The conceptual framework indicates the desired fundamental and enhancing qualitative characteristics of accounting information. Several constraints impede achieving these desired characteristics. Answer each of the following questions related to these characteristics and constraints. 1. Which component would allow a large company to record the purchase of a $120 printer as an expense rather than capitalizing the printer as an asset? 2. Donald Kirk, former chairman of the FASB, once noted that “. . . there must be public confidence that the standard-setting system is credible, that selection of board members is based on merit and not the influence of special interests . . .” Which characteristic is implicit in Mr. Kirk’s statement? 3. Allied Appliances, Inc., changed its revenue recognition policies. Which characteristic is jeopardized by this change? 4. National Bancorp, a publicly traded company, files quarterly and annual financial statements with the SEC. Which characteristic is relevant to the timing of these periodic filings? 5. In general, relevant information possesses which qualities? 6. When there is agreement between a measure or description and the phenomenon it purports to represent, information possesses which characteristic? 7. Jeff Brown is evaluating two companies for future investment potential. Jeff’s task is made easier because both companies use the same accounting methods when preparing their financial statements. Which characteristic does the information Jeff will be using possess? 8. A company should disclose information only if the perceived benefits of the disclosure exceed the costs of providing the information. Which constraint does this statement describe?
> Prepare the necessary adjusting entries at its year-end of December 31, 2018, for the Jamesway Corporation for each of the following situations. No adjusting entries were recorded during the year. 1. On December 20, 2018, Jamesway received a $4,000 payme
> Briefly define the financial accounting elements: (1) assets, (2) liabilities, (3) equity, (4) investments by owners, (5) distributions to owners, (6) revenues, (7) expenses, (8) gains, (9) losses, and (10) comprehensive income.
> Prepare the necessary adjusting entries at December 31, 2018, for the Microchip Company for each of the following situations. Assume that no financial statements were prepared during the year and no adjusting entries were recorded. 1. On October 1, 2018
> What is meant by the term materiality in financial reporting?
> Define closing entries and their purpose.
> Prepare the necessary adjusting entries at December 31, 2018, for the Falwell Company for each of the following situations. Assume that no financial statements were prepared during the year and no adjusting entries were recorded. 1. A three-year fire in
> Explain what is meant by: The benefits of accounting information must exceed the costs.
> Some of the ledger accounts for the Sanderson Hardware Company are numbered and listed below. For each of the October 2018 transactions numbered 1 through 12 below, indicate by account number which accounts should be debited and which should be cre
> Explain what is meant by adverse economic consequences of new or changed accounting standards.
> Indicate whether a debit will increase (I) or decrease (D) each of the following accounts listed in items 1 through 16 Increase (I) or Decrease (D) Account 1. Inventory Depreciation expense Accounts payable Prepaid rent Sales revenue 2. 3. 4. 5. Commo
> Howarth Company’s fiscal year-end is December 31. Below are the unadjusted and adjusted trial balances for December 31, 2018. Required: Prepare the adjusting journal entries that were recorded at December 31, 2018. Unadjusted Adjust
> Indicate the organization related to IFRS that performs each of the following functions: 1. Obtains funding for the IFRS standard-setting process. 2. Determines IFRS. 3. Oversees the IFRS Foundation. 4. Provides input about the standard-setting agenda. 5
> In its Final Staff Report (issued in 2012), what type of convergence between U.S. GAAP and IFRS did the SEC staff argue was not feasible? What reasons did the SEC staff give for that conclusion?
> Listed below are several terms and phrases associated with the accounting processing cycle. Pair each item from List A (by letter) with the item from List B that is most appropriately associated with it. List A List B 1. Source documents 2. Transacti
> List three key provisions of the Sarbanes-Oxley Act of 2002. Order your list from most important to least important in terms of the likely long-term impact on the accounting profession and financial reporting.
> The following transactions occurred during the month of June 2018 for the Stridewell Corporation. The company owns and operates a retail shoe store. 1. Issued 100,000 shares of common stock in exchange for $500,000 cash. 2. Purchased office equipment at
> Explain the role of the auditor in the financial reporting process.
> Define adjusting entries and discuss their purpose.
> Post the journal entries prepared in E 2–2 to T-accounts. Assume that the opening balances in each of the accounts is zero. Prepare a trial balance from the ending account balances. Journal Entries from E2-2: 1. Cash 300,000 Common stock 300,000
> For each of the items listed below, identify the appropriate financial statement element or elements. 1. Obligation to transfer cash or other resources as a result of a past transaction 2. Dividends paid by a corporation to its shareholders 3. Inflow of
> Prepare journal entries to record each of the transactions listed in E 2–1. Transactions Listed in E2-1: The following transactions occurred during March 2018 for the Wainwright Corporation. The company owns and operates a wholesale warehouse. 1. Issue
> Three groups that participate in the process of establishing GAAP are users, preparers, and auditors. These groups are represented by various organizations. For each organization listed below, indicate which of these groups it primarily represents. 1. Se
> Refer to Case 2–1. Mr. Pitt has relented and agrees to provide you with the information necessary to convert his cash basis financial statements to accrual basis statements. He provides you with the following transaction information for the fiscal year e
> Refer to P 2–3 and complete the following steps: 1. Enter the unadjusted balances from the trial balance into T-accounts. 2. Post the adjusting entries prepared in P 2–3 to the accounts. 3. Prepare an adjusted trial ba
> The following transactions occurred during March 2018 for the Wainwright Corporation. The company owns and operates a wholesale warehouse. 1. Issued 30,000 shares of common stock in exchange for $300,000 in cash. 2. Purchased equipment at a cost of $40,0
> Access the FASB Accounting Standards Codification at the FASB website (www.fasb.org). Determine the specific citation for each of the following items: 1. The topic number for business combinations 2. The topic number for related party disclosures 3. The
> Presented below is income statement information of the Schefter Corporation for the year ended December 31, 2018. Required: Prepare the necessary closing entries at December 31, 2018. 284,000 12,000 4,000 30,000 20,000 Sales revenue $492,000 80,000 6
> Listed below are several transactions that took place during the second and third years of operations for the RPG Company. In addition, you learn that the company incurred advertising costs of $25,000 in year 2, owed the advertising agency $5,000 at the
> American Chip Corporation’s fiscal year-end is December 31. The following is a partial adjusted trial balance as of December 31, 2018. Required: Prepare the necessary closing entries at December 31, 2018. Account Title Deblts Credi
> Listed below are several transactions that took place during the first two years of operations for the law firm of Pete, Pete, and Roy. In addition, you learn that the firm incurred utility costs of $35,000 in year 1, that there were no liabilities at th
> Explain the difference between permanent accounts and temporary accounts. Why does an accounting system include both types of accounts?
> The accounting system of K and M Manufacturing consists of a general journal (GJ), a cash receipts journal (CR), a cash disbursements journal (CD), a sales journal (SJ), and a purchases journal (PJ). For each of the following, indicate which journal shou
> Listed below are accounting concepts discussed in this chapter. a. Economic entity assumption b. Going concern assumption c. Periodicity assumption d. Monetary unit assumption e. Historical cost principle f. Conservatism g. Matching h. Full-disclosure pr
> For each of the following situations, (1) indicate whether you agree or disagree with the financial reporting practice employed and (2) state the accounting concept that is applied (if you agree), or violated (if you disagree). 1. Winderl Corporation
> The White Company’s accounting system consists of a general journal (GJ), a cash receipts journal (CR), a cash disbursements journal (CD), a sales journal (SJ), and a purchases journal (PJ). For each of the following, indicate which jou
> Pastina Company sells various types of pasta to grocery chains as private label brands. The company’s fiscal year-end is December 31. The unadjusted trial balance as of December 31, 2018, appears below. Information necessary to prepare
> For each of the following situations, state whether you agree or disagree with the financial reporting practice employed, and briefly explain the reason for your answer. 1. The controller of the Dumars Corporation increased the carrying value of land fro
> Refer to E 2–9 and respond to the following requirements. Data from E2-9: 1. On October 1, 2018, Microchip lent $90,000 to another company. A note was signed with principal and 8% interest to be paid on September 30, 2019. 2. On November 1, 2018, the co
> For each of the following situations, indicate whether you agree or disagree with the financial reporting practice employed and state the accounting concept that is applied (if you agree) or violated (if you disagree). 1. Wagner Corporation adjusted the
> The employees of Xitrex, Inc., are paid each Friday. The company’s fiscal year-end is June 30, which falls on a Wednesday for the current year. Salaries and wages are earned evenly throughout the five-day work week, and $10,000 will be paid on Friday, Ju
> Identify the accounting concept that was violated in each of the following situations. 1. Pastel Paint Company purchased land two years ago at a price of $250,000. Because the value of the land has appreciated to $400,000, the company has valued the land
> Refer to E 2–9 and respond to the following requirements. Data from E2-9: 1. On October 1, 2018, Microchip lent $90,000 to another company. A note was signed with principal and 8% interest to be paid on September 30, 2019. 2. On November 1, 2018, the co
> Listed below are several statements that relate to financial accounting and reporting. Identify the accounting concept that applies to each statement. 1. Jim Marley is the sole owner of Marley’s Appliances. Jim borrowed $100,000 to buy a new home to be u
> Each economic event or transaction will have a dual effect on financial position. Explain what is meant by this dual effect.
> Explain the roles of the SEC and the FASB in the setting of accounting standards.
> The December 31, 2018, unadjusted trial balance for the Wolkstein Drug Company is presented below. December 31 is the company’s fiscal year-end. The following year-end adjusting entries are required: a. Depreciation expense for the year
> Listed below are several terms and phrases associated with the accounting concepts. Pair each item from List A (by letter) with the item from List B that is most appropriately associated with it. List A List B 1. Expense recognition 2. Periodicity 3.
> The following is the post-closing trial balance for the Whitlow Manufacturing Corporation as of December 31, 2017. / The following transactions occurred during January 2018: Jan. 1 Sold merchandise for cash, $3,500. The cost of the merchandise was $2,0
> Haskins and Jones, Attorneys-at-Law, maintain its books on a cash basis. During 2018, the company collected $545,000 in fees from its clients and paid out $412,000 in expenses. You are able to determine the following information about accounts receivable
> Stanley and Jones Lawn Service Company (S&J) maintains its books on a cash basis. However, the company recently borrowed $100,000 from a local bank and the bank requires S&J to provide annual financial statements prepared on an accrual basis. Dur
> Target Corporation prepares its financial statements according to U.S. GAAP. Target’s financial statements and disclosure notes for the year ended January 30, 2016, are available in the Connect. This material also is available under the Investor Relation
> During the course of your examination of the financial statements of the Hales Corporation for the year ended December 31, 2018, you discover the following: a. An insurance policy covering three years was purchased on January 1, 2018, for $6,000. The en
> Listed below are several terms and phrases associated with the FASB’s conceptual framework. Pair each item from List A (by letter) with the item from List B that is most appropriately associated with it. List A List B a. Decreases i
> The following transactions occurred during 2018 for the Beehive Honey Corporation: Required: 1. Record each transaction in general journal form. Omit explanations. 2. Prepare any necessary adjusting entries at the year-end on December 31, 2018. No adju
> What is the purpose of special journals? In what ways do they simplify the recording process?
> Access the financial statements for the year ended January 30, 2016 for The Gap, Inc. by downloading them from www.gapinc.com, and use them to answer the following questions. Required: 1. What amounts did The Gap report for the following items for the f
> Explain the difference between external events and internal events. Give an example of each type of event.
> The Righter Shoe Store Company prepares monthly financial statements for its bank. The November 30 and December 31, 2018, trial balances contained the following account information: The following information also is known: a. The December income statemen
> Halogen Laminated Products Company began business on January 1, 2018. During January, the following transactions occurred: Required: 1. Prepare general journal entries to record each transaction. Omit explanations. 2. Post the entries to T-accounts. 3.
> When a company makes an expenditure that is neither a payment to a creditor nor a distribution to an owner, management must decide if the expenditure should be capitalized (recorded as an increase in an asset) or expensed (recorded as an expense thereby
> Target Corporation prepares its financial statements according to U.S. GAAP. Target’s financial statements and disclosure notes for the year ended January 30, 2016, are available in Connect. This material is also available under the Investor Relations li
> Revenues measure the accomplishments of a company during the period. Expenses are then matched with revenues to produce a periodic measure of performance called net income. Required: 1. Explain what is meant by the phrase matched with revenues. 2. Descr
> Newman Consulting Company maintains its records on a cash basis. During 2018 the following cash flows were recorded: cash received from customers, $420,000; and cash paid for salaries, utilities, and advertising, $240,000, $35,000, and $12,000, respectiv
> A new client, the Wolf Company, asks your advice concerning the point in time that the company should recognize revenue from the rental of its office buildings. Renters usually pay rent on a quarterly basis at the beginning of the quarter. The owners con
> The year-end adjusted trial balance of the Timmons Tool and Die Corporation included the following account balances: retained earnings, $220,000; sales revenue, $850,000; cost of goods sold, $580,000; salaries expense, $180,000; rent expense, $40,000; an
> Prepare the necessary adjusting entries at December 31 for each of the items listed in BE 2–4. Depreciation on the equipment is $12,000 per year. Items from BE 2-4: (1) on October 1, $12,000 was paid for a one-year fire insurance policy; (2) on June 30
> Assume that the FASB is considering revising an important accounting standard. Required: 1. What is the desired benefit from revising an accounting standard? 2. What are some of the possible costs that could result from a revision of an accounting stand
> The following account balances were taken from the 2018 post-closing trial balance of the Bowler Corporation: cash, $5,000; accounts receivable, $10,000; inventory, $16,000; equipment, $100,000; accumulated depreciation—equipment, $40,000; accounts payab
> Mary McQuire is trying to decide how to invest her money. A friend recommended that she buy the stock of one of two corporations and suggested that she should compare the financial statements of the two companies before making a decision. Required: 1. D
> Explain the difference between the general ledger and a subsidiary ledger.
> Using the information from P 2–8, prepare and complete a worksheet similar to Illustration 2A–1. Use the information in the worksheet to prepare an income statement and a statement of shareholders’ eq
> The following account balances were taken from the 2018 adjusted trial balance of the Bowler Corporation: sales revenue, $325,000; cost of goods sold, $168,000; salaries expense, $45,000; rent expense, $20,000; depreciation expense, $30,000; and miscella
> Generally accepted accounting principles do not require companies to disclose forecasts of any financial variables to external users. A friend, who is a finance major, is puzzled by this and asks you to explain why such relevant information is not provid
> Prepare the necessary adjusting entries for Johnstone Controls at the end of its December 31, 2018, fiscal yearend for each of the following situations. No adjusting entries were recorded during the year. 1. On March 31, 2018, the company lent $50,000 t
> It is the responsibility of management to apply accounting standards when communicating with investors and creditors through financial statements. Another group, auditors, serves as an independent intermediary to help ensure that management has in fact a
> Prepare journal entries for each of the following transactions for a company that has a fiscal year-end of December 31: (1) on October 1, $12,000 was paid for a one-year fire insurance policy; (2) on June 30 the company lent its chief financial officer
> Access the FASB Accounting Standards Codification at the FASB website (www.fasb.org). Required: 1. Identify the Codification topic number that provides guidance on fair value measurements. 2. What is the specific citation that lists the disclosures requ
> You have recently been hired by Davis & Company, a small public accounting firm. One of the firm’s partners, Alice Davis, has asked you to deal with a disgruntled client, Mr. Sean Pitt, owner of the city’s largest hardware store. Mr. Pitt is applying to
> In 1934, Congress created the Securities and Exchange Commission (SEC) and gave the commission both the power and responsibility for setting accounting and reporting standards in the United States. Required: 1. Explain the relationship between the SEC a
> Prepare journal entries for each of the transactions listed in BE 2–1. Transactions from BE 2–1: The Marchetti Soup Company entered into the following transactions during the month of June: (1) purchased inventory on account for $165,000 (assume Marche
> Cash flows during the first year of operations for the Harman-Kardon Consulting Company were as follows: Cash collected from customers, $340,000; Cash paid for rent, $40,000; Cash paid to employees for services rendered during the year, $120,000; Cash pa
> Zambrano Wholesale Corporation maintains its records on a cash basis. At the end of each year the company’s accountant obtains the necessary information to prepare accrual basis financial statements. The following cash flows occurred du
> “I don’t understand,” complained Chris, who responded to your bulletin board posting for tutoring in introductory accounting. The complaint was in response to your statements that recording adjusting entries is a critical step in the accounting processin
> Identify the accounting concept that was violated in each of the following situations. 1. Astro Turf Company recognizes an expense, cost of goods sold, in the period the product is manufactured. 2. McCloud Drug Company owns a patent that it purchased thr
> Define reversing entries and discuss their purpose.
> You are in your third year as an accountant with McCarver-Lynn Industries, a multidivisional company involved in the manufacturing, marketing, and sales of surgical prosthetic devices. After the fiscal year-end, you are working with the controller of the
> What is a proxy statement? What information does it provide?
> Disclosure notes are an integral part of the information provided in financial statements. In what ways are the notes critical to understanding the financial statements and to evaluating the firm’s performance and financial health?
> The current asset section of Stibbe Pharmaceutical Company’s balance sheet included cash of $20,000 and accounts receivable of $40,000. The only other current asset is inventories. The company’s current ratio is 2.0 and its acid-test ratio is 1.5. Determ
> You have been asked to review the December 31, 2018, balance sheet for Champion Cleaning. After completing your review, you list the following three items for discussion with your superior: 1. An investment of $30,000 is included in current assets. Manag
> The following is a December 31, 2018, post-closing trial balance for Culver City Lighting, Inc. Prepare a classified balance sheet for the company. Account Title Debits Credits $ 55,000 39,000 45,000 15,000 Cash Accounts receivable Inventories Prepai
> Levens Co. operates in several distinct business segments. The company does not have any reportable foreign operations or major customers. Required: 1. What is the purpose of operating segment disclosures? 2. Define an operating segment. 3. List the amou
> Define current liabilities and list the typical liability categories included in this classification.
> Refer to the situation described in BE 3–2. Prepare a classified balance sheet for K and J Nursery, Inc. The equipment originally cost $140,000. Situation in BE 3-2 The trial balance for K and J Nursery, Inc., listed the following account balances at De
> Define current assets and list the typical asset categories included in this classification.
> EDGAR, the Electronic Data Gathering, Analysis, and Retrieval system, performs automated collection, validation, indexing, and forwarding of submissions by companies and others who are required by law to file forms with the SEC. All publicly traded domes
> Refer to the situation described in BE 3–2. Determine the year-end balance in retained earnings for K and J Nursery, Inc. Situation in BE 3-2 The trial balance for K and J Nursery, Inc., listed the following account balances at December 31, 2018, the en
> Explain why the balance sheet does not portray the market value of the entity.
> The trial balance for K and J Nursery, Inc., listed the following account balances at December 31, 2018, the end of its fiscal year: cash, $16,000; accounts receivable, $11,000; inventories, $25,000; equipment (net), $80,000; accounts payable, $14,000; w
> Describe the purpose of the balance sheet.
