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financial reporting
Contemporary Issues In Financial Reporting A User Oriented Approach 1st Edition Paul Rosenfield - Solutions
Define “contra account.”
What does the account “allowance for doubtful accounts” represent?
Name three factors a company might consider when trying to determine the amount of accounts receivable that will be ultimately collected.
How is the “net realizable value” of accounts receivable determined?
Define “accounts receivable.”
In the United States, audits must be conducted by Certified Public Accountants(CPAs). Each state has different requirements that individuals must meet to become licensed as a CPA. This exercise will give you a chance to discover the rules in your state. Begin by going to the Web site for the
The chapter mentions the Big Four public accounting firms: Deloitte, Ernst &Young, KPMG, and PricewaterhouseCoopers. We will visit the Web site for one of these—PricewaterhouseCoopers. Go tohttp://www.pwc.com and answer the following questions:a. Name three countries/territories in which
Match the following organizations to their descriptions. ____ FASB ____ PCAOB ____ SEC ____ EITF ____ ASBa. Sets auditing standards for auditors of publicly traded companiesb. Sets U.S. generally accepted accounting principlesc. Helps apply U.S. generally accepted accounting
Which of the following is true about the Securities and Exchange Commission(SEC)?a. The SEC has the power to set accounting standards in the United States.b. The SEC does not have any enforcement powers.c. The SEC determines auditing standards for those who audit public companies.d. The SEC relies
Which organization is a governmental entity?a. SECb. FASBc. EITFd. ASB
Which of the following is true about the Financial Accounting Standards Board(FASB)?a. FASB sets standards that apply to companies throughout the world.b. FASB was created by the EITF to handle smaller issues in a timely manner.c. FASB produces standards that apply to almost all companies in the
Which of the following is not true about an audit report?a. An explanatory paragraph may be included to draw the reader’s attention to some aspect of the financial statements.b. If a material misstatement exists in the financial statements, the auditor should not issue an unqualified opinion.c.
Whittington and Company is a CPA firm that audits publicly traded companies.Which of the following is true concerning Whittington and Company?a. Whittington and Company are regulated by FASB.b. Whittington and Company are hired by the companies they audit.c. Whittington and Company should follow
____ The Financial Accounting Standards Board is a governmental agency. TRUE OR FALSE
____ Auditors provide reasonable assurance that financial statements are fairly presented in accordance with U.S. GAAP. TRUE OR FALSE
____ CPAs can work for large, multinational firms, or for small, local firms. TRUE OR FALSE
____ Audits are paid for by the creditors and investors of a company. TRUE OR FALSE
____ Nonpublic companies have no reason to have an audit of their financial statements performed. TRUE OR FALSE
____ The PCAOB oversees auditors of public companies. TRUE OR FALSE
____ The inclusion of an explanatory paragraph in an audit report is an indication that the financial statements should not be relied on. TRUE OR FALSE
____ The SEC is the current accounting standard setting body in the United States. TRUE OR FALSE
____ Acquiring the CPA designation requires a candidate to pass an exam, meet education requirements, and meet experience requirements. TRUE OR FALSE
____ The quality of a company’s internal controls has no effect on the work of an auditor. TRUE OR FALSE
Why would an auditor not give an unqualified opinion?
Why would an auditor include an explanatory paragraph in an audit report?
What is an unqualified opinion?
To whom is the audit report addressed?
How is an auditor’s work affected by a company’s internal controls?
What are internal controls?
Why do audits not provide absolute assurance that financial statements are presented fairly according to GAAP?
What type of assurance does an audit provide?
Which organization sets standards for and regulates firms who do not audit public companies?
Which act established the Public Company Accounting Oversight Board?
Which organization sets standards for and regulates firms who audit public companies?
What is a CPA?
Why would a nonpublic company have its statements audited?
For what must public companies hire an auditing firm before they submit their financial statements to the SEC?
Why doesn’t the SEC examine all the financial statements submitted to it to ensure their accuracy?
Who is the Emerging Issues Task Force?
Who has the SEC given responsibility to for setting generally accepted accounting principles (GAAP) in the United States?
What types of companies fall under the jurisdiction of the SEC?
What is the Securities and Exchange Commission?
Why is it important that people and organizations have trust in the financial reporting process?
KKCDK incurs $10 in interest expense. The interest will be paid with the note.K. Prepare an adjusted trial balance for KKCDK for February.L. Prepare the financial statements for February.
An adjustment is made for advertising in number 12 above.
Mark continues to earn his salary of $50 and will be paid on March 1.
KKCDK incurs $80 in tax expense. The taxes will be paid in March.Required:G. Prepare journal entries for the above events if needed.H. Post the journal entries to the T-accounts.I. Prepare an unadjusted trial balance for KKCDK for February.J. Prepare adjusting entries for the following and post
KKCDK completes and delivers the advanced order of 50 CDs described in number 8 above.
KKCDK sells 500 CDs during the month for $0.80 each. KKCDK receives cash for 450 of them and is owed for the other 50.
KKCDK purchases 450 CDs for $135 on account.
KKCDK paid off its remaining accounts payable, salaries payable, taxes payable and interest payable.
The student groups paid for the 100 CDs not paid for in January.
Kevin decides to expand outside the college. On the first day of the month, KKCDK pays $20 in advance for advertising in the local paper. The advertisements will run during February and March.
KKCDK incurs $10 in interest expense. The interest will be paid with the note.E. Prepare an adjusted trial balance for KKCDK for January.F. Prepare financial statements for KKCDK for January.Part II: The following occur in February:
Kevin’s roommate, Mark, helps with the CD copying and delivering. KKCDK pays Mark a salary of $50 per month. Mark will get his first check on February 1.
KKCDK incurs $40 in tax expense. The taxes will be paid in February.Required:A. Prepare journal entries for the above events if needed.B. Post the journal entries to T-accounts.C. Prepare an unadjusted trial balance for KKCDK for January.D. Prepare adjusting entries for the following and post them
KKCDK receives $40 in advance to copy 50 CDs for a student group. He will not begin work on the project until February.
KKCDK pays $100 on its accounts payable.
KKCDK quickly catches on with the student groups on campus. KKCDK sells 400 CDs to various groups for $0.80 per CD. KKCDK receives cash payment for 300 of the CDs and the student groups owe for the other 100 CDs.
KKCDK pays $20 cash for flyers to advertise.
KKCDK purchases 500 blank CDs for $150 on account.
KKCDK (Kevin’s Kool CD Kopies) purchases a CD duplicator (a piece of equipment), which can copy seven CDs at one time. The cost is $1,300 and he pays cash.
Kevin signs a note payable in the amount of $1,000 from Neighborhood Bank.The note is due in one year.
Kevin deposits $500 of his own money into the company’s checking account.
On January 1, Kevin Reynolds, a student at State U, decides to start a business.Kevin has noticed that various student organizations around campus are having more and more need for mass produced copies of programs on CDs. While a lot of students have a CD drive on their computers that can write to
Jan Haley owns and operates Haley’s Dry Cleaners. The following occurred during December:a. On December 1, Haley prepaid rent on her store for December and January with $2,000 cash.b. On December 1, Haley purchased insurance with cash in the amount of $2,400 that will last six months.c. Haley
Leon Jackson is ecstatic! First National Bank just approved a loan for Leon to start a Web site design and maintenance business called Webworks. He is now ready to purchase his needed equipment, hire his administrative help, and begin designing sites. During June, his first month of business, the
Keating Inc. rents its headquarters from Starling Enterprises for $10,000 per month. On September 1, 20XX, Keating pays Starling $60,000 for six months worth of rent.a. Record the entry that Keating Inc. would make on September 1 when they pay Starling.b. Record the entry that Starling Enterprises
Determine if the following transactions for Marlin Corporation require an adjustment or not. If an adjusting entry is required, give the correct entry.a. At the beginning of the month, Marlin agreed to perform services for the next three months for Catsui Corporation for $30,000 per month. Catsui
Determine if the following adjusting entries are o accrued expense (AE)o prepaid expense (PE)o accrued revenue (AR)o unearned revenue (UR)a. _____ Atlas Magazine was previously prepaid $400,000 by subscribers and has delivered half of the magazines ordered.b. _____ Hornsby Company agreed to provide
In September 20X3, LaToya Corporation paid for insurance for the next six months in the amount of $42,000. On December 31, LaToya’s accountant forgot to make the adjusting entry that was needed. Which of the following is true?a. Assets are understated by $42,000.b. Net income is understated by
Which of the following is not one of the four types of adjustments?a. Prepaid revenueb. Accrued expensesc. Unearned revenued. Prepaid expenses
Which of the following accounts would increase retained earnings when closed into it?a. Dividendsb. Sales revenuec. Loss of sale of landd. Rent expense
Jenkins Company received $600 from a client in May for work Jenkins would perform during May and June. What entry should Jenkins make on May 31 if onethird of the work is complete on that date? a. Figure 5.9 600 Cash 600 Unearned Revenue b. Figure 5.10 Unearned Revenue Revenue 200 200 c. Figure
Which of the following accounts would be closed at the end of the financial statement cycle?a. Accounts receivableb. Accounts payablec. Cost of goods soldd. Unearned revenue
____ Only one trial balance is prepared during a financial statement cycle. TRUE OR FALSE
____ The purpose of adjusting entries is to bring the balance in temporary accounts to zero at the end of the reporting cycle. TRUE OR FALSE
____ Companies have some discretion in how and when they record accruals. TRUE OR FALSE
____ The word “accrue” means “to grow.” TRUE OR FALSE
____ Assets, liabilities and owners’ equity accounts will start each financial statement cycle with the same balance they had at the end of the previous cycle. TRUE OR FALSE
____ Accountants do not have to exercise much judgment because there are so many rules to follow. TRUE OR FALSE
____ Some changes to accounts occur because of the passage of time. TRUE OR FALSE
____ Revenue may not be recorded until cash is collected. TRUE OR FALSE
____ Only permanent accounts are closed at the end of the financial statement cycle. TRUE OR FALSE
____ Determining when to recognize revenue can be difficult for accountants. TRUE OR FALSE
Into which account are revenues and expenses closed?
Why do accountants prepare closing entries?
Why do companies produce a second trial balance? When is this second trial balance prepared?
When should a company reclassify unearned revenue to revenue?
What type of account is unearned revenue?
Give an example of business or industry where customers usually pay for the product or service in advance.
Briefly explain why it is difficult for accountants to determine whether or not revenue has been earned if the sales process is not complete.
Give three examples of accrued expenses.
Name the four general types of adjustments.
What is the purpose of adjusting entries?
Prepare a trial balance for May.
Complete the T-accounts below. Numbers already under the accounts represent the prior balance in that account. Cash 500 Accounts Receivable 200 Inventory 150 Prepaid Insurance 0 Equipment 2,000 Accounts Payable 600 Salary Payable 0 Note Payable Capital Stock 0 1,500 Retained Earnings Sales Revenue
Prepare journal entries for the above transactions.
The following events occurred during the month of May for McLain Company.a. McLain sells 240 units for $20 each. McLain collects cash for 200 of these units. The units cost McLain $8 each to purchase.b. McLain purchases $1,800 worth of inventory on account.c. McLain collects $500 in cash on its
Bowling Corporation had the following transactions occur during February:a. Bowling purchased $450,000 in inventory on credit.b. Bowling received $13,000 in cash from customers for subscriptions that will not begin until the following month.c. Bowling signed a note from Midwest Bank for $67,000.d.
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