Credit
18,000
4,000
8,000
940
7,200
4,100
900
2,600
2,300
2,850
450
600
4-45
4,000
7,200
900
2,600
450
600
1/18
Accounts Payable
900 1/1
1/3
1/31 Bal.
8,000
940
8,040
Salaries Payable
1/31
1/31 Bal.
760
760
Accounts Receivable
2,300
1/12
4,100 1/21
1/25
2,850
1/31
2,340
1/31 Bal. 6,990
Cleaning Supplies
1/3
940 1/31
1/31 Bal.
210
Prepaid Insurance
1/5
7,200 1/31
1/31 Bal. 6,600
730
Retained Earnings
600 1/31
1/31 Bal.
600
Dividends
600 1/31
0
1/31
Accumulated Depreciation
Equipment
1/31
320
1/31 Bal.
320
1/31
1/31 Bal.
1/31
1/31
Equipment
1/1
12,000
1/31 Bal. 12,000
4-46
Common Stock
1/1
18,000
1/31 Bal. 18,000
1/31
Income Summary
5,460 1/31
3,830
1/31 Bal.
Service Revenue
9,290 1/12
1/25
1/31
1/31 Bal.
3,830
3,230
600
9,290
0
4,100
2,850
2,340
0
450
Insurance Expense
1/31
600 1/31
1/31 Bal.
0
Salaries Expense
1/20
2,600 1/31
1/31
760
1/31 Bal.
0
600
3,360
320
4-47
Cash ....................................................
Accounts Receivable.........................
Cleaning Supplies..............................
Prepaid Insurance..............................
Equipment ..........................................
Accumulated Depreciation
Equipment ......................................
Accounts Payable ..............................
Salaries Payable.................................
Common Stock...................................
Dividends............................................
Service Revenue ................................
Salaries Expense ...............................
Gas & Oil Expense .............................
Depreciation Expense .......................
Insurance Expense ............................
Cleaning Supplies Expense ..............
4-48
Debit
$ 4,550
4,650
940
7,200
12,000
Credit
After
Adjustment
Debit
$ 4,550
6,990
210
6,600
12,000
320
$ 8,040
760
18,000
$ 8,040
18,000
600
Credit
600
6,950
9,290
2,600
450
3,360
450
320
600
730
$32,990 $32,990 $36,410 $36,410
(g)
General Journal
Date
Jan. 31
31
31
31
31
Account Titles
Debit
Accounts Receivable ...................................... 2,340
Service Revenue ......................................
Depreciation Expense .....................................
Accumulated DepreciationEquipment .
320
600
730
760
Credit
2,340
320
600
730
760
$9,290
$3,360
730
600
450
320
5,460
$3,830
4-49
0
3,830
3,830
600
$3,230
Less: Dividends.....................................................
Retained earnings, January 31 .............................
$ 4,550
6,990
210
6,600
$18,350
12,000
320
11,680
$30,030
4-50
$ 8,040
760
$ 8,800
18,000
3,230
21,230
$30,030
General Journal
Date
Jan. 31
31
31
31
Account Titles
Service Revenue..............................................
Income Summary.....................................
Debit
9,290
5,460
3,830
Retained Earnings...........................................
Dividends..................................................
600
(i)
Credit
9,290
3,360
320
600
730
450
3,830
600
Debit
$ 4,550
6,990
210
6,600
12,000
$30,350
Credit
320
8,040
760
18,000
3,230
$30,350
4-51
PROBLEM 4-1B
(a)
1. Cash ........................................................................
Accounts Receivable .......................................
6,000
18,000
3. Cash ........................................................................
Unearned Fees Revenue..................................
40,000
23,000
6,000
18,000
40,000
23,000
Bal.
4.
Bal.
Accounts Receivable
6,000
121,000 1.
6,000
5.
101,000
20,000
Fees Revenue
2.
18,000
3.
23,000
4.
121,000
Bal.
162,000
4-52
2.
3.
1.
3.
5.
Bal.
6,000
40,000
101,000
$147,000
PROBLEM 4-2B
(a)
1.
Date
2010
June 30
2.
3.
4.
5.
6.
7.
30
30
30
30
30
30
Account Titles
Debit
Supplies Expense.....................................
Supplies ($2,000 $980) ..................
1,020
Utilities Expense.......................................
Utilities Payable ................................
180
Insurance Expense...................................
Prepaid Insurance
($2,640 12 months) ....................
220
3,900
1,250
250
3,500
Credit
1,020
180
220
3,900
1,250
250
3,500
(b)
6/30 Bal.
Cash
6,850
Prepaid Insurance
6/30 Bal. 2,640 6/30
6/30 Bal. 2,420
Accounts Receivable
6/30 Bal. 7,000
6/30
3,500
6/30 Bal. 10,500
Copyright
2010
2009 John
John Wiley
Wiley &
& Sons,
Sons, Inc.
Inc.
Copyright
6/30 Bal.
6/30 Bal.
Supplies
2,000 6/30
980
Kimmel, Financial
Financial Accounting,
Accounting, 5/e,
5/e, Solutions
Solutions Manual
Manual
Kimmel,
(For Instructor
Instructor Use
Use Only)
Only)
(For
220
1,020
4-53
4-53
4,540
Utilities Payable
6/30
6/30 Bal.
180
180
Salaries Payable
6/30
6/30 Bal.
1,250
1,250
Salaries Expense
6/30 Bal. 4,000
6/30
1,250
6/30 Bal. 5,250
Rent Expense
6/30 Bal. 2,000
Depreciation Expense
6/30
250
6/30 Bal.
250
Insurance Expense
6/30
220
6/30 Bal.
220
Utilities Expense
6/30
180
6/30 Bal.
180
Supplies Expense
6/30
1,020
6/30 Bal. 1,020
Common Stock
6/30 Bal. 21,750
Service Revenue
6/30 Bal. 8,000
6/30
3,900
6/30
3,500
6/30 Bal. 15,400
4-54
WAEGELEIN CONSULTING
Adjusted Trial Balance
June 30, 2010
Cash .....................................................................
Accounts Receivable..........................................
Prepaid Insurance...............................................
Supplies ...............................................................
Office Equipment ................................................
Accumulated DepreciationOffice
Equipment .......................................................
Accounts Payable ...............................................
Utilities Payable ..................................................
Salaries Payable..................................................
Unearned Service Revenue................................
Common Stock....................................................
Service Revenue .................................................
Salaries Expense ................................................
Rent Expense ......................................................
Depreciation Expense ........................................
Insurance Expense .............................................
Utilities Expense .................................................
Supplies Expense ...............................................
Debit
$ 6,850
10,500
2,420
980
15,000
Credit
5,250
2,000
250
220
180
1,020
$44,670
250
4,540
180
1,250
1,300
21,750
15,400
$44,670
4-55
PROBLEM 4-3B
(a) 1. Aug. 31
2.
3.
31
31
31
4.
5.
6.
7.
31
31
31
31
1,350
3,600
1,350
3,600
Depreciation ExpenseCottages
($4,400 X 1/4) .......................................
Accum. Depr.Cottages ................
1,100
Depreciation ExpenseFurniture
($4,000 X 1/4) .......................................
Accum. Depr.Furniture ................
1,000
1,100
1,000
5,000
Salaries Expense.....................................
Salaries Payable ..............................
600
1,200
800
5,000
600
1,200
800
(b)
Cash
8/31 Bal. 24,600
Accounts Receivable
8/31
1,200
8/31 Bal. 1,200
4-56
Prepaid Insurance
8/31 Bal. 5,400 8/31
8/31 Bal. 4,050
8/31 Bal.
8/31 Bal.
Supplies
4,300 8/31
700
1,350
3,600
Interest Payable
8/31
8/31 Bal.
Cottages
8/31 Bal. 132,000
Mortgage Payable
8/31 Bal. 120,000
Accumulated Depreciation
Cottages
8/31
1,100
8/31 Bal. 1,100
Furniture
8/31 Bal. 36,000
Common Stock
8/31 Bal. 100,000
8/31 Bal.
Accumulated Depreciation
Furniture
8/31
1,000
8/31 Bal. 1,000
Accounts Payable
8/31 Bal.
6,500
800
800
600
600
Dividends
5,000
Rent Revenue
8/31 Bal. 80,000
8/31
5,000
8/31
1,200
8/31 Bal. 86,200
Salaries Expense
8/31 Bal. 53,000
8/31
600
8/31 Bal. 53,600
Utilities Expense
8/31 Bal. 9,400
Repair Expense
8/31 Bal. 3,600
4-57
Depreciation Expense
Furniture
8/31
1,000
8/31 Bal. 1,000
Interest Expense
8/31
800
8/31 Bal.
800
Depreciation Expense
Cottages
8/31
1,100
8/31 Bal. 1,100
4-58
Debit
$ 24,600
1,200
4,050
700
40,000
132,000
Credit
1,100
36,000
1,000
6,500
1,800
600
800
120,000
100,000
5,000
86,200
53,600
9,400
3,600
1,350
3,600
1,100
1,000
800
$318,000
$318,000
4-59
$86,200
$53,600
9,400
3,600
3,600
1,350
1,100
1,000
800
74,450
$11,750
4-60
0
11,750
11,750
5,000
$ 6,750
$ 24,600
1,200
700
4,050
$ 30,550
40,000
$132,000
1,100
36,000
1,000
130,900
35,000
205,900
$236,450
9,700
120,000
129,700
106,750
$236,450
4-61
4-62
PROBLEM 4-4B
(a) Sept. 30
30
30
30
30
30
30
(b)
Accounts Receivable.....................................
Dues Revenue ........................................
600
900
840
350
50
200
600
600
900
840
350
50
200
600
$14,400
600
$15,000
9,400
1,800
840
510
350
50
12,950
$ 2,050
(For Instructor Use Only)
4-63
0
2,050
2,050
600
$1,450
$ 6,700
1,000
360
900
$ 8,960
15,000
350
14,650
$23,610
$ 8,160
15,450
$23,610
4-65
PROBLEM 4-5B
1.
2.
3.
4.
4-66
Dec. 31
31
31
31
3,600
70,000
5,600
1,400
3,600
70,000
5,600
1,400
PROBLEM 4-6B
(a) 1. June
2.
3.
4.
5.
6.
7.
30
30
30
30
30
30
30
55,000
6,400
Insurance Expense
($14,400 X 3/12) .............................
Prepaid Insurance ..................
55,000
6,400
3,600
3,600
110
4,450
215
600
Interest Expense
($12,000 X 8% X 2/12)....................
Interest Payable .....................
Income Tax Expense .......................
Income Tax Payable...............
4,775
600
160
160
13,400
13,400
4-67
(c)
4-68
PROBLEM 4-7B
Cash
4,880 9/8
1,500 9/20
3,400 9/22
650 9/25
3,230
1,100
4,500
400
1,200
Accounts Receivable
9/1 Bal.
3,820 9/10
1,500
9/27
1,850
9/30 Bal. 4,170
9/1 Bal.
9/17
9/30 Bal.
Supplies
800 9/30
2,000
1,800
1,000
Store Equipment
9/1 Bal. 15,000
9/15
3,000
9/30 Bal. 18,000
Accumulated Depreciation
9/1 Bal.
1,600
9/30
200
9/30 Bal. 1,800
9/20
9/30
9/8
Accounts Payable
4,500 9/1 Bal.
9/15
9/17
9/30 Bal.
3,100
3,000
2,000
3,600
Unearned
Service Revenue
250 9/1 Bal.
9/29
9/30 Bal.
400
650
800
Salaries Payable
700 9/1 Bal.
9/30
9/30 Bal.
700
400
400
Common Stock
9/1 Bal. 10,000
9/30 Bal. 10,000
Retained Earnings
9/1 Bal.
9/30 Bal.
8,700
8,700
4-69
3,400
1,850
250
5,500
Depreciation Expense
9/30
200
9/30 Bal.
200
Salaries Expense
9/8
400
9/25
1,200
9/30
400
9/30 Bal. 2,000
Rent Expense
9/22
400
9/30 Bal.
400
Supplies Expense
9/30
1,000
9/30 Bal. 1,000
4-70
10
12
15
17
20
22
25
27
29
Account Titles
Salaries Payable ............................................
Salaries Expense ...........................................
Cash ........................................................
Debit
700
400
Cash ................................................................
Accounts Receivable .............................
1,500
Cash ................................................................
Service Revenue ....................................
3,400
3,000
Supplies..........................................................
Accounts Payable ..................................
2,000
4,500
400
1,200
Accounts Receivable.....................................
Service Revenue ....................................
1,850
Cash ................................................................
Unearned Service Revenue...................
650
Credit
1,100
1,500
3,400
3,000
2,000
4,500
400
1,200
1,850
650
4-71
Cash.............................................
Accounts Receivable .................
Supplies ......................................
Store Equipment.........................
Accumulated Depreciation ........
Accounts Payable ......................
Unearned Service Revenue .......
Salaries Payable .........................
Common Stock ...........................
Retained Earnings......................
Service Revenue.........................
Depreciation Expense................
Supplies Expense.......................
Salaries Expense........................
Rent Expense..............................
(e) 1. Sept. 30
2.
3.
4.
4-72
30
30
30
Dr.
$ 3,230
4,170
2,800
18,000
Cr.
After
Adjustment
Dr.
$ 3,230
4,170
1,800
18,000
10,000
8,700
5,250
$ 1,800
3,600
800
400
10,000
8,700
5,500
200
1,000
1,600
2,000
400
400
$30,200 $30,200 $30,800
$30,800
$ 1,600
3,600
1,050
Supplies Expense....................................
Supplies ($2,800 $1,800) ..............
1,000
Salaries Expense.....................................
Salaries Payable ..............................
400
Depreciation Expense.............................
Accumulated Depreciation .............
200
250
Cr.
1,000
400
200
250
$5,500
$2,000
1,000
400
200
3,600
$1,900
$ 8,700
1,900
$10,600
4-73
$ 3,230
4,170
1,800
$ 9,200
$18,000
1,800
16,200
$25,400
4-74
$ 3,600
800
400
$ 4,800
10,000
10,600
20,600
$25,400
PROBLEM 4-8B
(a)
General Journal
Date
July 1
1
3
5
12
18
20
21
25
31
31
Account Titles
Cash..................................................................
Common Stock ........................................
Debit
11,000
Equipment ........................................................
Cash ..........................................................
Accounts Payable....................................
9,000
900
1,800
3,200
Accounts Payable............................................
Cash ..........................................................
1,500
2,000
Cash..................................................................
Accounts Receivable...............................
1,400
2,500
260
Dividends .........................................................
Cash ..........................................................
600
Credit
11,000
2,000
7,000
900
1,800
3,200
1,500
2,000
1,400
2,500
260
600
4-75
2,000
1,800
1,500
2,000
260
600
7/18
Accounts Receivable
1,400
7/12
3,200 7/21
7/25
2,500
7/31
1,700
7/31 Bal. 6,000
Cleaning Supplies
7/3
900 7/31
7/31 Bal.
360
Prepaid Insurance
7/5
1,800 7/31
7/31 Bal. 1,650
7/1
7/31 Bal.
540
7/31
Salaries Payable
7/31
7/31 Bal.
400
400
Retained Earnings
600 7/31
7/31 Bal.
Dividends
600 7/31
3,800
3,200
600
150
7/31
7/31
Equipment
9,000
9,000
7,000
900
6,400
Common Stock
7/1
11,000
7/31 Bal. 11,000
7/31
Accumulated Depreciation
Equipment
7/31
250
7/31 Bal.
250
4-76
Accounts Payable
1,500 7/1
7/3
7/31 Bal.
7/31
Income Summary
3,600 7/31
3,800
7/31 Bal.
Service Revenue
7,400 7/12
7/25
7/31
7/31 Bal.
7,400
0
3,200
2,500
1,700
0
260
Insurance Expense
7/31
150 7/31
7/31 Bal.
0
Salaries Expense
7/20
2,000 7/31
7/31
400
7/31 Bal.
0
150
2,400
250
4-77
Cash ....................................................
Accounts Receivable.........................
Cleaning Supplies..............................
Prepaid Insurance..............................
Equipment ..........................................
Accumulated Depreciation
Equipment ......................................
Accounts Payable..............................
Salaries Payable ................................
Common Stock ..................................
Dividends............................................
Service Revenue ................................
Salaries Expense ...............................
Gas & Oil Expense.............................
Depreciation Expense .......................
Insurance Expense ............................
Cleaning Supplies Expense ..............
4-78
Debit
$ 4,240
4,300
900
1,800
9,000
Credit
After
Adjustment
Debit
$ 4,240
6,000
360
1,650
9,000
250
$ 6,400
400
11,000
$ 6,400
11,000
600
Credit
600
5,700
7,400
2,000
260
2,400
260
250
150
540
$23,100 $23,100 $25,450 $25,450
(g)
Date
July 31
31
31
31
31
Account Titles
Accounts Receivable .......................................
Service Revenue .........................................
Debit
1,700
250
150
540
400
Credit
1,700
250
150
540
400
$7,400
$2,400
540
260
250
150
3,600
$3,800
4-79
$
0
3,800
3,800
600
$3,200
Less: Dividends.....................................................
Retained earnings, July 31 ....................................
$ 4,240
6,000
360
1,650
$12,250
9,000
250
8,750
$21,000
4-80
$ 6,400
400
$ 6,800
11,000
3,200
14,200
$21,000
31
31
(i)
General Journal
Account Titles and Explanation
Service Revenue..............................................
Income Summary.....................................
Debit
7,400
Credit
7,400
Income Summary.............................................
Salaries Expense .....................................
Depreciation Expense .............................
Insurance Expense ..................................
Cleaning Supplies Expense ....................
Gas & Oil Expense...................................
3,600
Income Summary.............................................
Retained Earnings ...................................
3,800
600
2,400
250
150
540
260
3,800
600
Debit
$ 4,240
6,000
360
1,650
9,000
$21,250
Credit
250
6,400
400
11,000
3,200
$21,250
4-81
BYP 4-1
(a) Items that may result in adjusting entries for prepayments are:
a.
b.
c.
Prepaid expenses.
Accumulated depreciation.
Deferred income taxes.
(b) Accrual adjusting entries are often made for other income (i.e., interest)
and provision for income taxes, as well as interest expense on bank
loans and bonds.
(c) Depreciation expense was $15,859,000 in 2007 and $15,816,000 in 2006.
Accumulated depreciation was reported in the balance sheet as a
deduction from total Property, Plant, and Equipment, at cost.
(d) The statement of cash flows (at the bottom) reports income taxes paid
in 2007 of $11,343,000. The income statement reports income tax expense
of $25,542,000. Income taxes payable is reported under current liabilities
in the consolidated balance sheet.
4-82
BYP 4-2
Income Statement
1.
2.
3.
4.
Sales
Insurance (or supplies) expense
Income tax expense
Miscellaneous expense
1.
2.
3.
4.
5.
4-83
BYP 4-3
RESEARCH CASE
(a) Under so-called cookie-jar accounting companies will over accrue for
an expense, reducing current period income. In a future period they will
reverse part of the previous accrual, thus reducing the expense and
increasing income in the future period. The article suggests that one
motivation for using cookie-jar accounting is to smooth net income.
That is, if income is extremely high this period, by increasing an
accrued expense in the current period you can reduce current period
income, and therefore make it a little easier to report strong income in
the next period.
(b) If a company provides unaudited financial statements, it means that
they have not been examined by independent certified public accountants.
It also means that the financial statements have not received an expression of an opinion from the independent accounting saying that they were
prepared in accordance with generally accepted accounting principles.
As a consequence, financial statement users should be reluctant to
rely very heavily on Beazers unaudited financial statements.
(c) As part of the agreement that Beazer would have signed when it issued
bonds to borrow money, it agreed to provide audited financial statements
to bondholders within a specified number of days of its year-end. In
the event that it does not meet this deadline, it will have violated its
agreement, and the bondholders can demand full payment. This could
create a cash crisis for Beazer, since it would be unlikely that it would
have enough available cash on hand to repay all of the bondholders.
4-84
BYP 4-4
(b)
(c)
4-85
BYP 4-5
(a) The SEC was created by Congress after the stock market crash of 1929.
The SEC was created to restore investor confidence in our capital
markets by providing more structure and government oversight.
(b) Division of Corporation Finance. The Division of Corporation Finance
oversees corporate disclosure of important information to the investing public. Corporations are required to comply with regulations pertaining to disclosure that must be made when stock is initially sold and
then on a continuing and periodic basis. The Divisions staff routinely
reviews the disclosure documents filed by companies. The staff also
provides companies with assistance interpreting the Commissions rules
and recommends to the Commission new rules for adoption.
Division of Trading and Markets. The Division of Trading and Markets
establishes and maintains standards for fair, orderly, and efficient markets.
It does this primarily by regulating the major securities market participants: broker-dealer firms; self-regulatory organizations (SROs), which
include the stock exchanges and the National Association of Securities
Dealers (NASD), Municipal Securities Rulemaking Board (MSRB), and
clearing agencies (SROs that help facilitate trade settlement); transfer
agents (parties that maintain records of stock and bond owners); and
securities information processors. (A self-regulatory organization is a
member organization that creates and enforces rules for its members
based on the federal securities laws. SROs, which are overseen by the
SEC, are the front line in regulating broker-dealers.)
Division of Investment Management. The Division of Investment Management oversees and regulates the $15 trillion investment management industry and administers the securities laws affecting investment
companies (including mutual funds) and investment advisers. In applying the federal securities laws to this industry, the Division works to
improve disclosure and minimize risk for investors without imposing
undue costs on regulated entities.
Division of Enforcement. The Division of Enforcement investigates
possible violations of securities laws, recommends Commission action
when appropriate, either in a federal court or before an administrative
law judge, and negotiates settlements on behalf of the Commission.
4-86
4-87
BYP 4-6
(a)
$68,000
$28,470
4,310
3,400
3,180
1,800
1,140
800
400
43,500
$24,500
4-88
BYP 4-7
COMMUNICATION ACTIVITY
(a) Accrual basis accounting records the events that change an entitys
financial statements in the periods in which the events occur, rather than
in the periods in which the entity receives or pays cash. Information
presented on an accrual basis is useful because it reveals relationships
that are likely to be important in predicting future results. Conversely,
under cash basis accounting, revenue is recorded only when cash is
received, and an expense is recognized only when cash is paid. As a
result, the cash basis of accounting often results in misleading financial
statements.
(b) Politicians might desire a cash basis accounting system over an accrual
basis system because if an accrual accounting system is used, it could
mean that billions in government liabilities presently unrecorded would
have to be reported in the federal budget immediately. Currently, the
federal government is facing a huge budget deficit. The recognition of
these additional liabilities would make the deficit even worse. This is not
what politicians would like to see and be held responsible for.
(c) Dear Senator,
It is my understanding, after having taken a beginning course in accounting principles, that the federal government uses a cash basis system
rather than an accrual basis accounting system.
I am shocked at such a practice! There must be billions of dollars of liabilities hidden in many contracts that have not been recorded because
they havent been paid yet. I realize that the deficit would dramatically
increase if we were to implement an accrual system, but in all fairness,
we citizens should be given a more accurate picture of what our
government is up to.
Sincerely,
CONCERNED STUDENT
4-89
BYP 4-8
ETHICS CASE
(b) 1.
It is unethical for the president to place pressure on Terry to misstate net income by requesting her to prepare incorrect adjusting
entries.
2.
(c) Terry can accrue revenues and defer expenses through the preparation of adjusting entries and be ethical so long as the entries reflect
economic reality. Intentionally misrepresenting the companys financial
condition and its results of operations is unethical (it is also illegal).
4-90
BYP 4-9
$1,200
1,800
3,000
300
7,000
1,250
800
$ 6,300
9,050
$15,350
$1,500
150
$ 1,650
5,000
4,000
1,650
10,650
12,300
Equity
M. Y. Own, Capital ($15,350 $12,300)...........
3,050
$15,350
4-91