“An adjustment may affect more than one balance sheet or income statement account.” Do you agree? Why or why not?
> The following transactions are for Alonzo Company. 1. On December 3, Alonzo Company sold $500,000 of merchandise to Arte Co. on account. The cost of the merchandise sold was $330,000. 2. On December 8, Arte Co. returned $25,000 of merchandise purchased o
> Indicate how each business transaction affects the basic accounting equation. (a) Paid cash for janitorial services. (b) Purchased equipment for cash. (c) Issued common stock to investors in exchange for cash. (d) Paid an account payable in full.
> Rigley Company expects to have a cash balance of $46,000 on January 1, 2017. These are the relevant monthly budget data for the first two months of 2017. 1. Collections from customers: January $71,000 and February $146,000. 2. Payments to suppliers: Janu
> Lance, Art, and Wayne have joined together to open a law practice but are struggling to manage their cash flow. They haven’t yet built up sufficient clientele and revenues to support their legal practice’s ongoing costs. Initial costs, such as advertisin
> A new accountant at Wyne Inc. is trying to identify which of the following amounts should be reported as the current asset “Cash and cash equivalents” in the year-end balance sheet, as of April 30, 2017. 1. $60 of currency and coin in a locked box used f
> The Public Company Accounting Oversight Board (PCAOB) was created as a result of the Sarbanes-Oxley Act. It has oversight and enforcement responsibilities over accounting fi rms in the United States. Address: http://www.pcaobus.org Instructions Answer t
> Perth Inc.’s bank statement from Main Street Bank at August 31, 2017, gives the following information. A summary of the Cash account for August shows the following: balance, August 1, $18,700; receipts $74,000; disbursements $73,570;
> The cash records of Upton Company show the following. For July: 1. The June 30 bank reconciliation indicated that deposits in transit total $580. During July, the Cash account shows deposits of $16,900, but the bank statement indicates that only $15,600
> This information relates to the Cash account for Howard Company. Balance September 1—$16,500; Cash deposited—$64,000 Balance September 30—$17,600; Checks written—$62,800 The Septembe
> The following information pertains to Lance Company. 1. Cash balance per bank, July 31, $7,328. 2. July bank service charge not recorded by the depositor $38. 3. Cash balance per books, July 31, $7,364. 4. Deposits in transit, July 31, $2,700. 5. $2,016
> At April 30, the bank reconciliation of Back 40 Company shows three outstanding checks: No. 254 $650, No. 255 $700, and No. 257 $410. The May bank statement and the May cash payments record are given here. Instructions Using step 2 in the reconciliatio
> Rachel Sells is unable to reconcile the bank balance at January 31. Rachel’s reconciliation is shown as follows. Instructions (a) What is the proper adjusted cash balance per bank? (b) What is the proper adjusted cash balance per book
> At Martinez Company, checks are not prenumbered because both the purchasing agent and the treasurer are authorized to issue checks. Each signer has access to unissued checks kept in an unlocked file cabinet. The purchasing agent pays all bills pertaining
> What are the essential features of the allowance method of accounting for bad debts?
> The following control procedures are used in Bunny’s Boutique Shoppe for cash disbursements. 1. Each week, 100 company checks are left in an unmarked envelope on a shelf behind the cash register. 2. The store manager personally approves all payments befo
> The following control procedures are used in Keaton Company for over-the-counter cash receipts. 1. Each store manager is responsible for interviewing applicants for cashier jobs. They are hired if they seem honest and trustworthy. 2. All over-the-counter
> The Financial Accounting Standards Board (FASB) is a private organization established to improve accounting standards and financial reporting. The FASB conducts extensive research before issuing a “Statement of Financial Accounting Standards,” which repr
> Ricci’s Pizza operates strictly on a carryout basis. Customers pick up their orders at a counter where a clerk exchanges the pizza for cash. While at the counter, the customer can see other employees making the pizzas and the large ovens in which the piz
> Bank employees use a system known as the “maker-checker” system. An employee will record a transaction, and then a supervisor will verify and approve it. These days, as all of a bank’s accounts are computerized, the employee first enters a batch of trans
> Greenock Limited has the following information available for accruals for the year ended December 31, 2017. The company adjusts its accounts annually. 1. The December utility bill for $425 was unrecorded on December 31. Greenock paid the bill on January
> Action Quest Games Inc. adjusts its accounts annually. The following information is available for the year ended December 31, 2017. 1. Purchased a 1-year insurance policy on June 1 for $1,800 cash. 2. Paid $6,500 on August 31 for 5 monthsâ€
> On December 31, 2017, Waters Company prepared an income statement and balance sheet, but failed to take into account three adjustments. The balance sheet showed total assets $150,000, total liabilities $70,000, and stockholders’ equity
> The following lists selected accounts and their adjusted balances for Ramon Company on January 31, 2017. Insurance Expense………………. $520 Prepaid Insurance…………………1,560 Salaries and Wages Expense ... 1,800 Salaries and Wages Payable …. 1,060 Service Revenue
> The income statement of Norski Co. for the month of July shows net income of $2,000 based on Service Revenue $5,500, Salaries and Wages Expense $2,100, Supplies Expense $900, and Utilities Expense $500. In reviewing the statement, you discover the follow
> A partial tabular summary for Armour Lake Lumber Supply on July 31, 2017, includes the accounts below before adjustments have been prepared. An analysis of the company’s accounts shows the following. 1. The investment in the notes rec
> Oscar Geer, a mid-level product manager for Theresa’s Shoes, thinks his company should switch from LIFO to FIFO. He says, “My bonus is based on net income. If we switch it will increase net income and increase my bonus. The company would be better off an
> The unadjusted tabular summary of transactions for Sierra Corp. is shown in Illustration 4-4 (page 115). Instead of the adjustments shown in the textbook at October 31, assume the following adjustment data. 1. Supplies on hand at October 31 total $500. 2
> The international accounting firm Ernst & Young performed a global survey on fraud. The results of that survey are summarized in a report titled “Driving Ethical Growth—New Markets, New Challenges” (Ernst & Young, 13th Global Fraud Survey). You can find
> Al Medina, D.D.S., opened an incorporated dental practice on January 1, 2017. During the first month of operations, the following transactions occurred. 1. Performed services for patients who had dental plan insurance. At January 31, $760 of such service
> A partial tabular summary for Howard Rental Agency on March 31 of the current year includes the accounts below before adjustments have been prepared. An analysis of the accounts shows the following. 1. The equipment depreciates $280 per month. 2. Half
> Wang Company accumulates the following adjustment data at December 31. (a) Services performed but unbilled total $600. (b) Store supplies of $160 are on hand. The supplies account shows a $1,900 balance. (c) Utility expenses of $275 are unpaid. (d) Servi
> BizCon, a consulting firm, has just completed its first year of operations. The company’s sales growth was explosive. To encourage clients to hire its services, BizCon offered 180-day financing—meaning its largest customers do not pay for nearly 6 months
> Franken Company, a ski tuning and repair shop, opened on November 1, 2016. The company carefully kept track of all its cash receipts and cash payments. The following information is available at the end of the ski season, April 30, 2017. The repair shop
> In its first year of operations, Gomes Company recognized $28,000 in service revenue, $6,000 of which was on account and still outstanding at year-end. The remaining $22,000 was received in cash from customers. The company incurred operating expenses of
> Your examination of the records of a company that follows the cash basis of accounting tells you that the company’s reported cash-basis earnings in 2017 are $33,640. If this firm had followed accrual-basis accounting practices, it would
> Here are some accountings reporting situations. (a) East Lake Company recognizes revenue at the end of the production cycle but before sale. The price of the product, as well as the amount that can be sold, is not certain. (b) Hilo Company is in its fift
> These accounting concepts were discussed in this and previous chapters. 1. Economic entity assumption. 6. Materiality. 2. Expense recognition principle. 7. Full disclosure principle. 3. Monetary unit assumption. 8. Going concern assumption. 4. Period
> (a) Describe cash equivalents and explain how they are reported. (b) How should restricted cash funds be reported on the balance sheet?
> The financial statements of Columbia Sportswear Company are presented in Appendix B. Financial statements of VF Corporation are presented in Appendix C. Instructions Answer the following questions for each company. (a) What is the balance in cash and ca
> The following independent situations require professional judgment for determining when to recognize revenue from the transactions. (a) Southwest Airlines sells you an advance-purchase airline ticket in September for your flight home in December. (b) Ult
> An analysis of transactions for Foley & Co. is presented in E3–8. Assume that August is the company’s first month of business. Instructions Prepare an income statement and a retained earnings statement for August and a balance sheet at August 31, 2017.
> An analysis of the transactions made by Foley & Co., a certified public accounting firm, for the month of August is shown below. Each change in revenues or expenses is explained. Instructions (a) Describe each transaction. (b) Determine how much s
> A tabular analysis of the transactions made during August 2017 by Wolfe Company during its first month of operations is shown below. Each change in revenues or expenses is explained. Instructions (a) Describe each transaction. (b) Determine how much st
> During 2017, its first year of operations as a delivery service, Persimmon Corp. entered into the following transactions. 1. Issued shares of common stock to investors in exchange for $100,000 in cash. 2. Borrowed $45,000 by issuing a note. 3. Purchased
> Brady Company, a computer services company, entered into these transactions during May 2017, its first month of operations. 1. Stockholders invested $40,000 in the business in exchange for common stock of the company. 2. Purchased computers for office us
> Selected transactions for Thyme Advertising Company, Inc. are listed here. 1. Issued common stock to investors in exchange for cash received from investors. 2. Paid monthly rent. 3. Received cash from customers when service was performed. 4. Billed custo
> Keystone Computer Timeshare Company entered into the following transactions during May 2017. 1. Purchased computers for $20,000 from Data Equipment on account. 2. Paid $3,000 cash for May rent on storage space. 3. Received $15,000 cash from customers for
> Lopez Co. had three major business transactions during 2017. (a) Reported at its fair value of $260,000 merchandise inventory with a cost of $208,000. (b) The president of Lopez Co., Victor Lopez, purchased a truck for personal use and increased the comp
> Presented below are assumptions and principles discussed in this chapter. 1. Full disclosure principle 4. Periodicity assumption 2. Going concern assumption 5. Historical cost principle 3. Monetary unit assumption 6. Economic entity assumption Instructi
> Trisha Massey asks for your help concerning an NSF check. Explain to Trisha (a) what an NSF check is, (b) how it is treated in a bank reconciliation, and (c) whether it will require an adjustment on the company’s books.
> Suppose the following data were taken from the 2017 and 2016 financial statements of American Eagle Outfitters. (All numbers, including share data, are in thousands.) Instructions Perform each of the following. (a) Calculate the current ratio for each
> The chief financial officer (CFO) of Myeneke Corporation requested that the accounting department prepare a preliminary balance sheet on December 30, 2017, so that the CFO could get an idea of how the company stood. He knows that certain debt agreements
> Nordstrom, Inc. operates department stores in numerous states. Selected financial statement data (in millions of dollars) for a recent year follow. Instructions (a) Compute working capital and the current ratio at the beginning of the year and at the e
> These financial statement items are for Fairview Corporation at year-end, July 31, 2017. Salaries and wages payable……………………...$ 2,080 Salaries and wages expense………………………57,500 Supplies expense………………………………………15,600 Equipment………………………………………………. 18,500 Acc
> Suppose the following information is available for Callaway Golf Company for the years 2017 and 2016. (Dollars are in thousands, except share information.) There were 73,139,000 shares outstanding at the end of 2015. Instructions (a) What was the comp
> Suppose the following items were taken from the 2017 financial statements of Texas Instruments, Inc. (All dollars are in millions.) Common stock $2,826 Accumulated depreciation— Prepaid rent 164 equipment $3,547 Equipment 6,705 Accounts
> These items are taken from the financial statements of Longhorn Co. at December 31, 2017. Buildings……………………………………………..$105,800 Accounts receivable…………………………………. 12,600 Prepaid insurance………………………………………3,200 Cash………………………………………………………..11,840 Equipment…………
> Suppose the following information (in thousands of dollars) is available for H. J. Heinz Company—famous for ketchup and other fine food products—at April 30, 2017. Prepaid insurance $ 125,765 Buildings $4,033,369 Land 76,193 Cash 373,145 Goo
> Suppose the following items were taken from the December 31, 2017, assets section of the Boeing Company balance sheet. (All dollars are in millions.) Inventory $16,933 Patents $12,528 Notes receivable—due after Buildings 21,579
> The financial statements of Apple Inc. are presented in Appendix A. Instructions for accessing and using the company’s complete annual report, including the notes to its financial statements, are also provided in Appendix A. Instructions Using the finan
> The major balance sheet classifications are listed in E2-1. Reference Data E2-1: The following are the major balance sheet classifications. Current assets (CA) Current liabilities (CL) Long-term investments (LTI) Long-term liabilities (LTL) Proper
> Mamosa Corporation has been using the FIFO cost fl ow method during a prolonged period of infl ation. During the same time period, Mamosa has been paying out all of its net income as dividends. What adverse effects may result from this policy?
> The following are the major balance sheet classifications. Current assets (CA) Current liabilities (CL) Long-term investments (LTI) Long-term liabilities (LTL) Property, plant, and equipment (PPE) Stockholders’ equity (SE) Intangible assets (IA)
> The annual report provides financial information in a variety of formats, including the following. Management discussion and analysis (MD&A) Financial statements Notes to the financial statements Auditor’s opinion Instructions For each of the follow
> The summaries of data from the balance sheet, income statement, and retained earnings statement for two corporations, Walco Corporation and Gunther Enterprises, are presented as follows for 2017. Instructions Determine the missing amounts. Assume all c
> Suppose the following items were taken from the balance sheet of Nike, Inc. (All dollars are in millions.) 1. Cash $2,291.1 7. Inventory $2,357.0 2. Accounts receivable 2,883.9 8. Income taxes payable 86.3 3. Common stock 2,874.2 9. Equipment
> Wayne Holtz is the bookkeeper for Beeson Company. Wayne has been trying to get the following balance sheet of Beeson Company to balance. It finally balanced, but now he’s not sure it is correct. Instructions Prepare a correct balance
> Suppose the following data are derived from the 2017 financial statements of Southwest Airlines. (All dollars are in millions.) Southwest has a December 31 year-end. Cash balance, January 1, 2017…………………………. $1,390 Cash paid for repayment of debt………………………
> This information is for Williams Corporation for the year ended December 31, 2017. Cash received from lenders……………………$20,000 Cash received from customers…………………50,000 Cash paid for new equipment…………………..28,000 Cash dividends paid…………………………………. 8,000 Cas
> Kellogg Company is the world’s leading producer of ready-to-eat cereal and a leading producer of grain-based convenience foods such as frozen waffles and cereal bars. Suppose the following items were taken from its 2017 income statement and balance sheet
> Companies prepare balance sheets in order to know their financial position at a specific point in time. This enables them to make a comparison to their position at previous points in time and gives them a basis for planning for the future. In order to ev
> Otay Lakes Park is a private camping ground near the Mount Miguel Recreation Area. It has compiled the following financial information as of December 31, 2017. Service revenue (from camping fees) $132,000 Dividends $ 9,000 Sales revenue (fro
> Here are incomplete financial statements for Donavan, Inc. Instructions Calculate the missing amounts. DONAVAN, INC. Balance Sheet Assets Liabilities and Stockholders' Equity Cash $ 7,000 Liabilities $ 5,000 Inventory Buildings 10,000 45,000 Accoun
> (a) What information do accrual-basis financial statements provide that cash-basis statements do not? (b) What information do cash-basis financial statements provide that accrual-basis statements do not?
> The following items and amounts were taken from Lonyear Inc.’s 2017 income statement and balance sheet. ______ Cash $ 84,700 ______ Accounts receivable $ 88,419 ______ Retained earnings 123,192 ______ Sales revenue 584,951 _____
> Consider each of the following independent situations. (a) The retained earnings statement of Lee Corporation shows dividends of $68,000, while net income for the year was $75,000. (b) The statement of cash flows for Steele Corporation shows that cash pr
> Presented here is information for Zheng Inc. for 2017. Retained earnings, January 1……………..$130,000 Service revenue…………………………………. 400,000 Total expenses……………………………………..175,000 Dividends……………………………………………. 65,000 Instructions Prepare the 2017 retained earn
> Suppose the following information was taken from the 2017 financial statements of pharmaceutical giant Merck and Co. (All dollar amounts are in millions.) Retained earnings, January 1, 2017…………………..$43,698.8 Cost of goods sold………………………………………………..9,018.9
> This information relates to Benser Co. for the year 2017. Retained earnings, January 1, 2017………………..$67,000 Advertising expense…………………………………………. 1,800 Dividends………………………………………………………..6,000 Rent expense…………………………………………………. 10,400 Service revenue………………………
> The Bonita Vista Golf & Country Club details the following accounts in its financial statements. Accounts payable……………………._____ Accounts receivable…………………_____ Equipment………………………………_____ Sales revenue………………………….._____ Service revenue……………………….._____ Inv
> What are the three main categories of the statement of cash flows? Why do you think these categories were chosen?
> What is the primary purpose of the statement of cash flows?
> What is meant by the term operating cycle?
> All businesses are involved in three types of activities—financing, investing, and operating. Listed below are the names and descriptions of companies in several different industries. Abitibi Consolidated Inc.—manufacturer and marketer of newsprint Cal S
> Wells Company is a pesticide manufacturer. Its sales declined greatly this year due to the passage of legislation outlawing the sale of several of Wells’ chemical pesticides. During the coming year, Wells will have environmentally safe and competitive re
> Why would a bank want to monitor the dividend payment practices of the corporations to which it lends money?
> Listed here are some items found in the financial statements of Finzelberg. Indicate in which financial statement(s) each item would appear. (a) Service revenue. (b) Equipment. (c) Advertising expense. (d) Accounts receivable. (e) Common stock. (f) Inter
> Who are the external users of accounting data? Give examples.
> Who are the internal users of accounting data? How does accounting provide relevant data to the internal users?
> “Accounting is ingrained in our society and is vital to our economic system.” Do you agree? Explain.
> What are the advantages to a business of being formed as a partnership or sole proprietorship? What are the disadvantages?
> What are the advantages to a business of being formed as a corporation? What are the disadvantages?
> What do these classes of ratios measure? (a) Liquidity ratios. (b) Profitability ratios. (c) Solvency ratios.
> Ken McCall believes that the allocation of cost of goods available for sale should be based on the actual physical flow of the goods. Explain to Ken why this may be both impractical and inappropriate.
> An item must possess two characteristics to be classified as inventory. What are these two characteristics?
> Here is a list of words or phrases discussed in this chapter: 1. Corporation 4. Partnership 7. Accounts payable 2. Creditor 5. Stockholder 8. Auditor’s opinion 3. Accounts receivable 6. Common stock Instructions Match each word or phrase with th
> Why is the normal operating cycle for a merchandising company likely to be longer than for a service company?
> What is the primary source document for recording (1) cash sales and (2) credit sales?
> Waymon Co. has net sales of $100,000, cost of goods sold of $70,000, and operating expenses of $18,000. What is its gross profit?
> Lance Morrow cannot understand why the cash realizable value does not decrease when an uncollectible account is written off under the allowance method. Clarify this point for Lance.
