Question: Peter Lunde is studying for the next

> Explain the meaning of the credit terms 2/10, n/30.

> When is cost of goods sold determined in a perpetual inventory system?

> How does income measurement differ between a merchandising and a service company?

> Why is the normal operating cycle for a merchandising company likely to be longer than for a service company?

> Identify the sections of a multiple-step income statement that relate to (a) operating activities, and (b) non-operating activities.

> Identify the distinguishing features of an income statement for a merchandising company.

> Ann Fort Company reports net sales of $800,000, gross profit of $370,000, and net income of $240,000. What are its operating expenses?

> What merchandising account(s) will appear in the post-closing trial balance?

> Explain why the Merchandise Inventory account will usually require adjustment at year-end.

> Tom Oslow, a fellow student, is unclear about the basic steps in the recording process. Identify and briefly explain the steps in the order in which they occur.

> Urlacher Company performs the following accounting tasks during the year. ______Analyzing and interpreting information. ______Classifying economic events. ______Explaining uses, meaning, and limitations of data. ______Keeping a systematic chronological d

> (a) “The steps in the accounting cycle for a merchandising company are different from the accounting cycle for a service company.” Do you agree or disagree? (b) Is the measurement of net income for a merchandising company conceptually the same as for a s

> Which of the following accounts would not appear in the post-closing trial balance? Interest Payable; Equipment; Depreciation Expense; Jennifer Shaeffer, Drawing; Unearned Revenue; Accumulated Depreciation— Equipment; and Service Revenue.

> What are the content and purpose of a post-closing trial balance?

> Describe the nature of the Income Summary account and identify the types of summary data that may be posted to this account.

> Identify the account(s) debited and credited in each of the four closing entries, assuming the company has net income for the year.

> Why is it necessary to prepare formal financial statements if all of the data are in the statement columns of the worksheet?

> If a company’s revenues are $125,000 and its expenses are $113,000, in which financial statement columns of the worksheet will the net income of $12,000 appear? When expenses exceed revenues, in which columns will the difference appear?

> What is the relationship, if any, between the amount shown in the adjusted trial balance column for an account and that account’s ledger balance?

> Explain the purpose of the worksheet.

> Using PepsiCo’s annual report, determine its current liabilities at December 29, 2007, and December 30, 2006. Were current liabilities higher or lower than current assets in these two years?

> Presented below is information related to Hanshew Real Estate Agency. Oct. 1 Pete Hanshew begins business as a real estate agent with a cash investment of $15,000. 2 Hires an administrative assistant. 3 Purchases office furniture for $1,900, on account.

> Distinguish between long-term investments and property, plant, and equipment.

> What is meant by the term “operating cycle?”

> What standard classifications are used in preparing a classified balance sheet?

> How do correcting entries differ from adjusting entries?

> Identify, in the sequence in which they are prepared, the three trial balances that are often used to report financial information about a company.

> Indicate, in the sequence in which they are made, the three required steps in the accounting cycle that involve journalizing.

> Distinguish between a reversing entry and an adjusting entry. Are reversing entries required?

> “A worksheet is a permanent accounting record and its use is required in the accounting cycle.” Do you agree? Explain.

> What is the debit/credit effect of a prepaid expense adjusting entry?

> Distinguish between the two categories of adjusting entries, and identify the types of adjustments applicable to each category.

> Data for D. Reyes, interior decorator, are presented in E2-2. Instructions Journalize the transactions using journal page J1. (You may omit explanations.) Reference Data for E 2-2: Selected transactions for D. Reyes, an interior decorator, in her first

> “Adjusting entries are required by the cost principle of accounting.” Do you agree? Explain.

> In completing the engagement in question 3, Marsh pays no costs in March, $2,000 in April, and $2,500 in May (incurred in April). How much expense should the firm deduct from revenues in the month when it recognizes the revenue? Why?

> How do documentation procedures contribute to good internal control?

> Meg Lucas is reviewing the principle of segregation of duties. What are the two common applications of this principle?

> What principles of internal control apply to most organizations?

> At Hummel Wholesale Company, two mail clerks open all mail receipts. How does this strengthen internal control?

> A $500 purchase of merchandise on account from Lore Company was properly recorded in the purchases journal. When posted, however, the amount recorded in the subsidiary ledger was $50. How might this error be discovered?

> Thogmartin Company uses special journals. It recorded in a sales journal a sale made on account to R. Peters for $435.A few days later, R. Peters returns $70 worth of merchandise for credit. Where should Thogmartin Company record the sales return? Why?

> Identify and explain the four special journals discussed in the chapter. List an advantage of using each of these journals rather than using only a general journal.

> (a) When do companies normally post to (1) the subsidiary accounts and (2) the general ledger control accounts? (b) Describe the relationship between a control account and a subsidiary ledger.

> Selected transactions for D. Reyes, an interior decorator, in her first month of business, are as follows. Jan. 2 Invested $10,000 cash in business. 3 Purchased used car for $4,000 cash for use in business. 9 Purchased supplies on account for $500. 11 Bi

> What are the advantages of using subsidiary ledgers?

> Certain principles should be followed in the development of an accounting information system. Identify and explain each of the principles.

> Why would special journals used in different businesses not be identical in format? What type of business would maintain a cash receipts journal but not include a column for accounts receivable?

> Jim’s Hat Shop received a shipment of hats for which it paid the wholesaler $2,970. The price of the hats was $3,000 but Jim’s was given a $30 cash discount and required to pay freight charges of $50. In addition, Jim’s paid $130 to cover the travel expe

> Garitson Music Center has 5 CD players on hand at the balance sheet date. Each cost $400. The current replacement cost is $380 per unit. Under the lower-of-cost-or market basis of accounting for inventories, what value should be reported for the CD playe

> Casey Company has been using the FIFO cost flow method during a prolonged period of rising prices. During the same time period, Casey has been paying out all of its net income as dividends. What adverse effects may result from this policy?

> In a period of rising prices, the inventory reported in Plato Company’s balance sheet is close to the current cost of the inventory. Cecil Company’s inventory is considerably below its current cost. Identify the inventory cost flow method being used by e

> Sanchez Company prepares reversing entries. If the adjusting entry for interest payable is reversed, what type of an account balance, if any, will there be in Interest Payable and Interest Expense after the reversing entry is posted?

> (a) What is the term used to describe the owner’s equity section of a corporation? (b) Identify the two owners’ equity accounts in a corporation and indicate the purpose of each.

> Transactions for the Hank Norris Company for the month of June are presented below. Identify the accounts to be debited and credited for each transaction. June 1 Hank Norris invests $5,000 cash in a small welding business of which he is the sole propriet

> Adel Company debits Supplies Expense for all purchases of supplies and credits Rent Revenue for all advanced rentals. For each type of adjustment, give the adjusting entry.

> Define current assets. What basis is used for arranging individual items within the current assets section?

> What is a trial balance and what are its purposes?

> “A company’s net income appears directly on the income statement and the owner’s equity statement, and it is included indirectly in the company’s balance sheet.” Do you agree? Explain.

> In February 2010, Paula King invested an additional $10,000 in her business, King’s Pharmacy, which is organized as a proprietorship. King’s accountant, Lance Jones, recorded this receipt as an increase in cash and revenues. Is this treatment appropriate

> (a) What is a ledger? (b) What is a chart of accounts and why is it important?

> (a) Should business transaction debits and credits be recorded directly in the ledger accounts? (b) What are the advantages of first recording transactions in the journal and then posting to the ledger?

> Are the following events recorded in the accounting records? Explain your answer in each case. (a) The owner of the company dies. (b) Supplies are purchased on account. (c) An employee is fired. (d) The owner of the business withdraws cash from the busin

> Can a business enter into a transaction in which only the left side of the basic accounting equation is affected? If so, give an example.

> (a) What is the primary source document for recording (1) cash sales, (2) credit sales. (b) Using XXs for amounts, give the journal entry for each of the transactions in part (a).

> Josh Cephus has prepared the following list of statements about accounts. 1. An account is an accounting record of either a specific asset or a specific liability. 2. An account shows only increases, not decreases, in the item it relates to. 3. Some item

> Explain the differences between depreciation expense and accumulated depreciation.

> What are the advantages of using a journal in the recording process?

> Maria Gonzalez is the owner of a successful printing shop. Recently her business has been increasing, and Maria has been thinking about changing the organization of her business from a proprietorship to a corporation. Discuss some of the advantages Maria

> (a) Reeves Company ships merchandise to Cox Company on December 30. The merchandise reaches the buyer on January 6. Indicate the terms of sale that will result in the goods being included in (1) Reeves’s December 31 inventory, and (2) Cox’s December 31

> On April 30, the bank reconciliation of Galena Company shows three outstanding checks: no. 254, $650, no. 255, $820, and no. 257, $410.The May bank statement and the May cash payments journal show the following. Instructions Using step 2 in the reconcil

> On March 20, Terrell’s petty cash fund of $100 is replenished when the fund contains $7 in cash and receipts for postage $52, freight-out $26, and travel expense $10. Prepare the journal entry to record the replenishment of the petty cash fund.

> Anna Pelo is unable to reconcile the bank balance at January 31.Anna’s reconciliation is as follows. Cash balance per bank…………………..$3,560.20 Add: NSF check……………………………….690.00 Less: Bank service charge…………………..25.00 Adjusted balance per bank…………..$4,225.2

> Lincolnville Company uses an imprest petty cash system. The fund was established on March 1 with a balance of $100. During March the following petty cash receipts were found in the petty cash box. The fund was replenished on March 15 when the fund contai

> Mingenback Company has the following internal control procedures over cash disbursements. Identify the internal control principle that is applicable to each procedure. 1. Company checks are prenumbered. 2. The bank statement is reconciled monthly by an i

> James Hughes Company established a petty cash fund on May 1, cashing a check for $100.The company reimbursed the fund on June 1 and July 1 with the following results. June 1: Cash in fund $2.75. Receipts: delivery expense $31.25; postage expense $39.00;

> For each of the following accounts indicate the effects of (a) a debit and (b) a credit on the accounts and (c) the normal balance of the account. 1. Accounts Payable. 2. Advertising Expense. 3. Service Revenue. 4. Accounts Receivable. 5. A. J. Ritter

> While examining cash receipts information, the accounting department determined the following information: opening cash balance $150, cash on hand $1,125.74, and cash sales per register tape $990.83. Prepare the required journal entry based upon the cash

> Listed below are five procedures followed by Collins Company. 1. Employees are required to take vacations. 2. Any member of the sales department can approve credit sales. 3. Jethro Bodine ships goods to customers, bills customers, and receives payment fr

> Knobloch Company has the following internal control procedures over cash receipts. Identify the internal control principle that is applicable to each procedure. 1. All over-the-counter receipts are registered on cash registers. 2. All cashiers are bonded

> Listed below are five procedures followed by The Beat Company. 1. Several individuals operate the cash register using the same register drawer. 2. A monthly bank reconciliation is prepared by someone who has no other cash responsibilities. 3. Ellen May w

> At Hutchingson Company, checks are not prenumbered because both the puchasing 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 pertaini

> The internal control procedures in Weiser Company provide that: 1. Employees who have physical custody of assets do not have access to the accounting records. 2. Each month the assets on hand are compared to the accounting records by an internal auditor.

> The following control procedures are used in Benton’s Boutique Shoppe for cash disbursements. 1. The company accountant prepares the bank reconciliation and reports any discrepancies to the owner. 2. The store manager personally approves all payments bef

> Heather Bailiff is the new owner of Ready Parking. She has heard about internal control but is not clear about its importance for her business. Explain to Heather the four purposes of internal control and give her one application of each purpose for Read

> Jim Gaffigan has prepared the following list of statements about internal control. 1. One of the objectives of internal control is to safeguard assets from employee theft, robbery, and unauthorized use. 2. One of the objectives of internal control is to

> The following control procedures are used at Gonzales Company for over-the-counter cash receipts. 1. To minimize the risk of robbery, cash in excess of $100 is stored in an unlocked attaché case in the stock room until it is deposited in the bank. 2. All

> Identify and describe the steps in the accounting process.

> Sue Merando is the owner of Merando’s Pizza. Merando’s is operated 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

> Match each situation with the fraud triangle factor—opportunity, financial pressure, or rationalization—that best describes it. 1. An employee’s monthly credit card payments are nearly 75% of their monthly earnings. 2. An employee earns minimum wage at a

> Distinguish between FOB shipping point and FOB destination. Identify the freight terms that will result in a debit to Merchandise Inventory by the purchaser and a debit to Freight-out by the seller.

> Below are some typical transactions incurred by Kwun Company. 1. Payment of creditors on account. 2. Return of merchandise sold for credit. 3. Collection on account from customers. 4. Sale of land for cash. 5. Sale of merchandise on account. 6. Sale of m

> Velasquez Company has the following selected transactions during March. Mar. 2 Purchased equipment costing $9,400 from Chang Company on account. 5 Received credit of $410 from Lyden Company for merchandise damaged in shipment to Velasquez. 7 Issued cred

> Wick Company uses the columnar cash journals illustrated in the textbook. In April, the following selected cash transactions occurred. 1. Made a refund to a customer as an allowance for damaged goods. 2. Received collection from customer within the 3% di

> Pherigo Co. uses special journals and a general journal. The following transactions occurred during May 2010. May 1 I. Pherigo invested $50,000 cash in the business. 2 Sold merchandise to B. Sherrick for $6,300 cash.The cost of the merchandise sold was

> Montalvo Company uses special journals and a general journal. The following transactions occurred during September 2010. Sept. 2 Sold merchandise on account to T. Hossfeld, invoice no. 101, $720, terms n/30. The cost of the merchandise sold was $420. 10

> Identify the journal in which each of the following transactions is recorded. 1. Cash sales 4. Credit sales 2. Owner withdrawal of cash 5. Purchase of merchandise on account 3. Cash purchase of land 6. Receipt of cash for services performed

> Nobo Uematsu Company has a balance in its Accounts Payable control account of $8,250 on January 1, 2010. The subsidiary ledger contains three accounts: Jones Company, balance $3,000; Brown Company, balance $1,875; and Aatski Company. During January, the

> Two items are omitted from each of the following summaries of balance sheet and income statement data for two proprietorships for the year 2010, Craig Cantrel and Mills Enterprises. Instructions Determine the missing amounts. Mills Craig Cantrel Ente

> Identify in what ledger (general or subsidiary) each of the following accounts is shown. 1. Rent Expense 3. Notes Payable 2. Accounts Receivable—Char 4. Accounts Payable—Thebeau

> Presented below is information related to Kienholz Company for its first month of operations. Identify the balances that appear in the accounts receivable subsidiary ledger and the accounts receivable balance that appears in the general ledger at the end