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intermediate accounting volume 1
Accounting Volume 1 8th Canadian Edition Charles T. Horngren, Walter T. Harrison, M. Suzanne Oliver, Peter R. Norwood, Jo-Ann L. Johnston - Solutions
*20. Why are reversing entries used?
19. Capp Company purchased supplies of $120 on account.The accountant debited Inventory and credited Accounts Payable for $120. A week later, after this entry has been posted to the ledger, the accountant discovers the error. How should the accountant correct the error?
18. Show how to compute the current ratio and the debt ratio. Indicate what ability each ratio measures, and state whether a high value or a low value is safer for each.
17. A friend tells you that the difference between a current liability and a long-term liability is that they are payable to different types of creditors. Is your friend correct? Include in your answer the definitions of these two categories of liabilities.
16. Name an outside party that is interested in whether a liability is current or long-term. Why would this party be interested in this information?
15. In what order are assets and liabilities listed on the balance sheet?
14. Indicate which of the following accounts are current assets and which are long-term assets: Prepaid Rent, Building, Furniture, Accounts Receivable, Merchandise Inventory, Cash, Note Receivable (due within one year), Note Receivable (due after one year).
13. Why are assets classified as current or long-term? On what basis are they classified? Where do the classified amounts appear?
12. Give the closing entries for the following accounts(balances in parentheses): Service Revenue ($4,700), Salary Expense ($1,100), Income Summary (credit balance of $2,000), Withdrawals ($2,300).
11. Is net income a permanent account, a temporary account, or something else? Explain.
10. Is Income Summary a permanent account or a temporary account? When and how is it used?
9. Distinguish between permanent accounts and temporary accounts, indicating which type is closed at the end of the period. Give five examples of each type of account.
8. State how the work sheet helps with recording the closing entries.
7. What purpose is served by closing the accounts?
6. Which types of accounts are closed?
5. Why should the adjusting entries be journalized and posted before the closing entries are made?
4. Why must the adjusting entries be journalized and posted if they have already been entered on the work sheet?
3. Name two advantages the work sheet has over the adjusted trial balance.
2. Why is the work sheet a valuable accounting tool?
1. Identify the steps in the accounting cycle, distinguishing those that occur during the period from those that are performed at the end of the period.
10. Suppose in 2010, LES debited Amortization Expense for the cost of a computer used in the business. For 2010, this error (pp. 176–177)a. Overstated net incomeb. Understated net incomec. Did either a orb, depending on the circumstancesd. Had no effect on net income
9. The classification of assets and liabilities as current or long-term depends on (pp. 178–179)a. Their order of listing in the ledgerb. Whether they appear on the balance sheet or the income statementc. The relative liquidity of the itemd. The format of the balance sheet—account format or
8. A $500 payment on account was recorded by debiting Supplies and crediting Cash. This entry was posted.The correcting entry is (pp. 176–177)a. Accounts Payable 500 Supplies 500b. Supplies 500 Accounts Payable 500c. Cash 500 Accounts Payable 500 d.Cash 500 Supplies 500
7. The purpose of the postclosing trial balance is to(p. 176)a. Provide the account balances for preparation of the balance sheetb. Ensure that the ledger is in balance for the start of the next periodc. Aid the journalizing and posting of the closing entriesd. Ensure that the ledger is in balance
6. The closing entry for Salary Expense, with a balance of$322,000, is (p. 173)a. Salary Expense 322,000 Income Summary 322,000b. Salary Expense 322,000 Salary Payable 322,000c. Income Summary 322,000 Salary Expense 322,000d. Salary Payable 322,000 Salary Expense 322,000
5. Which of the following accounts is not closed?(p. 172)a. Supplies Expenseb. Prepaid Insurancec. Interest Revenued. Withdrawals
4. The usefulness of the work sheet is (pp. 166–168 )a. Identifying the accounts that need to be adjustedb. Summarizing the effects of all the transactions of the periodc. Aiding the preparation of the financial statementsd. All of the above
3. The work sheet is a (p. 166)a. Journalb. Ledgerc. Financial statementd. Convenient device for completing the accounting cycle
2. Arrange the following accounting cycle steps in their proper order assuming a work sheet is used. (p. 166)a. Complete the work sheetb. Journalize and post adjusting entriesc. Prepare the postclosing trial balanced. Journalize and post cash transactionse. Prepare the financial statementsf.
1. The focal point of the accounting cycle is the (p. 165)a. Financial statementsb. Trial balancec. Adjusted trial balanced. Work sheet
2 During the year ended December 31, 2008, Sun-Rype Products Ltd. experienced numerous accruals and deferrals. As a long-term employee of Sun-Rype’s accounting and financial staff, it is your job to explain the effects of accruals and deferrals on Sun-Rype’s 2008 financial statements.
1 During the year ended October 31, 2008, Canadian Western Bank (CWB) experienced numerous accruals and deferrals. As a long-term employee of CWB’s accounting and financial staff, it is your job to explain the effects of accruals and deferrals on CWB’s 2008 financial statements. (CWB’s 2008
2 The following independent questions relate to the accrual basis of accounting:1. It has been said that the only time a company’s financial position is known for certain is when the company is wound up and its only asset is cash. Why is this statement true?2. A friend suggests that the purpose
1 Cameron Masson has owned and operated Alberta Biotech, a management consulting firm, since its beginning 10 years ago. From all appearances the business has prospered. Masson lives in the fast lane—flashy car, home located in an expensive suburb, frequent trips abroad, and other signs of
3–2C The matching objective is well established as a basis for recording expenses.Required 1. New accountants sometimes state the objective as matching revenues against expenses.Explain to a new accountant why matching revenues against expenses is incorrect.2. It has been suggested that
3–1C The basic accounting period is one year and all organizations report on an annual basis. It is common for large companies to report on a semiannual basis, and some even report monthly. Interim reporting has a cost, however.You are working part-time as an accounting clerk for Paradise Corp.
3–10B O’Brien Construction specializes in industrial and commercial renovations. O’Brien had the following information available at the close of its first year of business, March 31, 2010:1. On April 1, 2009, the company purchased $4,000 of supplies and recorded the purchase as a debit to
3–9B Connect Air completed the following transactions during 2010:Oct. 15 Paid $10,000 for advertising and promotional material covering the fourmonth period ending February 15, 2011.Nov. 1 Received $15,600 payment in advance for a series of charter flights. Revenue of $2,600 will be earned each
3–8B Hilton Communications provides telecommunications consulting services. On December 31, 2010, the end of its first year of operations, the business had the following account balances(in alphabetical order):Accounts payable .....................................................................
3–7B The unadjusted trial balance of LaBarbara Data at December 31, 2010, appears below.Adjustments had been made until November, but no adjustments for December have been made.Adjustment data:a. Accrued consulting revenue at December 31, $3,300.b. Prepaid rent had expired during the month. The
3–6B The adjusted trial balance of Barnes Systems at December 31, 2010, is shown below.Required 1. Prepare Barnes Systems’ 2010 income statement, statement of owner’s equity, and balance sheet. List expenses in decreasing-balance order on the income statement and show total liabilities on the
3–5B Ohlund Construction’s unadjusted and adjusted trial balances at April 30, 2010, are shown on the next page.Required Journalize the adjusting entries that account for the differences between the two trial balances. Account Title Cash OHLUND CONSTRUCTION Adjusted Trial Balance April 30, 2010
3–4B The trial balance of Wellwood Realty at December 31, 2010, appears below. The data needed for the month-end adjustments follow the trial balance.Adjustment data at December 31:a. Prepaid rent still available at December 31, $6,600.b. Supplies used during the month, $1,800.c. Amortization on
3–3B Journalize the adjusting entry needed on December 31, the company’s year end, for each of the following independent cases affecting East Coast Contractors:a. Details of Prepaid Rent are shown in the account:East Coast Contractors pays office rent semiannually on March 31 and September 30.
3–2B Khalil Speech and Hearing Clinic experienced the following selected transactions during October:Oct. 1 Paid for insurance for October through December, $6,000.4 Paid utility invoice, $1,200.5 Performed services on account, $5,000.9 Purchased office equipment for cash, $8,000.12 Received cash
3–1B Write a business memo to a new bookkeeper to explain the difference between the cash basis of accounting and the accrual basis. Mention the roles of the recognition criteria for revenues and the matching objective in accrual-basis accounting.This is the format of a business memo: Date: (fill
3–10A Sedin Consulting develops custom software for clients in the construction business. Sedin Consulting had the following information available at the close of its first year of business, June 30, 2010:1. Insurance payments during the year were debited to Insurance Expense. An examination of
3–9A Park Sales and Service completed the following transactions during 2010:Aug. 31 Paid $15,000 store rent covering the six-month period ending February 28, 2011.Dec. 1 Collected $8,000 cash in advance from customers. The service revenue earned will be $1,600 each month over the four-month
3–8A Kessler Employment Counsellors provides counselling services to employees of companies that are downsizing. On December 31, 2010, the end of its first year of operations, the business had the following account balances (in alphabetical order):Accounts payable
3–7A Consider the unadjusted trial balance of Burrows Landscaping at December 31, 2010, and the related month-end adjustment data.The following adjustments need to be made before the financial statements for the year can be prepared:Adjustment data:a. Accrued landscaping design revenue at
3–6A The adjusted trial balance of Cook Antique Auctioneers at the end of its year, December 31, 2010, is shown on the next page.Required 1. Prepare Cook Antique Auctioneers’ 2010 income statement, statement of owner’s equity, and balance sheet. List expenses in decreasing-balance order on
3–5A Wolcott Consulting’s unadjusted and adjusted trial balances at December 31, 2010, follow:Required Journalize the adjusting entries that account for the differences between the two trial balances. WOLCOTT CONSULTING Unadjusted and Adjusted Trial Balances December 31, 2010 Trial Balance
3–4A The trial balance of Kaplan Printing at December 31, 2010, appears below. The data needed for the month-end adjustments follow the trial balance.Adjustment data:a. Unearned printing revenue still remaining to be earned at December 31, $800.b. Prepaid rent still available at December 31,
3–3A Journalize the adjusting entry needed on December 31, the company’s year end, for each of the following independent cases affecting Eagle Communications:a. Each Friday the company pays its employees for the current week’s work. The amount of the payroll is $12,000 for a five-day
3–2A Kerr Office Design had the following transactions during January:Jan. 1 Paid for insurance for January through March, $2,400.4 Performed design service on account, $7,000.5 Purchased office furniture on account, $2,100.8 Paid advertising expense, $1,800.15 Purchased office equipment for
3–1A As the controller of Best Security Systems, you have hired a new bookkeeper, whom you must train. She objects to making an adjusting entry for accrued salaries at the end of the period. She reasons, “We will pay the salaries soon. Why not wait until payment to record the expense? In the
3–1 Suppose a new management team is in charge of Alpine Waters Inc., a micro-brewery.Assume Alpine Waters Inc.’s new top executives rose through the company ranks in the sales and marketing departments and have little appreciation for the details of accounting.Consider the following
3–24 The adjusted trial balances of Pacific Services at December 31, 2010, and December 31, 2009 include these amounts:2010 2009 Supplies ................................................................ $ 4,000 $ 2,000 Salary payable ..................................................... 5,000
3–23 Refer to Exercise 2–15 of Chapter 2. Start from the trial balance and the posted T-accounts that Haupt Consulting prepared at December 18. Make sure the account balances in your trial balance and T-accounts match those in the trial balance at December 18, 2010, shown on the next page.Later
3–22 Fort Services initially records all prepaid expenses as expenses and all unearned revenues as revenues. Given the following information, prepare the necessary adjusting entries at December 31, 2010, the company’s year end.a. On January 3, 2010, the company’s first day of operations,
3–21 At the beginning of the year, a business had a liability to customers of $7,500 for unearned service revenue collected in advance. During the year, the business received advance cash receipts of $20,000. At year end, the company’s liability to customers was $3,500 for unearned service
3–20 At the beginning of the year, supplies of $4,800 were on hand. During the year, the business paid $10,800 for more supplies. At the end of the year, the count of supplies indicates supplies of $3,400 on hand.Required 1. Assume that the business records supplies by initially debiting an asset
3–19 Goodwin Consulting began the year on January 1, 2010, with capital of $65,000. On July 12, 2010, Eric Goodwin (the owner) invested $16,000 cash in the business. On September 26, 2010, he transferred to the company land valued at $70,000. The income statement for the year ended December 31,
3–18 The accountant for Sandra Storm’s business, Storm Technologies, has posted adjusting entries(a) through (e) to the accounts at December 31, 2010. Selected balance sheet accounts and all the revenues and expenses of the entity follow in T-account form:Required 1. Prepare the income
3–17 Refer to the adjusted trial balance in Exercise 3–14. Prepare Cleary Consulting’s income statement and statement of owner’s equity for the month ended May 31, 2010, and its balance sheet on that date. Draw the arrows linking the three statements.
3–16 Write a business memorandum to your supervisor explaining the difference between the unadjusted amounts and the adjusted amounts in Exhibit 3–10, page 126. Use Accounts Receivable in your explanation. If necessary, refer back to the discussion of Accrued Revenues on page 121.Business memos
3–15 Make journal entries for the adjustments that would complete the preparation of the adjusted trial balance in Exercise 3–14. Date the entries and include explanations.
3–14 The adjusted trial balance below of Cleary Consulting is incomplete. Enter the adjustment amounts directly in the adjustment columns of the text. Service Revenue is the only account affected by more than one adjustment. CLEARY CONSULTING Preparation of Adjusted Trial Balance May 31, 2010
3–13 Refer to the data in Exercise 3–11.a. Compute Valley Cleaners’ net income for the period ended June 30, 2010.b. Compute Valley Cleaners’ total assets at June 30, 2010.
3–12 Refer to the data in Exercise 3–11. Journalize the five adjustments, all dated June 30, 2010.Explanations are not required.
3–11 Valley Cleaners, a cleaning service, started the preparation of its adjusted trial balance as follows:During the six months ended June 30, 2010, Valley Cleanersa. Used supplies of $500.b. Used up prepaid insurance of $900.c. Used up $2,000 of the equipment through amortization.d. Accrued
3–10 Write a paragraph to explain why unearned revenues are liabilities rather than revenues. In your explanation use the following actual example: Maclean’s Magazine collects cash from subscribers in advance and later mails the magazines to subscribers over a one-year period.Explain what
3–9 The accounting records of Event Planners include the following unadjusted balances at March 31: Accounts Receivable, $5,400; Supplies, $2,700; Salary Payable, $0; Unearned Service Revenue, $3,000; Service Revenue, $88,000; Salary Expense, $22,000; Rent Expense,$18,000, Utilities Expense,
3–8 Journalize the adjusting entry needed at December 31 for each of the following independent situations.a. On July 1, when we collected $48,000 rent in advance, we debited Cash and credited Unearned Rent Revenue. The tenant was paying for one year’s rent in advance. At December 31, we must
3–7 Suppose the adjustments required in Exercise 3–6 were not made. Compute the overall overstatement or understatement of net income as a result of the omission of these adjustments.
3–6 Journalize the entries for the following adjustments at January 31, the end of the accounting period:a. Amortization, $5,000.b. Prepaid insurance expired, $500.c. Interest expense accrued, $400.d. Employee salaries owed for Monday through Thursday of a five-day workweek; weekly payroll,
3–5 Compute the amounts indicated by question marks for each of the following Prepaid Insurance situations. For situations A and B, make the needed journal entry. Consider each situation separately. Beginning Prepaid Insurance Payments for Prepaid Insurance during the year Total amount to account
3–4 Write a memo to your supervisor explaining in your own words the concept of amortization as it is used in accounting. Use the following format: Date: (fill in) To: From: Supervisor (Student Name) Subject: The concept of amortization
3–3 Dominion Storage operates approximately 300 mini-warehouses across Canada. The company’s headquarters are in Medicine Hat, Alberta. During 2010, Dominion earned rental revenue of $26.0 million and collected cash of $23.6 million from customers. Total expenses for 2010 were $17.4 million, of
3–2 Identify the accounting assumption, criteria, or objective that gives the most direction on how to account for each of the following situations:a. The owner of a business desires monthly financial statements to measure the financial progress of the entity on an ongoing basis.b. Expenses of
3–1 Sorento Lodge had the following selected transactions during January:Jan. 1 Paid cash for rent for January, February, and March, $4,200.5 Paid electricity expenses, $600.9 Received cash for the day’s room rentals, $1,800.14 Paid cash for six television sets, $6,000. They will last three
3–11 Refer to the data in Starter 3–9. Compute Scissors Hair Stylists’ total assets at December 31, 2010. Remember that Accumulated Amortization is a contra asset.
3–10 Refer to the data in Starter 3–9. Compute Scissors Hair Stylists’ net income for the year ended December 31, 2010.
3–9 Scissors Hair Stylists has begun the preparation of its adjusted trial balance as follows:Year-end data:a. Supplies remaining on hand, $200b. Amortization, $1,100c. Accrued interest expense, $400 Complete the company’s adjusted trial balance. Identify each adjustment by its letter. To save
3–8 The Big Clipper Magazine collects cash from subscribers in advance and then mails the magazines to subscribers over a one-year period. Give the adjusting entry that the company makes to record the earning of $10,000 of Subscription Revenue that was collected in advance. Include an explanation
3–7 Suppose Ladner Environmental Services (LES) borrowed $50,000 on October 1 by signing a note payable to Royal Bank. LES’s interest expense for the remainder of the year (October through December) is $600.1. Make LES’s adjusting entry to accrue interest expense at December 31.Date the entry
3–6 Refer to the data in Starter 3–5.1. Using T-accounts, post to the accounts listed in Starter 3–5, and show their balances at May 31.2. What is the computer equipment’s carrying value at May 31?
3–5 On May 1, your company paid cash of $27,000 for computers that are expected to remain useful for three years. At the end of three years, the value of the computers is expected to be zero.Make journal entries to record (a) purchase of the computers on May 1 and (b) amortization on May 31.
3–4 On April 1, 2010, you prepaid six months of rent, for a total of $12,000. Give your adjusting entry to record rent expense at April 30, 2010. Include the date of the entry and an explanation. Then, using T-accounts, post to the two accounts involved, and show their balances at April 30, 2010.
3–3 Sports Unlimited sells annual subscriptions for the 12 monthly magazines mailed to customers each year. The company collects cash in advance and then mails out the magazines to subscribers each month. Suppose the company collected $80,000 for subscriptions for January to December.Apply the
3–2 Smith Barnes Chartered Accountants uses a client database. Suppose the company paid $3,000 for a Dell computer. Describe how the company would account for the $3,000 expenditure under (a) the cash basis and (b)the accrual basis. State in your own words why the accrual basis is more realistic
3–1 Suppose you work summers house-sitting for people while they are away on vacation. Most of your customers pay you immediately after you finish a job. A few ask you to send them a bill. It is now June 30 and you have collected$600 from cash-paying customers. Your remaining customers owe you
*21. Swim World Magazine received $3,000 for magazine subscriptions in advance and recorded the cash receipt as Subscription Revenue. At the end of the year, only$1,400 of this revenue has been earned. What is the required year-end adjusting entry?
*20. A company pays $6,000 on February 1 to rent its office for February, March, and April. Make journal entries dated February 1 to illustrate the two ways this company can record its prepayment of rent.
19. Bellevue Company failed to record the following adjusting entries at December 31, the end of its fiscal year:(a) accrued expenses, $1,000; (b) accrued revenues,$1,700; and (c) amortization, $2,000. Did these omissions cause net income for the year to be understated or overstated and by what
18. Explain the relationships among the income statement, the statement of owner’s equity, and the balance sheet.
17. What purposes does the adjusted trial balance serve?
16. Identify the types of accounts (assets, liabilities, and so on) debited and credited for each of the five types of adjusting entries.
14. Give the entry to record accrued interest revenue of$500.15. Why is unearned revenue a liability? Give an example.
13. The manager of Quickie-Pickie, a convenience store, presents the company’s balance sheet to a banker to obtain a loan. The balance sheet reports that the company’s property, plant, and equipment have a carrying value of $135,000 and accumulated amortization of$65,000. What does carrying
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