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business
accounting principles
Accounting 20th Edition Carl S. Warren, James M. Reeve, Philip E. Fess - Solutions
What is the primary advantage of combining the retained earnings statement with the income statement? LO3
What are the three classifications of appropriations and how are appropriations nor- mally reported in the financial statements? LO3
Indicate how prior period adjustments would be reported on the financial statements presented only for the current period. LO3
Describe the format of the statement of stockholders' equity. LO3
How is comprehensive income determined? LO3
a. List some examples of other comprehensive income items.b. Does the reporting of comprehensive income affect the determination of net income and retained earnings? LO3
Why might a business invest in another company's stock? LO3
How are temporary investments in marketable securities reported on the balance sheet? LO3
How are unrealized gains and losses on temporary investments in marketable securi- ties reported on the statement of income and comprehensive income? LO3
a. What are two methods of accounting for long-term investments in stock?b. Under what caption are long-term investments in stock reported on the balance sheet? LO3
Plaster Inc. received a $0.15-per-share cash dividend on 50,000 shares of Gestalt Cor- poration common stock, which Plaster Inc. carries as a long-term investment. (a) As- suming that Plaster In uses the cost method of accounting for its investment in Gestalt Corporation, what account would be
Which method of accounting for long-term investments in stock (cost or equity) should be used by the parent company in accounting for its investments in stock of subsidiaries? LO3
What are the two methods of accounting for the creation of a parent-subsidiary relationship? LO3
Polska Company purchases the entire common stock of Strabo Corporation for $30,000,000. What accounts are eliminated on Strabo's balance sheet and Polska's balance sheet upon consolidation? LO3
Parent Corporation owns 90% of the outstanding common stock of Subsidiary Cor- poration, which has no preferred stock. (a) What is the term applied to the remain- ing 10% interest? (b) On the consolidated balance sheet, where is the amount of Subsidiary's book equity allocable to outsiders
If the inventory shrinkage at the end of the year is overstated by $7,500. the error will cause an: LO1A. understatement of cost of merchandise sold for the year by $7,500. B. overstatement of gross profit for the year by $7.500. C. overstatement of merchandise inventory for the year by $7,500. D.
The inventory costing method that is based on the as- sumption that costs should be charged against rev- enue in the order in which they were incurred is: LO1 A. fifo B. lifo C. average cost D. perpetual inventory
The following units of a particular item were pur- chased and sold during the period: Beginning inventory First purchase Second purchase First sale Third purchase 40 units at $20 50 units at $21 50 units at $22 110 units 50 units at $23 45 units Second sale What is the cost of the 35 units on hand
The following units of a particular item were available for sale during the period: Beginning inventory First purchase Second purchase Third purchase 40 units at $20 50 units at $21 50 units at $22 50 units at $23 What is the unit cost of the 35 units on hand at the end of the period as determined
If merchandise inventory is being valued at cost and the price level is steadily rising, the method of cost- ing that will yield the highest net income is: LO1A. lifo B. fifo C. average D. periodic
What security measures may be used by retailers to protect merchandise inventory from customer theft? LO1
Which inventory system provides the more effective means of controlling inventories(perpetual or periodic)? Why? LO1
Before inventory purchases are recorded, the receiving report should be reconciled to what documents? LO1
What document should be presented by an employee requesting inventory items to be released from the company's warehouse? LO1
Why is it important to periodically take a physical inventory if the perpetual system is used? LO1
The inventory shrinkage at the end of the year was understated by $15,000. (a) Did the error cause an overstatement or an understatement of the gross profit for the year? (b) Which items on the balance sheet at the end of the year were overstated or understated as a result of the error? LO1
Bray Co sold merchandise to Mansfield Company on December 31, FOB shipping point. If the merchandise is in transit on December 31. the end of the fiscal year, which company would repon it in its financial statements? Explain. LO1
Do the terms fifo and lifo refer to techniques used in determining quantities of the various classes of merchandise on hand? Explain. LO1
Does the term last-in in the lifo method mean that the items in the inventory are assumed to be the most recent (last) acquisitions? Explain. LO1
Which of the three methods of inventory costing-fifo, lifo, or average cost-will in general yield an inventory cost most nearly approximating current replacement cost? LO1
Can a company change its method of costing inventory? Explain. LO1
Because of imperfections, an item of merchandise cannot be sold at its normal sell- ing price. How should this item be valued for financial statement purposes? LO1
How is the method of determining the cost of the inventory and the method of valu- ing it disclosed in the financial statements? LO1
What uses can be made of the estimate of the cost of inventory determined by the gross profit method? LO1
Which of the following accounts in the Adjusted Trial Balance columns of the work sheet would be extended to the Balance Sheet columns? LO5 A. Utilities Expense C. M. E. Jones, Drawing B. Rent Revenue D. Miscellaneous Expense
Which of the following accounts would be classified as a current asset on the balance sheet? LO5 A. Office Equipment B. Land C. Accumulated Depreciation D. Accounts Receivable
Which of the following entries closes the owner's drawing account at the end of the period? LO5 A. Debit the drawing account, credit the income summars-account.B. Debit the owner's capital account, credit the drawing account.D.Debit the income summary account, credit the drawing account.Debit the
Which of the following accounts would not be closed to die income summary account at the end of a period? LO5 A. Fees Earned B. Wages Expense C. Rent Expense D. Accumulated Depreciation
Which of the following accounts would not be included in a post-closing trial balance? LO5 A. Cash B. Fees Earned C. Accumulated Depreciation D. J. C. Smith. Capital
Is the work sheet a substitute for the financial statements? Discuss. LO5
Describe the nature of the assets that compose the following sections of a balance sheet: (a) current assets, (b) property, plant, and equipment. LO5
What is the difference between a current liability and a long-term liability? LO5
What types of accounts are referred to as temporary accounts? LO5
Why are closing entries required at the end of an accounting period? LO5
What is the difference between adjusting entries and closing entries? LO5
Describe the four entries that close the temporary accounts. LO5
What type of accounts are closed by transferring their balances (a) as a debit to Income Summary, (b) as a credit to Income Summary? LO5
To what account is the income summary account closed? LO5
To what account is the owner's drawing account closed? LO5
What is the purpose of the post-closing trial balance? LO5
What is the natural business year? LO5
Why might a department store select a fiscal year ending January 31, rather than a fiscal year ending December 31? LO5
The initial step in the process of developing an accounting system is called: LO2 A. analysis C. implementation B. design D. feedback
A payment of cash for the purchase of sen-ices should be recorded in the: LO2 A. purchases journal B. cash payments journal C. revenue journal D. cash receipts journal
When there are a large number of individual accounts with a common characteristic, it is common to place them in a separate ledger called: LO2 A. a subsidiary ledger B. a creditors ledger C. an accounts payable ledger D. an accounts receivable ledger
Which of the following would be used in a computerized accounting system? LO2 A. Revenue journal B. Cash receipts journal C. Electronic invoice form D. Month-end postings to the general ledger
Why is the accounting system of a business an information system? LO2
What is the three-step process of systems evolution? LO2
What are the three objectives of internal control? LO2
Name and describe the five elements of internal control. LO2
How does a policy of rotating clerical employees from job to job aid in strengthen- ing the control procedures within the control environment? LO2
Why should the responsibility for a sequence of related operations be divided among different persons? LO2
Why should the employee who handles cash receipts not have the responsibility for maintaining the accounts receivable records? LO2
Why should the responsibility for maintaining the accounting records be separated from the responsibility for operations? LO2
What is the term applied (a) to the ledger containing the individual customer accounts and (b) to the single account summarizing accounts receivable? LO2
What are the major advantages of the use of special journals? LO2
Environmental Services Co. uses the special journals described in this chapter. Which journal will be used to record fees earned (a) for cash. (b) on account? LO2
How many individual postings to Fees Earned for the month would be needed in Question 14 if the procedure described in (a) had been used; if the procedure described in (b) had been used? LO2
The Accounts Payable and Cash columns in the cash payments journal were unknowingly overstated by $100 at the end of the month, (a) Assuming no other errors in recording or posting, will the error cause the trial balance totals to be unequal(b) Will the creditors ledger agree with the accounts
Assuming the use of a two-column general journal, a purchases journal, and a cash payments journal as illustrated in this chapter, indicate the journal in which each of the following transactions should be recorded; LO2a. Purchase of supplies for cash.b. Purchase of office supplies on account.c.
What is an electronic form and how is it used in a computerized accounting system? LO2
If merchandise purchased on account is returned, the buyer may inform the seller of the details by issuing: LO3 A. a debit memorandum B. a credit memorandum C. an invoice D. a bill
If merchandise is sold on account to a customer for$1,000, terms FOB shipping point, 1 10, n 30. and the seller prepays $50 in transportation costs, the amount of the discount for early payment would be: LO3 A. $0 C. $10.00 B. $5.00 D. $10.50
The income statement in which the total of all expenses is deducted from the total of all revenues is termed: LO3 A. multiple-step form C. account form B. single-step form D. report form
On a multiple-step income statement. the excess of net sales over the cost of merchandise sold is called: LO3 A. operating income B. income from operations C. gross profit D. net income
What distinguishes a merchandising business from a service business? LO3
Can a business earn a gross profit but incur a net loss? Explain. LO3
What is the name of the account in which purchases of merchandise are recorded in a perpetual inventory system? LO3
What is the name of the account in which sales of merchandise are recorded? LO3
How does the accounting for sales to customers using bank credit cards, such as MasterCard and MSA, differ from accounting for sales to customers using nonbank credit cards, such as American Express? LO3
The credit period during which the buyer of merchandise is allowed to pay usually begins with what date? LO3
What is the meaning of (a) 1 10, n 60; (b) n 30; (c) n eom? LO3
It is not unusual for a customer to drive into some Texaco, Chevron, or Conoco gasoline stations and discover that the cash price per gallon is 3 or 4 cents less than the credit price per gallon. As a result, many customers pay cash rather than use their credit cards. Why would a gasoline station
What is the nature of (a) a credit memorandum issued by the seller of merchandise,(b) a debit memorandum issued by the buyer of merchandise? LO3
Who bears the transportation costs w^hen the terms of sale are (a) FOB shipping point, (b) FOB destination? LO3
Name at least three accounts that would normally appear in the chan of accounts of a merchandising business but would not appear in the chart of accounts of a service business. LO3
Differentiate between the multiple-step and the single-step forms of the income statement. LO3
What are the major advantages and disadvantages of the single-step form of income statement compared to the multiple-step statement? LO3
What type of revenue is reported in the Other income section of the multiple-step income statement? LO3
The Hansen Office Equipment, which uses a perpetual inventory system. experi- enced a normal inventory shrinkage of $12.860. What accounts would be debited and credited to record the adjustment for the inventory shrinkage at the end of the accounting period? LO3
Assume that Hansen Office Equipment in Question 15 experienced an abnormal inventory shrinkage of $210,500. Hansen Office Equipment has decided to record the abnormal inventory shrinkage so that it would be separately disclosed on the income statement. What account would be debited for the abnormal
In preparing a bank reconciliation, the amount of checks outstanding would be: LO2 A. added to the cash balance according to the bank statement.B. deducted from the cash balance according to the bank statement.C. added to the cash balance according to the depositor's records.D. deducted from the
Journal entries based on the bank reconciliation are required for: LO2A. additions to the cash balance according to the de- positor's records. B. deductions from the cash balance according to the depositor's records. C. both A and B. D. neither A nor B.
Which of the following is the correct entry to replen- ish a petty cash fund? LO2A. Debit Petty Cash; credit Cash B. Debit various expense accounts; credit Petty Cash C. Debit various expense accounts; credit Cash D. Debit Cash: credit Petty Cash
Why is cash the asset that often warrants the most attention in the design of an ef fective internal control structure? LO2
The combined cash count of all cash registers at the close of business is $110 less than the cash sales indicated by the cash register tapes. (a) In what account is the cash shortage recorded? (b) Are cash shortages debited or credited to this account? LO2
In which section of the income statement would a credit balance in Cash Short and Over be reported? LO2
Before a voucher for the purchase of merchandise is approved for payment, support- ing documents should be compared to verify the accuracy of the liability. Name an example of a supporting document for the purchase of merchandise. LO2
When is a voucher recorded? LO2
The accounting clerk pays all obligations by prenumbered checks. What are the strengths and weaknesses in the internal control over cash payments in this situation? LO2
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