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fundamentals financial accounting
Questions and Answers of
Fundamentals Financial Accounting
Recording Petty Cash Transactions}OBJECTIVE 34 SCB Inc. had a balance of \(\$ 400\) in cash in its petty cash fund at the beginning of September. The following transactions took place in September:a.
Role of Internal Control Internal control systems include policies and procedures designed to provide reasonable assur- ance that the corporation's objectives are being met in three areas: (1)
Internal Control Procedures for Cash Receipts Sean and Liz Kinsella are planning to open and operate a coffee shop on a university campus. Sean and Liz are concerned that part of the cash that
Internal Control for Cash}After comparing cash register tapes with inventory records, the accountant for Good Times Music store is concerned that someone at one of the stores is not recording some of
Bank Reconciliation}Shortly after July 31, Towanda Corporation received a bank statement containing the following information:July cash transactions and balances on Towanda's records are shown in the
Bank Reconciliation}Darjeeling Corporation received the bank statement shown below for the month of October:The cash records of Darjeeling Corporation provide the following information:The items on
Bank Reconciliation}The cash account of Mason Products reveals the following information:The bank amounts are determined to be correct.Required:1. Prepare a bank reconciliation for May.2. Prepare the
Recording Petty Cash Transactions Sudbury Ltd. had a balance of \(\$ 1,200\) in cash in its petty cash fund at the beginning of September. The following transactions took place in September:a. On
Ethics and Cash Controls}Suppose that you have just been hired as a part-time clerk in a large department store. Each week you work three evenings and all day Saturday. Without the income provided by
There are two retail stores in Millersburgh. One is a full-service store that typically sells on credit to its customers; the other is a smaller discount store that usually sells for cash.
Internal Controls for Cash Disbursements}Campus Supply Store purchases merchandise on credit from a large number of suppliers. During the past five years, Campus's annual sales have grown from \(\$
Internal Controls for Collection of Receivables}Carolyn Furniture Galleries sells traditional furniture from two stores in Victoria. Carolyn's credit terms allow customers to pay for purchases over
Cash Management Hiboux Corporation has the following budgeted schedule for expected cash receipts and cash disbursements.Hiboux begins July with a cash balance of \(\$ 20,000, \$ 15,000\) of
Cash and Internal Controls YOUDECIDE Identify a business with which you are familiar.Required:1. Describe the ways in which it prevents misappropriation of cash.2. Can you think of a way in which
Continuing Problem: Front Row Entertainment}Over the next two months, Front Row Entertainment continues to enjoy success in signing artists and promoting events. However, the increased business is
Internal Controls Relating to Inventory}Recall our discussion relating to internal controls and the safeguarding of assets of the organization. Inventory is normally one of the largest balances on
Identification of Controls}Controls are important in any organization. Controls are in place to assist with minimizing the chance of fraud occurring and safeguarding assets of an organization.
Professional and Ethical Behaviour}You have recently been hired to work for a large scaffolding company called PR Scaffolding (PR), which is located in Ontario. The primary customers for PR are
Apply the criteria for revenue recognition to a retail, service, or manufacturing business.- Revenue is recognized when:- significant risks and benefits of ownership have been transferred to the
Measure and report net sales revenue.- The appropriate amount of revenue to recognize is generally the cash received or the cash equivalent of accounts receivable.- However, companies often induce
Explain the principal types of receivables.- Receivables are classified along four different dimensions:- accounts receivable (or trade receivables) and notes receivable- other receivables- trade and
Measure and report bad debt expense and the allowance for doubtful accounts.- The primary issues in accounting for accounts receivable are when and how to measure bad debts (i.e., accounts that will
Explain the cash flow implications of accounts receivable.- Companies can increase the speed of cash collection on receivables by factoring, or selling, their receivables.- The buyer of the
Account for notes receivable from inception to maturity.- Notes receivable are recognized for the amount of cash borrowed or goods/services purchased.- This is the principal amount of the note
Explain internal control procedures for merchandise sales.- Since sales revenues have a significant effect on a company's net income, internal control procedures must be established to ensure that
Calculate profitability and asset management ratios using sales and receivables data.}- Because sales revenue is such a key component of a company's success, analysts are interested in a large number
When is revenue recognized?LO1
Explain the criteria for revenue recognition.LO3
When is revenue generally considered earned?LO6
What criteria has the IASB issued as guidance for revenue recognition?LO9
How is net sales revenue calculated?LO11
Why might users of financial statements prefer the separate disclosure of gross sales revenue and sales returns and allowances to the disclosure of a single net sales revenue amount?LO13
Why are sales discounts offered?LO16
What are sales returns?LO16
What are sales allowances? How do sales allowances differ from sales discounts?LO17
What are trade discounts and quantity discounts? From an accounting viewpoint, how does the effect of trade and quantity discounts on selling (or invoice) price differ from the effect of sales
What are the principal types of receivables?LO18
Under the allowance method, why do we make an entry to record bad debt expense in the period of sale rather than in the period in which an account is determined to be uncollectible?LO19
Why is the direct write-off method not accepted under IFRS?LO19
What is the conceptual difference between the (1) percentage of credit sales and (2) aging methods of estimating bad debts?LO20
What kind of account is allowance for doubtful accounts? What does it represent?LO21
Why do companies issue credit when their past experience indicates that some customers will not pay?LO22
How much interest will be due at maturity for each of the following interest-bearing notes?LO23 Principal Months to Maturity Annual Interest Rate $10,000 b. 42,000 c. d. 18.000 37,000 2546 12% 14 13
A business borrows \(\$ 1,000\), giving a note that requires an interest rate of \(12 \%\) per year and repayment of principal plus interest in a single payment at the end of one year. Calculate the
Describe what happens when receivables are factored.LO26
Accepting major credit cards requires the seller to pay a service charge. What advantages does the seller obtain by accepting major credit cards?LO27
Why is interest typically charged on notes receivable, but not on accounts receivable?LO27
What documents must be present to trigger the recording of a sale (and associated receivable) in the accounting records?LO28
Describe the documents that underlie the typical accounting system for sales. Give an example of a failure of internal control that might occur if these documents were not properly prepared.LO28
How may analyzing sales and receivables provide information about a firm's profitability?LO29
How may analyzing sales and receivables provide information about a firm's asset management?LO29
Discuss the role of internal controls in managing a business.- Internal control systems provide reasonable assurance that the company's objectives are being met in three areas:- effectiveness and
Discuss five elements of a good internal control system.- The internal control system includes:- the control environment- risk assessment- control activities- information and communication-
Describe the procedures used by businesses to control cash.- Keeping control over cash is extremely difficult.- It is important to:- safeguard cash with physical controls such as vaults- adequately
Describe how businesses account for and report cash.}- A cash account is debited when cash is received and credited when cash is paid out.- Cash is reported on the statement of financial position as
Describe the operating cycle and explain the principles of cash management.- The operating cycle of the business starts when the business uses cash to purchase inventory.- When a business sells goods
Which of the following statements is true?a. Under cash-basis accounting, revenues are recorded when earned and expenses are recorded when incurred.b. Accrual-basis accounting records both cash and
In December 2018, Liang Ltd. receives a cash payment of \(\$ 3,000\) for services performed in December 2018 and a cash payment of \(\$ 4,000\) for services to be performed in January 2019. Liang
Which transaction would require adjustment at December 31 ?a. The sale of merchandise for cash on December 30b. Common shares issued on November 30c. Salaries paid to employees on December 31 for
Which of the following statements is false?a. Adjusting entries are necessary because timing differences exist between when a revenue or expense is recognized and cash is received or paid.b.
Aylmer Company loaned \(\$ 10,000\) to Pembroke Company on December 1, 2018. Pembroke will pay Aylmer \(\$ 600\) of interest ( \(\$ 50\) per month) on November 30, 2019. Aylmer's adjusting entry at
Ivan's Diner received the following bills for December 2018 utilities:- Electricity: \(\$ 850\) on December 29, 2018- Telephone: \(\$ 475\) on January 5, 2019 Both bills were paid on January 10,
In September 2018, GolfWorld Magazine obtained \(\$ 12,000\) of subscriptions for one year of magazines and credited Unearned Sales Revenue. The magazines will begin to be delivered in October 2018.
Hurd Inc. prepays rent every three months on March 1, June 1, September 1, and December 1. Rent for the three months totals \(\$ 3,600\). On December 31, 2018, Hurd will report Prepaid Rent of:a.
Which of the following statements is incorrect regarding preparing financial statements?a. The adjusted trial balance lists only the statement of financial position accounts in a "debit" and "credit"
Reinhardt Company reported revenues of \(\$ 122,000\) and expenses of \(\$ 83,000\) on its 2018 statement of earnings. In addition, Reinhardt declared \(\$ 4,000\) of dividends during 2018. On
Which of the following is true regarding the accounting cycle?a. The accounts are adjusted after preparing the financial statements.b. Journal entries are made prior to the transaction being
It is November 28 and XYZ Ltd. notices that the roof in its warehouse has a major leak. XYZ calls Jim at Jim's AllPurpose Roofing Ltd.(JAPRL) to come out and assess the damage. Jim says it will cost
Accrual- and Cash-Basis Revenue Magnani Music sells used CDs for \(\$ 2.00\) each. During the month of April, Magnani sold 8,750 CDs for cash and 15,310 CDs on credit. Magnani's cash collections in
Accrual-and Cash-Basis Expenses}Speedy Delivery Company provides next-day delivery across Eastern Canada. During May, Speedy incurred \(\$ 132,600\) in fuel costs. Speedy paid \(\$ 95,450\) of the
Revenue and the Revenue Recognition Principle}Heartstrings Gift Shoppe sells an assortment of gifts for any occasion. During October, Heartstrings started a Gift-of-the-Month program. Under the terms
Expenses and the Matching Concept}The following information describes transactions for Morgenstern Advertising Company during July:a. On July 5, Morgenstern purchased and received \(\$ 24,300\) of
Identification of Adjusting Entries Sayed Inc. uses the accrual basis of accounting and had the following transactions during the year:a. Sold merchandise to customers on credit.b. Purchased
Accrued Revenue Adjusting Entries}Powers Rental Service had the following items that require adjustment at year-end.a. Revenue of \(\$ 9,880\) from the rental of equipment was earned but the customer
Accrued Expense Adjusting Entries}Moreau Manufacturing Ltd. had the following items that require adjustment at year-end.a. Salaries of \(\$ 4,980\) that were earned in December are unrecorded and
Unearned Revenue Adjusting Entries}Olney Cleaning Company had the following items that require adjustment at year-end:a. For one cleaning contract, \(\$ 10,500\) cash was received in advance. The
Prepaid Expense Adjusting Entries }Best Company had the following items that require adjustment at year-end:a. Cash for equipment rental in the amount of \(\$ 3,800\) was paid in advance. The \(\$
Adjustment for Supplies CORNERSTONE 3.6 Pain-Free Dental Group Inc. purchased dental supplies of \(\$ 12,800\) during the year. At the end of the year, a physical count of supplies showed \(\$
Adjustment for Depreciation CORNERSTONE 3.6 LaGarde Company has a machine that it purchased for \(\$ 125,000\) on January 1. Annual depreciation on the machine is estimated to be \(\$
Financial Statement Effects of Adjusting Entries}When adjusting entries were made at the end of the year, the accountant for Park Company did not make the following adjustments.a. \(\$ 2,900\) of
Preparing a Statement of Earnings}Refer to the information for Sparrow Company above.Required:Prepare a single-step statement of earnings for Sparrow for 2018.Cornerstone Exercise Sparrow Company
Preparing a Statement of Retained Earnings Refer to the information for Sparrow Company above.Required:Prepare a statement of retained earnings for Sparrow for 2018 .\section*{Cornerstone Exercise
Preparing a Statement of Financial Position}Refer to the information for Sparrow Company above.\section*{Required:}Prepare a classified statement of financial position for Sparrow at December 31,
Preparing and Analyzing Closing Entries}Refer to the information for Sparrow Company above.\section*{Required:}1. Prepare the closing entries for Sparrow at December 31, 2018.2. How does the closing
Accrual- and Cash-Basis Accounting}The following are several transactions for Halpin Advertising Company.a. Purchased \(\$ 1,000\) of supplies.b. Sold \(\$ 5,000\) of advertising services, on
Revenue and Expense Recognition}Lauhl Corporation provides janitorial services to several office buildings. During April, Lauhl engaged in the following transactions:a. On April 1, Lauhl received
Identification of Adjusting Entries Examine the following accounts:a. Prepaid Insuranceb. Inventoryc. Interest Payabled. Unearned Service Revenuee. Accumulated
Adjusting Entries-Accruals}Nichols Company had the following items that required adjustment at December 31, 2018.a. Electricity used during December was estimated to be \(\$ 320\). This amount will
Adjusting Entries-Prepayments Tyndal Company had the following items that required adjustment at December 31, 2018.a. Purchased equipment for \(\$ 40,000\) on January 1, 2018. Tyndal estimates annual
Preparing a Statement of Earnings OBJECTIVE 5 The adjusted trial balance of Pelton Company at December 31, 2018, includes the following accounts:- Wages Expense, \(\$ 22,400\)- Service Revenue, \(\$
Preparing a Statement of Retained Earnings OBJECTIVE 5Refer to the information presented in Brief Exercise 3-34 for Pelton Company. The balance in Retained Earnings of \(\$ 12,200\) represents the
Classifying Statement of Financial Position Items A classified statement of financial position contains the following categories:- Current assets- Long-term investments- Property, plant, and
Preparing and Analyzing Closing Entries At December 31, 2018, the ledger of Aulani Company includes the following accounts, all having normal balances:- Sales Revenue, \(\$ 59,000\)- Cost of Goods
The Accounting Cycle}Below are the steps of the accounting cycle:Journalize transaction. Analyze transaction. Close the accounts. Prepare financial statements, Adjust the account. Post to the ledger.
Accrual- and Cash-Basis Expense Recognition}The following information is taken from the accrual accounting records of Kroger Sales Company:a. During January, Kroger paid \(\$ 9,150\) for supplies to
Revenue Recognition Each of the following situations relates to the recognition of revenue:a. A store sells a gift card in December that will be given as a Christmas present. The card is not redeemed
Revenue and Expense Recognition}Electronic Repair Company repaired a high-definition television for Sarah Markov in December 2018. Sarah paid \(\$ 80\) at the time of the repair and agreed to pay
Cash-Basis and Accrual-Basis Accounting}The records of Summers Building Company reveal the following information for 2018a. Cash receipts during 2018 (including \(\$ 50,000\) paid by shareholders in
Revenue Recognition and Matching}Omega Transportation Inc., headquartered in Saint John, New Brunswick, uses the accrual basis of accounting and engaged in the following transactions:- billed
Recognizing Expenses}Troika Dental Services gives each of its patients a toothbrush with the name and phone number of the dental office and a logo imprinted on the brush. Troika purchased 15,000 of
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