Principles of Financial Accounting 12th Edition

Chapter 1 Accounting Principles and the Financial Statements Learning Objectives 1. Dene accounting, and explain the concepts underlying accounting measurement. 2. Dene nancial position, and state the accounting equation. 3. Identify the four basic nancial statements and their interrelationships. 4. Explain how generally accepted accounting principles (GAAP) and international nancial reporting standards (IFRS)

Section 2: Accounting Applications Accounting Applications Describe the income statement Describe the statement of owners equity Describe the balance sheet Describe the statement of cash ows Lecture Outline 0. There are four basic nancial statements that are interrelated. 0. Income statement (also known as the statement of earnings or the prot and loss statement) 00.

DQ1. DQ2.DQ3.DQ4.DQ5.DQ6.resulting from net income.Expenses and withdrawals are the same in that they both reduce the owner's capital component of owner's equity. They are different in that expenses are also a compo-nent of net income, whereas withdrawals are a distribution of assets to the owner is an economic event, but no

$ 32,500 cash flows from operating activities: $ (7,800)11,700 3,900 $ 36,400Increase in accounts receivableNet cash flows from operating activitiesIncrease in accounts payable $ (7,800)11,700 3,900 $ 36,400Increase in accounts receivableNet cash flows from operating activitiesIncrease in accounts payable $ (7,800) 11,700 3,900 $ 36,400 Increase in accounts receivable Net cash flows from operating activities Increase in accounts

1. $248,000 $19,70018,20096,0003,100137,000$111,000Marketing expenseOffice rent expenseSupplies expenseTotal expensesSalaries expenseNet income $19,70018,20096,0003,100137,000$111,000Marketing expenseOffice rent expenseSupplies expenseTotal expensesSalaries expenseNet income $19,700 18,200 96,000 3,100 137,000 $111,000 Marketing expense Office rent expense Supplies expense Total expenses Salaries expense Net income $ 70,400 111,000 $181,40040,000$141,400SubtotalLess withdrawalsOwner's capital, November 30, 2014 $181,40040,000$141,400SubtotalLess withdrawalsOwner's capital, November 30, 2014 $181,400 40,000 $141,400 Subtotal Less withdrawals Owner's capital, November 30, 2014 $141,600 Accounts payable $ 7,400 9,100 2,700 800 $ 10,100 141,400$151,500 $151,500Total assets owner's

Chapter 10 Long-Term Assets Learning Objectives 1. Identify the classications of long-term assets, and describe how they are valued by allocating their cost to the periods that they benet. 2. Account for the acquisition cost of property, plant, and equipment. 3. Compute depreciation under the straight-line, production, and declining-balance methods. 4. Account for the disposal of

Summary The cost of a long-term asset includes the purchase cost, freight charges, insurance while in transit, installation, and other costs involved in the acquisition of the asset. Interest incurred during the construction of a plant asset is included in the cost of the asset; interest incurred for the purchase of

1. 2.3.4.5.6.If cash received for the asset equals its carrying value, then no gain or loss occurs.A higher land valuation has the effect of increasing income because a smaller build-An accelerated depreciation method is best for companies facing rapid technological that, it would be a coincidence if the carrying value equaled

2015 July 11. 2015July 1=2. 2015July 1Loss on Disposal of ComputerDepreciation ExpenseComputerTo record one-half year's depreciation on computerAccumulated DepreciationComputer3.5Computer discarded after 3 1/2 yearsCashAccumulated DepreciationComputeryears$450 $1,5752251,5759254001,575* July 11. 2015July 1=2. 2015July 1Loss on Disposal of ComputerDepreciation ExpenseComputerTo record one-half year's depreciation on computerAccumulated DepreciationComputer3.5Computer discarded after 3 1/2 yearsCashAccumulated DepreciationComputeryears$450 $1,5752251,5759254001,575* July 1 1.

1. Carrying Value a. Straight-line / $17,500/ 12,500/ 7,500/ 2,500c. $11,250 5,625 2,813 2,500444450%$2,5006,00050%50%$20,0001,2006,0006003$22,50011,2505,6252412,50023 20,000120,0002Productionb.20,000$20,0004 20,00031312,5002,0004320,0002,8131,8006,0006,0002,400 4,500 2,813$18,500$11,2505,6251$5,0008,0006,0005,0005,00020,000balanceDouble-declining-$4,0005,000****** a. Straight-line / $17,500/ 12,500/ 7,500/ 2,500c. $11,250 5,625 2,813 2,500444450%$2,5006,00050%50%$20,0001,2006,0006003$22,50011,2505,6252412,50023 20,000120,0002Productionb.20,000$20,0004 20,00031312,5002,0004320,0002,8131,8006,0006,0002,400 4,500 2,813$18,500$11,2505,6251$5,0008,0006,0005,0005,00020,000balanceDouble-declining-$4,0005,000****** a. Straight-line / $17,500 / 12,500 / 7,500 / 2,500 c. $11,250 5,625 2,813 2,500 4 4 4 4 50% $2,500 6,000 50% 50% $20,000 1,200 6,000 600 3 $22,500 11,250 5,625 2 4 12,500 2 3 20,000 1 20,000 2 Productionb. 20,000 $20,000 4 20,000 313 1 2,5002,000 4 3 20,000 2,813 1,800 6,000 6,000 2,400 4,500 2,813 $18,500 $11,250 5,625 1 $5,000 8,000 6,000 5,000 5,000 20,000 balance Double- declining- $4,000 5,000 * ** *** *$22,500 $2,500 = $20,000100% / 4 =

Chapter 11 Current Liabilities and Fair Value Accounting Learning Objectives 1. Dene current liabilities, and identify the concepts underlying them. 2. Identify, compute, and record denitely determinable and estimated current liabilities. 3. Distinguish contingent liabilities from commitments. 4. Identify the valuation approaches to fair value accounting, dene time value of money and interest, and apply them

Summary Current liabilities consist of denitely determinable liabilities and estimated liabilities. Denitely determinable liabilities are obligations that can be measured exactly. They include accounts payable, bank loans and commercial paper, notes payable, accrued liabilities, dividends payable, sales and excise taxes payable, current portions of long-term debt, payroll liabilities, and unearned revenues.

DQ1. DQ2.DQ3.DQ4.DQ5.panies to disclose in a note to their financial statements any contingent liabilities and commitments they may have. thus giving up what could be earned on the payment if it had been paid at the The payer is better off because the receiver has to wait a year for the

1. 8. 9.10.11.1.2.3.4.lmnoback 1. 8. 9.10.11.1.2.3.4.lmnoback 1. 8. 9. 10. 11. 1. 2. 3. 4. l mn ob a c k 12. 13. 14. 2. Problems P1. Identification of Current Liabilities, Contingencies, and Commitments sheet with a dollar amount and the ones that would involve the most judgment ordiscretion include the estimated liabilities such as income taxes payable, propertytaxes payable, promotional costs, product warranty liability, and vacation pay sheet with a

1. () () ()()()()Social Security tax payableemployerMedicare tax payableemployeesMedicare tax payableemployerState unemployment tax payable$20,400$20,400$20,400$14,000295.80756.00295.801,264.800.0540.0620.01450.0145 ()()()()Social Security tax payableemployerMedicare tax payableemployeesMedicare tax payableemployerState unemployment tax payable$20,400$20,400$20,400$14,000295.80756.00295.801,264.800.0540.0620.01450.0145 () () () () Social Security tax payableemployer Medicare tax payableemployees Medicare tax payableemployer State unemployment tax payable $20,400 $20,400 $20,400 $14,000 295.80 756.00 295.80 1,264.80 0.054 0.062 0.0145 0.0145 ()2.the documents are missing. For instance, there may be a bank loan or other loan out-Total current liabilitiesFederal income tax

Chapter 12 Accounting for Partnerships Learning Objectives 1. Dene the partnership form of business, and identify its principal characteristics. 2. Record partners investments of cash and other assets when a partnership is formed. 3. Compute and record the income or losses that partners share, based on stated ratios, capital balance ratios, and partners salaries and

Dissolution of a partnership occurs whenever there is a change in partners. Dissolution can occur upon admission of a new partner, withdrawal of a partner, or death of a partner. For example, when a new partner is admitted to a partnership with two partners creating a three person partnership, the old

DQ1. DQ2.DQ3.DQ4.DQ5.but because of mutual agency, unlimited liability, and co-ownership of property, the risks share the new partner is getting.the incoming partners share of the partnership would be more than the amounts on the have to decide on the value of the assets and who gets which assets. They will also

1. 120,0008,0008,00024,00080,000$280,000120,000$400,000Computation:Amit, CapitalAdmission of Amit to the partnership;Amit invested $120,000 for a 20 percent interestGamine, CapitalOriginal partners' equityAmit's investmentCashFenny, CapitalRonald, CapitalTotal equity of new partnership 1. 120,0008,0008,00024,00080,000$280,000120,000$400,000Computation:Amit, CapitalAdmission of Amit to the partnership;Amit invested $120,000 for a 20 percent interestGamine, CapitalOriginal partners' equityAmit's investmentCashFenny, CapitalRonald, CapitalTotal equity of new partnership 1. 120,000 8,000 8,000 24,000 80,000 $280,000 120,000 $400,000 Computation: Amit,

1. a. 31 18,00018,000JulyMason, CapitalFrank, Capital 1. a. 31 18,00018,000JulyMason, CapitalFrank, Capital 1. a. 31 18,000 18,000 July Mason, Capital Frank, Capital =0.20$90,000$18,000 =0.20$90,000$18,000 = 0.20 $90,000 $18,000 b. 31 40,00040,000c. 31 60,00048,0006,0002,0004,000$180,00060,000$240,000$ 60,00048,000 $ 12,000Frank, CapitalFrank, CapitalComputation:Sale of a 20 percent interest in the James, CapitalCapital of new partnershipMason, CapitalJiri, CapitalpartnershipJuly CashCashJulydistributed to the original partnersFrank's interest ( $240,000Admission of Frank to

14 240,000160,000960,000320,000480,000800,000400,00031 168,00080,00088,000Zadoney, CapitalDec.Feb.Income SummaryPartners' initial investmentSlater, CapitalCashLandZadoney, CapitalSlater, CapitalBuildingEquipmentMortgage Payable 14 240,000160,000960,000320,000480,000800,000400,00031 168,00080,00088,000Zadoney, CapitalDec.Feb.Income SummaryPartners' initial investmentSlater, CapitalCashLandZadoney, CapitalSlater, CapitalBuildingEquipmentMortgage Payable 14 240,000 160,000 960,000 320,000 480,000 800,000 400,000 31 168,000 80,000 88,000 Zadoney, Capital Dec. Feb. Income Summary Partners' initial investment Slater, Capital Cash Land Zadoney, Capital Slater, Capital Building Equipment Mortgage Payable Income of Partner Zadoney Slater Distributed $ 168,000$ 80,000$120,000 (200,000) $ (32,000)( $800,000 0.08 ) 64,000( $400,000 0.08 ) 32,000 (96,000) $(128,000)(

Chapter 13 Accounting for Corporations Learning Objectives 1. Dene the corporate form of business and its characteristics. 2. Identify the components of stockholders equity and their characteristics. 3. Account for the issuance of stock for cash and other assets. 4. Account for treasury stock. 5. Account for cash dividends. 6. Account for stock dividends and stock splits. 7. Describe

Summary A corporations balance sheet contains assets, liabilities, and a stockholders equity section. Stockholders equity is made up of contributed capital (the stockholders investments) and retained earnings (earnings that have remained in the business), and sometimes treasury stock. A corporation may disclose more detail in a statement of stockholders equity, which

DQ1. DQ2.DQ3.DQ4.A company usually does not want to issue all of its authorized shares because Callable preferred stock gives the company greater flexibility. The company can transfer of ownership, lack of mutual agency, continuous existence, centralized(as in the case of debt), and its fixed dividend payment (as in the case of

1. 4. 2. 5. 3. $ 600,000$360,000194,000 554,000 $1,154,00023,000$1,177,00030,000$1,147,0006,000 shares issued and outstandingCommon stock, $12 par value, 45,000 sharesLess treasury stock, common (1,500 shares, at cost)Total contributed capitalauthorized, 30,000 shares issued, andTotal contributed capital and retained earningsRetained earnings28,500 shares outstandingAdditional paid-in capital $ 600,000$360,000194,000 554,000 $1,154,00023,000$1,177,00030,000$1,147,0006,000 shares issued and outstandingCommon stock, $12 par value,

$ 4,800,000400,000 shares issued and outstanding $ 4,800,000400,000 shares issued and outstanding $ 4,800,000 400,000 shares issued and outstanding 8,000,000 $12,800,000 16,000,000 $28,800,000 $ 4,800,000Common stock, $4 par value, 1,600,000 shares authorized, 1,200,000 shares issued and outstanding $ 4,800,000Common stock, $4 par value, 1,600,000 shares authorized, 1,200,000 shares issued and outstanding $ 4,800,000 Common stock, $4 par value, 1,600,000 shares authorized,

2. $100,000145,500$245,50010,520$256,02019,500$236,52011,500 shares outstandingAdditional paid-in capital $65,00080,500Retained earnings*Total contributed capital and retained earningsLess treasury stock, common (1,500 shares, at cost)authorized, 1,000 shares issued and outstandingCommon stock, no-par $5 stated value, 50,000 shares authorized, 13,000 shares issued, and Total stockholders' equityTotal contributed capital $100,000145,500$245,50010,520$256,02019,500$236,52011,500 shares outstandingAdditional paid-in capital $65,00080,500Retained earnings*Total contributed capital and

4. under the control of the board of directors. Also, missing the payment of interest onpany, whereas skipping a preferred dividend in any year does not have this result.long-term debt will usually result in a default and possible bankruptcy of the com- under the control of the board of directors. Also, missing

2015 Jan. 4 14 1,920,0001,920,00014 320,000320,000BuildingPreferred StockSold 48,000 shares of $40 par value preferredstock at $40CashPreferred Stock 14 1,920,0001,920,00014 320,000320,000BuildingPreferred StockSold 48,000 shares of $40 par value preferredstock at $40CashPreferred Stock 14 1,920,000 1,920,000 14 320,000 320,000 Building Preferred Stock Sold 48,000 shares of $40 par value preferred stock at $40 Cash Preferred Stock Mar. 8 Apr. 20 144,000144,000May 4 64,00048,00016,000July 15 412,800412,800Dividends PayableshareDividendsTreasury Stock,

Chapter 14 Long-Term Liabilities Learning Objectives 1. Explain the concepts underlying long-term liabilities, and identify the types of long-term liabilities. 2. Describe the features of a bond issue and the major characteristics of bonds. 3. Record bonds issued at face value and at a discount or premium. 4. Use present values to determine the value

Summary A bond is a security, usually long-term, that represents money that a corporation or some other entity borrows from the investing public. Bondholders are considered creditors (not owners) of the issuing corporation, who are entitled to periodic interest plus the principal of the debt on some specied date. As is

DQ1. DQ2. DQ3. DQ4. DQ5. DQ6. DQ7. DQ8. amount paid on a lease is tax-deductible and provides greater liquidity. This is debt to equity and interest coverage ratios. The analysis may also include a his- can then judge how well the company has met its past debt obligations. materially different from that produced by the effective interest method. of repayment. in relation

15.046 $1,925,888 0.097 155,200 $2,081,088 13.765 $1,651,800 0.174 278,400 1,930,200$4,011,288Issue price (total present value) of both bonds$120,000$1,600,000Choice BPresent value of 30 periodic payments at 6% (from Table 2*):$128,000$1,600,000Present value of a single payment at the end of 40 periods at 6% (from Table 1*):Issue price (total present value) of

1. $274,904150,500$425,404$700,000$28,000Present value of a single payment at the end of 20 periods with interest compounded semiannually at 8% (16% / 2) (from Table 1*):Issue price (total present value) of bond issue9.8180.215** $274,904150,500$425,404$700,000$28,000Present value of a single payment at the end of 20 periods with interest compounded semiannually at 8% (16% /

1 9,140,000860,00010,000,00030 457,0007,000450,000Unamortized Bond DiscountCashUnamortized Bond DiscountNov. Bond Interest ExpenseJuneSold 9%, 20-year bonds at 91.4CashBonds Payable 1 9,140,000860,00010,000,00030 457,0007,000450,000Unamortized Bond DiscountCashUnamortized Bond DiscountNov. Bond Interest ExpenseJuneSold 9%, 20-year bonds at 91.4CashBonds Payable 1 9,140,000 860,000 10,000,000 30 457,000 7,000 450,000 Unamortized Bond Discount Cash Unamortized Bond Discount Nov. Bond Interest Expense June Sold 9%, 20-year bonds at 91.4 Cash Bonds Payable (6/12) (6/12)= = (6/12) (6/12)== Paid

4. a. b. =10,000250,000sharesbonds 25 shares =10,000250,000sharesbonds 25 shares = 10,000 250,000 shares bonds 25 shares c. $10,000,000Bonds payable $10,000,000Bonds payable $10,000,000 Bonds payable ()(150,000)$ 9,850,000( $ 5,000,0004,850,000$ 9,850,000Total common stock issue amount$20shares$150,000 of the $300,000 discount remains to be amortized.Since the call takes place after 10 years of a 20-year period, 50 percent orBond carrying valueCommon stock )Additional paid-in capitalIncrease in stockholders'

its debt. For instance, if interest rates go down, management may want to call bonds on which it is paying higher rates and issue new bonds at lower rates.carry lower interest rates because of the possibility of gains from the rise in stock prices. The callable feature on a bond

Chapter 15 The Statement of Cash Flows Learning Objectives 1. Describe the principal purposes and concepts underlying the statement of cash ows, and identify its components and format. 2. Use the indirect method to determine cash ows from operating activities. 3. Determine cash ows from investing activities. 4. Determine cash ows from $nancing activities. 5. Analyze the

DQ1. DQ2. DQ3. DQ4. DQ5. DQ6. current liabilities, the results could overwhelm the earnings and create negative cash flows from operating activities. statement. cash flows are the details of the changes. For instance, cash flows from oper- ating activities is a very important figure that cannot be seen on any other The change in cash from year to year, while

( + ) / 2==+ =1.4 times*= 11.8% *Note to Instructor: Solutions for Exercises: Set B are provided separately on the *RoundedNet Cash Flows from Operating Activities* $390,000 $390,000Net Cash Flows from Operating Activities===Net Cash Flows from Operating Activities Dividends $3,300,000=Cash Flows to Sales Sales =$390,000$280,000Average Total Assets=Cash Flows to

Operating Investing Financing Noncash Activity Activity Activity Transaction Increase Decrease No Effect 1. Increased accounts payable. X X2. Decreased inventory. X X3. Increased prepaid insurance. X X4. Earned a net income. X X5. Declared and paid a cash 6. Issued stock for cash. X X7. Retired long-term debt by8. Purchased a long-term

ating activities. The financial press would give a better picture of a company's cash posi- tion by focusing on cash flows from operating activities and cash flow yield. assets and current liabilities, which can have a significant effect on cash flows from oper- tion and amortization are added back to earnings (net income),

=+() =+ = = +()+() =+ + = = ()+() = + = +( )Decrease inAccounts ReceivableDecrease inAccounts PayableIncrease in InventoryDecrease in$20,000$2,300+Decrease inAccrued LiabilitiesDepreciationExpense$2,200Decrease inPrepaid Expenses$44,800 $36,400 $28,100$127,400+=$20,000++$3,600 15S-1 +( )Decrease inAccounts ReceivableDecrease inAccounts PayableIncrease in InventoryDecrease in$20,000$2,300+Decrease inAccrued LiabilitiesDepreciationExpense$2,200Decrease inPrepaid Expenses$44,800 $36,400 $28,100$127,400+=$20,000++$3,600 15S-1 +( ) Decrease in Accounts Receivable Decrease in Accounts Payable Increase in Inventory Decrease in $20,000$2,300 + Decrease in Accrued Liabilities Depreciation Expense $2,200 Decrease in Prepaid Expenses $44,800 $36,400 $28,100 $127,400 + = $20,000 + + $3,600

Chapter 16 Financial Statement Analysis Learning Objectives 1. Describe the concepts, standards of comparison, and sources of information used in measuring nancial performance. 2. Apply horizontal analysis, vertical analysis, and ratio analysis to nancial statements. 3. Apply nancial ratio analysis in a comprehensive evaluation of a companys nancial performance. 4. Dene quality of earnings, and identify

DQ1. DQ2. DQ3. DQ4. DQ5.DQ6.DQ7.DQ8.consider such other uses as treasury stock or repayment of debt.For a user who focuses only on the "bottom line" or net income, a one-time gain It is not unethical as long as new management stays within the accounting rules and properly discloses its actions. An investor or analyst must

1. c 6. 2. e 7. 3. c 8. 4. b 9. 5. a 10. 2014 2013 2012 2011 2010 116.0% 109.0% 110.0% 104.0% 100.0%123.0% 110.0% 111.0% 105.0% 100.0%110.0% 108.0% 106.0% 102.0% 100.0%94.4% 106.1% 111.6% 102.6% 100.0%Net salesCost of goods soldGeneral and administrative expensesOperating income* 116.0% 109.0% 110.0% 104.0% 100.0%123.0% 110.0% 111.0% 105.0% 100.0%110.0% 108.0% 106.0% 102.0%

2014 2013 Amount Percentage* Cash $ 81,200 $ 40,800 $ 40,400 99.0%Accounts receivable (net) 235,600 229,200 6,400 2.8%Inventory 574,800 594,800 (20,000) (3.4%) Cash $ 81,200 $ 40,800 $ 40,400 99.0%Accounts receivable (net) 235,600 229,200 6,400 2.8%Inventory 574,800 594,800 (20,000) (3.4%) Cash $ 81,200 $ 40,800 $ 40,400 99.0% Accounts receivable (net) 235,600 229,200 6,400

++++ + +++ + +++ ++++ ++$572,600$552,800$25,210,000$80,000$629,800$203,400 $84,600+$54,400$572,600$1,520,400=$203,40022.7$150,000$344,000 $50,200365days= 1.5$544,200$544,200 = $192,400=$985,400 16-31 ++++ + +++ + +++ ++++ ++$572,600$552,800$25,210,000$80,000$629,800$203,400 $84,600+$54,400$572,600$1,520,400=$203,40022.7$150,000$344,000 $50,200365days= 1.5$544,200$544,200 = $192,400=$985,400 16-31 ++ ++ + + ++ + + ++ ++ ++ ++ $572,600 $552,800 $25,210,000 $80,000 $629,800 $203,400 $84,600+ $54,400 $572,600 $1,520,400 = $203,400 22.7 $150,000$344,000 $50,200 365 days = 1.5 $544,200 $544,200 = $192,400 = $985,400 16-31 Quick ratio* Operating asset managementanalysisb.d.c. Design a.*Rounded Operating asset managementanalysisb.d.c. Design a.*Rounded Operating asset management analysis b. d. c. Design a. *Rounded $552,8002.8days16.1=timestimes $552,8002.8days16.1=timestimes $552,800 2.8 days16.1= times times Days'

1. 2014 2013 Amount Percentage* $6,553,600 $6,292,800 $260,800 4.1%4,177,600 4,016,800 160,800 4.0% $2,376,000 $2,276,000 $100,000 4.4% Selling expenses $ 953,600 $1,036,000 $ (82,400) (8.0%)Administrative expenses 894,400 846,400 48,000 5.7% Total operating expenses $1,848,000 $1,882,400 $ (34,400) (1.8%) $ 528,000 $ 393,600 $134,400 34.1%131,200 78,400 52,800 67.3% $ 396,800 $ 315,200 $ 81,600

++++ ++++ ++++ + +++ + +25.6 times$6,081,600$2,176,800 times2.8 365 days$2,176,800 times $2,211,200$200,800= 1.5$813,600$600,000$3,344,800$600,000$813,600$217,600$200,800+=$320,000daysdays = =$5,049,600 = times times22.7==16.1=$2,290,400Lucent$2,519,200$2,290,400$3,941,600 16-51 ++++ ++++ ++++ + +++ + +25.6 times$6,081,600$2,176,800 times2.8 365 days$2,176,800 times $2,211,200$200,800= 1.5$813,600$600,000$3,344,800$600,000$813,600$217,600$200,800+=$320,000daysdays = =$5,049,600 = times times22.7==16.1=$2,290,400Lucent$2,519,200$2,290,400$3,941,600 16-51 ++ ++ ++ ++ ++ ++ + + ++ + + 25.6 times $6,081,600 $2,176,800 times2.8 365 days $2,176,800 times

had problems but did not go bankrupt. Both companies have shown improved results of Thus, liquidity measures such as cash flow yield and cash flows to sales and assets, as their operations since 2009. Standard & Poor's (S&P) judges the financial viability of a company based on its own well as free

Chapter 2 Analyzing and Recording Business Transactions Learning Objectives 1. Explain how the concepts of recognition, valuation, and classication apply to business transactions. 2. Explain the double-entry system and the usefulness of T accounts in analyzing business transactions. 3. Demonstrate how the double-entry system is applied to common business transactions 4. Prepare a trail balance and

Teaching Strategy Students will wonder why the rules of debit and credit are as they are. Simply state they are an arbitrary set of rules whose careful interrelationships make them work. In addition, students need to dispel any preconceived notions as to what debit and credit imply (good, bad, and so

DQ1. DQ2.DQ3.DQ4.DQ5.Assets and expenses are closely related because many assets are expenses that Owner's Capital is the most likely account to have an abnormal balance. When ex-No issue is more important than another. Each must be resolved satisfactorily for a inventory.have not yet been used. Examples are prepaid assets and plant

f. 400 c. 1,000 3,720 d. 600 Bal. 600e. 900h. 1,200 a. 11,80012,320 3,9008,420g.C. Ferdinand, Capitalf.400C. Ferdinand, WithdrawalsBal. 3,720 d. 600 Bal. 600e. 900h. 1,200 a. 11,80012,320 3,9008,420g.C. Ferdinand, Capitalf.400C. Ferdinand, WithdrawalsBal. 3,720 d. 600 Bal. 600 e. 900 h. 1,200 a. 11,800 12,320 3,900 8,420 g. C. Ferdinand, Capital f. 400 C. Ferdinand, Withdrawals Bal. h. 1,200 1,000 g. 3,720 3,200 e. 9006003,800b. 800Rent Expensed.Bal.a. 3,200

f. 1,740 j. 1,080 e. 330 1,080 c. 190 Bal. 660 h. 330 i. 40 k. 90 l. 440 m. 3006,780 1,6505,130Bal. h. 330 i. 40 k. 90 l. 440 m. 3006,780 1,6505,130Bal. h. 330 i. 40 k. 90 l. 440 m. 300 6,780 1,650 5,130 Bal. 4,300 a. 3,600 h. 330 e. 330 480 g.

40,000 7,000 17,400 7,2004208,800= $13,760= $23,900= $57,880+3,90020,000$33,980ExpenseExpense B. Carlson,Withdrawals AccountsPayable NotesPayable RevenueEarned Supplies Expense B. Carlson,Capital Revenues++Owner's Equity B. Carlson,Withdrawals = Expenses Liabilities B. Carlson, Capital 2-27 40,000 7,000 17,400 7,2004208,800= $13,760= $23,900= $57,880+3,90020,000$33,980ExpenseExpense B. Carlson,Withdrawals AccountsPayable NotesPayable RevenueEarned Supplies Expense B. Carlson,Capital Revenues++Owner's Equity B. Carlson,Withdrawals = Expenses Liabilities B.

Ref. Debit Credit Debit Credit 31 1,870 2 J17 270 1,600 3 J17 650 2,2505 J17 40 2,2108 J17 170 2,0409 J17 1,200 3,24011 J17 85 3,15513 J17 1,000 2,15519 J17 145 2,01022 J18 500 2,51026 J18 460 2,05028 J18 110 1,940 3 J17 650 2,2505 J17 40 2,2108 J17 170 2,0409 J17 1,200

Chapter 3 Adjusting the Accounts Learning Objectives 1. Dene net income and explain the concepts underlying income measurement. 2. Distinguish cash basis of accounting from accrual accounting, and explain how accrual accounting is accomplished. 3. Identify four situations that require adjusting entries, and illustrate typical adjusting entries. 4. Prepare nancial statements from an adjusted trial balance. 5.

DQ1. DQ2. DQ3.DQ4.DQ5.DQ6.Some situations in which earnings management may be acceptable areYou would expect to find the amount expended in cash on the debit side of the Net income is not a good measure of a companys liquidity. Net income is calculated based on accrual accounting principles and is therefore more closely

$ 1,200 1,900 $ 3,1001,450$ 1,650Potential payments for insurance during 2014Less prepaid insurance at end of 2013Cash payments for insurance during 2014 $ 3,1001,450$ 1,650Potential payments for insurance during 2014Less prepaid insurance at end of 2013Cash payments for insurance during 2014 $ 3,100 1,450 $ 1,650 Potential payments for insurance during 2014 Less prepaid insurance at end of

Ref. Debit Credit Debit Credit 30 20,000June Balance 30 20,000June Balance 30 20,000 June Balance Ref. Debit Credit Debit Credit 30 428,498 30 J14 12,185 440,683Adjustment 30 J14 12,185 440,683Adjustment 30 J14 12,185 440,683 Adjustment Ref. Debit Credit Debit Credit 30 89,300June Balance 30 89,300June Balance 30 89,300 June Balance Ref. Debit Credit Debit Credit 30 206,360June Balance 30 206,360June Balance 30 206,360 June Balance Ref. Debit Credit Debit Credit 30 26,800June

Bal. 240 (b) 120Bal. 120Bal. 782 (a) 555 Bal. 7,100 Bal. 770Bal. 227 Bal. 1,540(e) 219 Bal. 219 Bal. 5,439 (d) 19 Bal. Bal. 654Bal. 6,000 Bal. 21,926 Bal. 8,300 (e) 219 Bal. 22,145Bal. 650 Bal. 2,400 Bal. 218(d) 19Bal. 237(a) 555 (b) 120 (c) 770Accumulated DepreciationBal. 2,268Office EquipmentK. Steven,

Ref. Debit Credit Debit Credit 30 270,000BalanceJune 30 270,000BalanceJune 30 270,000 Balance June Ref. Debit Credit Debit Credit 30 35,000 30 J14 33,750 68,750Adjustment 30 J14 33,750 68,750Adjustment 30 J14 33,750 68,750 Adjustment Ref. Debit Credit Debit Credit 30 78,000June Balance 30 78,000June Balance 30 78,000 June Balance Ref. Debit Credit Debit Credit 30 42,000 30 J14 21,675 20,325Adjustment 30 J14 21,675 20,325Adjustment 30 J14 21,675 20,325 Adjustment Ref. Debit Credit Debit Credit 30

a. June 30 14,000 14,000Interest Payable 14,000Interest Payable 14,000 Interest Payable b. 30 13,860 13,860(/53 =days$13,860days )Salaries PayableTo record accrued salaries$23,100 13,860(/53 =days$13,860days )Salaries PayableTo record accrued salaries$23,100 13,860 (/5 3 = days $13,860 days ) Salaries Payable To record accrued salaries $23,100 c.d. 30 2,837To record supplies usedSupplies ExpenseNo entry c.d. 30 2,837To record supplies usedSupplies ExpenseNo entry c. d. 30 2,837 To record supplies used Supplies Expense No entry 2,837Supplies 2,837Supplies 2,837 Supplies +=$2,846$2,837$1,984$1,975 +=$2,846$2,837$1,984$1,975 + = $2,846 $2,837 $1,984$1,975 e. 30 2,781Insurance

Chapter 4 Completing the Accounting Cycle Learning Objectives 1. Describe the role of closing entries in the preparation of nancial statements. 2. Prepare closing entries. 3. Prepare reversing entries 4. Prepare a work sheet. 5. Explain the importance of the work sheet and closing entries when managing a business. Section 1: Concepts Concepts Periodicity Accrual accounting Lecture Outline I. There are

DQ1. DQ2. DQ3.DQ4.DQ5.The Income Statement and Balance Sheet columns on a work sheet will balance All the income statement, or temporary, accounts and the Withdrawals account use of the Income Summary account by closing the accounts (step 2) directly to the owner's Capital account.when initially totaled when net income equals exactly $0.Reversing

2014 Dec. 31 12,810 12,810Income Summary 12,810Income Summary 12,810 Income Summary 31 7,915 4,0556002,130458672Insurance ExpenseWages ExpenseRent ExpenseSupplies ExpenseDepreciation ExpenseRepair Equipment 4,0556002,130458672Insurance ExpenseWages ExpenseRent ExpenseSupplies ExpenseDepreciation ExpenseRepair Equipment 4,055 600 2,130 458 672 Insurance Expense Wages Expense Rent Expense Supplies Expense Depreciation ExpenseRepair Equipment 31 4,895 4,895A. Winter, Capital 4,895A. Winter, Capital 4,895 A. Winter, Capital 31 2,500 2,500A. Winter, Withdrawals 2,500A. Winter, Withdrawals 2,500 A. Winter, Withdrawals To close the expense accounts Income Summary To close the Income Summary account To close

Debit Credit Debit Credit Debit Credit Debit Credit 10,072 10,072 10,07229,31414,70015,000 15,000 15,00015,900 15,900 15,90030,000 30,000 30,00044,400 44,400 44,40031,050 31,050 31,050 10,072 10,072 10,07229,31414,70015,000 15,000 15,00015,900 15,900 15,90030,000 30,000 30,00044,400 44,400 44,40031,050 31,050 31,050 10,072 10,072 10,072 29,314 14,700 15,000 15,000 15,000 15,900 15,900 15,900 30,000 30,000 30,000 44,400 44,400 44,400 31,050 31,050 31,050 (h)816 30,130 30,130()()13,270 1,430 1,430()53,400()14,400 67,800 67,80030,900()15,450

4. 8,570 880 338 8,400 140 7,686 10,000 600 2,750 850 120 80 598 14020,576 20,576Repair Supplies ExpenseDepreciation ExpenseRepair EquipmentRepair RevenueStore Rent ExpenseAdvertising ExpenseInsurance ExpenseAccumulated DepreciationRepair EquipmentL. Stoker, WithdrawalsPrepaid InsuranceRepair SuppliesRepair EquipmentAccounts PayableL. Stoker, Capital 880 338 8,400 140 7,686 10,000 600 2,750 850 120 80 598 14020,576 20,576Repair Supplies ExpenseDepreciation ExpenseRepair

10. 8,662 800 826 8,400 280 7,612 10,362 600 3,462 850 120 80 1,238 140 21,716 21,716Repair RevenueStore Rent ExpenseAdvertising ExpenseInsurance ExpenseL. Stoker, WithdrawalsRepair Supplies ExpenseDepreciation ExpenseRepair EquipmentRepair EquipmentAccumulated DepreciationRepair EquipmentAccounts PayableL. Stoker, CapitalRepair Supplies 826 8,400 280 7,612 10,362 600 3,462 850 120 80 1,238 140 21,716 21,716Repair RevenueStore Rent ExpenseAdvertising

31 29,240 29,240Income Summary 29,240Income Summary 29,240 Income Summary 31 23,900 11,3602,7001,1607605,8406401,440Supplies ExpenseInsurance ExpenseRent ExpenseWages ExpenseGas, Oil, and Other Truck ExpensesDepreciation ExpensePainting EquipmentDepreciation ExpenseTruck 11,3602,7001,1607605,8406401,440Supplies ExpenseInsurance ExpenseRent ExpenseWages ExpenseGas, Oil, and Other Truck ExpensesDepreciation ExpensePainting EquipmentDepreciation ExpenseTruck 11,360 2,700 1,160 760 5,840 640 1,440 Supplies Expense Insurance Expense Rent Expense Wages Expense Gas, Oil, and Other Truck Expenses Depreciation ExpensePainting Equipment Depreciation ExpenseTruck 31 5,340 5,340G. Ranke, Capital 5,340G. Ranke, Capital 5,340 G. Ranke, Capital 31 4,000 4,000G.

Page 3 Post. Ref. Debit Credit 2014 30 411 5,500 314 5,500Income Summary 314 5,500Income Summary 314 5,500 Income Summary 30 314 3,576 511 1,700512 240513 160514 1,196515 28030 314 1,924311 1,924Depreciation ExpenseRepairEquipmentB. Lutz, CapitalIncome SummaryTo close the expense accountsRepair Supplies ExpenseAdvertising ExpenseStore Rent ExpenseInsurance Expense 511 1,700512 240513 160514 1,196515 28030 314 1,924311 1,924Depreciation ExpenseRepairEquipmentB. Lutz, CapitalIncome SummaryTo close the

Ref. Debit Credit Debit Credit 30 J3 5,500 5,500 30 J3 3,576 1,924 30 J3 1,924 31 J5 6,924 6,92431 J5 4,856 2,06831 J5 2,068 Closing entryClosing entryJuly Closing entryClosing entry 30 J3 1,924 31 J5 6,924 6,92431 J5 4,856 2,06831 J5 2,068 Closing entryClosing entryJuly Closing entryClosing entry 30 J3 1,924 31 J5 6,924

Chapter 5 Foundations of Financial Reporting and the Classied Balance Sheet Learning Objectives 1. Describe the objective of nancial reporting, and identify the conceptual framework underlying accounting information. 2. Identify and dene the basic components of nancial reporting, and prepare a classied balance sheet. 3. Use classied nancial statements to evaluate liquidity and protability. Section 1:

DQ1. DQ2. DQ3. DQ4.DQ5.DQ6.year, even though the same accounting policies have been followed.measure whether the performance was good or bad. Past performance of the com-pany is one measure, but a better measure is the financial performance of similar pany may be able to draw on without disturbing the current business operations.year. Also, the

Current A sset s Current Liabilities Working Ca p ital Current Ratio $ 85,000 $25,000 $60,000 3.40 100,000 45,000 55,000 2.22 $ 5,000 1.18 Net Income Sales Profit Margin Average Total Asset Assets Turnover Return on Assets A verage Owners Equity Return on Equity 2013 $ 40,000 $525,000 7.62% $350,000 1.50 11.43% $300,000 13.33%2014 30,000 600,000 5.00% 397,500 1.51 7.55% 312,500 9.60% Increase (decrease) $(10,000) $ 75,000 2.62% $

3. by owners. That measure is very important to liquidity analysis because it is re- by owners. That measure is very important to liquidity analysis because it is re- by owners. That measure is very important to liquidity analysis because it is re- cause it is a good indicator of a company's ability to

Cases of net income. The auditors may become concerned if the loss is greater in the future or if management does not take action to try to reduce it. decisions of users of financial statements. The $120,000 inventory loss represents 4 per- cent of net income ($120,000 / $3,000,000). Whether or not this

Chapter 6 Accounting for Merchandising Operations Learning Objectives 1. Dene merchandising accounting, and dierentiate perpetual from periodic inventory systems. 2. Describe the features of multistep and single-step classied income statements. 3. Describe the terms of sale related to merchandising transactions. 4. Prepare an income statement, and record merchandising transactions under the perpetual inventory system. 5. Prepare an

Teaching Strategy To help students understand the merchandising or manufacturing companys multistep income statement, you may want to reproduce Exhibit 2 and explain it line by line. Exhibit 1 is helpful in understanding the cost of goods sold computation. Explain the meanings of gross and net. Students may already be familiar with

DQ1. DQ2. DQ3. DQ4. DQ5.DQ6.Yes, a company can have a negative financing period if its merchandise is held for a Under the perpetual inventory system, the merchandise inventory may have the wrong be the responsibility of the shipper. If the terms were FOB shipping point, the merchan-very short time, if its sales are mostly

b. 270 e. 1,000 a. 5,000 270b.Cost of goods sold*Net salesGross marginOperating expenses:Freight-InE9A. Recording Purchases: Perpetual Inventory SystemCashAccounts Payable$451,500293,500$158,000 b. 270 e. 1,000 a. 5,000 270b.Cost of goods sold*Net salesGross marginOperating expenses:Freight-InE9A. Recording Purchases: Perpetual Inventory SystemCashAccounts Payable$451,500293,500$158,000 b. 270 e. 1,000 a. 5,000 270 b. Cost of goods sold* Net sales Gross

1. $433,912 11,250$422,662Net salesLess sales returns and allowances 11,250$422,662Net salesLess sales returns and allowances 11,250 $422,662 Net sales Less sales returns and allowances $ 81,222 $221,18530,238$190,94710,078Freight-inPurchasesLess purchases returns and allowancesNet purchases $221,18530,238$190,94710,078Freight-inPurchasesLess purchases returns and allowancesNet purchases $221,185 30,238 $190,947 10,078 Freight-in Purchases Less purchases returns and allowances Net purchases 201,025 $282,24776,664205,583$217,079Gross marginCost of goods soldCost of goods available for saleLess merchandise inventory, March 31, 2014 $282,24776,664205,583$217,079Gross marginCost of goods soldCost

18 400 400Accounts Receivable 400Accounts Receivable 400 Accounts Receivable 18 240 240Cost of Goods Sold 240Cost of Goods Sold 240 Cost of Goods Sold 24 6,400 6,400Cash 6,400Cash 6,400 Cash 25 3,800 3,800Accounts Receivable 3,800Accounts Receivable 3,800 Accounts Receivable 2. are equivalent. are equivalent. are equivalent. Net sales reflects gross sales adjusted for any sales discounts, sales returns, or allow- ances granted the buyer. When companies simply show "sales," it may mean that they have

Page 1 Account Post. Sales Other Accounts Other Debited/Credited Ref. Cash Discounts Accounts Receivable Sales Accounts Nov. 4 J. Walker 980 20 1,000 5 Sales 2,632 2,632 5 Sales 2,632 2,632 5 Sales 2,632 2,632 9 Truck/Fred Kimball, Capital 10,000 14,000 24,00014 Sales 2,834 2,83417 P. Sivula 120 12018 Sales 1,974 1,97419 Notes Receivable 1,836 1,800Interest

Page 1 Credit Post. Accounts Post. Account Credited Ref. Payable Purchases Freight In Account Ref. Amount 4 Chassman Books, Inc. 15,680 15,680 5 Menden Shippers 790 790 6 Lakeside Books 11,300 11,300 May5/65/10, n/605/35/42/10, n/30n/30 4 Chassman Books, Inc. 15,680 15,680 5 Menden Shippers 790 790 6 Lakeside Books 11,300 11,300 May5/65/10, n/605/35/42/10, n/30n/30 4 Chassman

Chapter 7 Inventory Learning Objectives 1. Explain the concepts underlying inventory accounting. 2. Calculate inventory cost under the periodic inventory system using various costing methods. 3. Explain the eects of inventory costing methods on income determination and income taxes. 4. Calculate inventory cost under the perpetual inventory system using various costing methods. 5. Use the retail method

DQ1. DQ2.DQ3.DQ4.DQ5.DQ6.The four methods would produce the same results if there were no price changesUnder the perpetual inventory method, the cost of goods sold and the inventory bal-It is both good and bad for a retail store to have a large inventory. It is good from the standpoint that customers want

2. FIFO LIFO Method Method 120,000 $2,400,000 $2,400,000 20,000 $ 240,000 $ 240,00060,000 840,000 840,00050,000 750,000 750,00010,000 150,000 150,000 $1,980,000 $1,980,000FIFO ( $15 ) 300,000LIFO ( $12 ) 240,000 $1,680,000 $1,740,000$ 720,000 $ 660,000550,000 550,000 $ 170,000 $ 110,00051,000 33,000 $ 119,000 $ 77,000$15$14$12Goods available for sale$20$1520,000Net incomeGross marginOperating expensesIncome before income

b. $15,720,000$10,560,000805,2009,754,800$ 5,965,2005,102,000$ 863,200Less ending inventory*Income before income taxesGross marginSelling and administrative expensesSales Cost of goods soldCost of goods available for sale (see schedule)Cost of goods sold $15,720,000$10,560,000805,2009,754,800$ 5,965,2005,102,000$ 863,200Less ending inventory*Income before income taxesGross marginSelling and administrative expensesSales Cost of goods soldCost of goods available for sale (see schedule)Cost of goods

1. Cost Retail $205,952 $297,200286,932 434,000(8,172) (12,800)3,800 0 $488,512 $718,400 $488,512$718,400$436,732(3,732)$433,000$285,40068%$285,400 68% = $194,072Net sales during the period:SalesRatio of cost to retailRatio of cost to retail price: 68%Sales returns and allowancesFreight-inCost of goods available for saleNet purchases for the period:PurchasesPurchases returns and allowancesBeginning inventoryNet salesEstimated ending inventory at retail=Estimated cost of

Units Cost Amount 1 60 $49 $ 2,94010 100 52 5,200 Beginning inventoryMar.Purchase 1 60 $49 $ 2,94010 100 52 5,200 Beginning inventoryMar.Purchase 1 60 $49 $ 2,940 10 100 52 5,200 Beginning inventory Mar. Purchase 10 60 49 100 52 $ 8,140 100 52 $ 8,140 100 52 $ 8,140 19 (60) 49 (30) 52 (4,500) 31 70 52 $ 3,6404120

Chapter 8 Cash and Internal Control Learning Objectives 1. Describe the components of internal control, control activities, and limitations on internal control. 2. Apply internal control activities to common merchandising transactions. 3. Dene cash equivalents, and explain methods of controlling cash, including bank reconciliations. 4. Demonstrate the use of a simple imprest (petty cash) system. 5. Identify the

DQ1. DQ2.DQ3.DQ4.DQ5.DQ6.DQ7.Internal controls help ensure that there are no errors or irregularities in the account-Merchandise inventory would be assigned a higher level of risk because there is a An audit of management's assessment of internal control is important because in-pends on separation of duties in which each employee carries out his

1. 2. personnel. The printers on the showroom floor are limited to samples. Neither thecashier nor the warehouse attendant may modify the perpetual inventory records. personnel. The printers on the showroom floor are limited to samples. Neither thecashier nor the warehouse attendant may modify the perpetual inventory records. personnel. The printers on the showroom

1. 2.To remedy both of these weaknesses in internal contol over purchases, the receiv-cashier.the tape from the cash register for comparison with the amount turned in to the One way of overcoming the internal control weakness over cash sales is to havenot been properly authorized or for goods that have not

Chapter 9 Receivables Learning Objectives 1. Dene receivables, and explain the allowance method for valuation of receivables as an application of accrual accounting. 2. Apply the allowance method of accounting for uncollectible accounts. 3. Make common calculations for notes receivable. 4. Show how to evaluate the level of receivables, and identify alternative means of nancing receivables. Section

DQ1. DQ2.DQ3.DQ4.DQ5.DQ6. A decreasing receivables turnover and an increasing days' sales uncollected from The primary advantage when a company finances its receivables is improved finan-cause uncollectible accounts expense is recorded in an accounting period different ment to receive cash bonus awards, the actions would be unethical.An accrual of interest income is

$34,900 $32,5003,200 800 $31,700 $31,700a. 10 / 100 90 / =b. 12 / 100 60 / =c. 9 / 100 30 / =d. 15 / 100 120 / =e. 6 / 100 60 / =Allowance for uncollectible accountsAccounts receivable$27,200365365$51,000Net accounts receivables$181.08$955.73$536.55$226.36$2,515.07365365365$38,760E8A. Interest Computations*$18,360$30,600 $34,900 $32,5003,200 800 $31,700 $31,700a. 10 / 100

11 //= +=$61,627.40$60,000$1,627.40 +=$61,627.40$60,000$1,627.40 += $61,627.40 $60,000 $1,627.40 2. 3 12//=May$2,288.22$120,00036558100 3 12//=May$2,288.22$120,00036558100 3 12//= May $2,288.22 $120,000 365 58 100 16 13 / / =May100$64,000365451,025.75 16 13 / / =May100$64,000365451,025.75 16 13 / / = May 100 $64,000 365 45 1,025.75 31 11 / / =542.4710030$60,000365May 31 11 / / =542.4710030$60,000365May 31 11 / / = 542.47 100 30 $60,000 365 May 3. 0 90Total days 90Total days 90 Total days 100 Days remaining in May (31 31) Days in June Principal 31 30 Days in July Days in August29 Days in August29 Days in August 29 Interest at maturity: $3,856.44 Time

Pledge the accounts receivable against a loan from the bank.Sell or factor the accounts receivable. Pledge the accounts receivable against a loan from the bank.Sell or factor the accounts receivable. Pledge the accounts receivable against a loan from the bank. Sell or factor the accounts receivable. Cases amount of uncollectible accounts that will arise from

In the calculation of free cash flow, dividends and sales of plant assets are both deducted. FALSE FALSE FALSE The term salaries refers to the compensation of employees who are paid at an hourly rate. FALSE FALSE FALSE The quick ratio and the current ratio are measures of short-term debt-paying ability. TRUE TRUE

The following information pertains to Patterson Corporation. Assume that all balance sheet amounts represent both average and ending figures. Patterson Corporation had 6,000 shares of common stock issued and outstanding. The market price of Patterson common stock on December 31, 20x5, was $20. Patterson paid dividends of $0.90 per share during

Use this information to answer the following question. What is the present value of receiving $800 at the end of each year for three years, assuming an APR of 7 percent? A. $652.80 B. $1,952.40 C. $2,099.20 D. $2,244.00 C. C. C. Which of the following will not result in dissolution of a partnership? A. Incapacitation of a partner B.

If the present value of the net cash flows expected from a machine is less than its purchase price, the investment should not be made. TRUE TRUE TRUE Intangible assets are subject to a process called depreciation. FALSE FALSE FALSE Freight-in is treated as an addition in the cost of goods

Issuing bonds between interest payment dates will have the effect of decreasing a bond issuance discount or increasing a bond issuance premium. FALSE FALSE FALSE Once an owner of convertible preferred stock has converted to common, he or she cannot convert back to preferred. TRUE TRUE TRUE Accounting methods may be a

The personal assets and liabilities of an owner are not shown on the businesss financial statements because of the A. separate entity concept. B. sole proprietorship concept. C. financial position concept. D. objectivity concept. A. A. A. Use the following information regarding Larson Company to answer the question below. 1) Established a petty cash fund in the amount of $250. 2)

Lines of credit from the bank need not be disclosed in the financial statements or in the notes. FALSE FALSE FALSE The information needed to record the adjusting entries can be copied from the work sheet. TRUE TRUE TRUE An ordinary annuity is a series of equal payments made at the end

If a corporation issues par value common stock and the proceeds are less than par value, the Common Stock account is credited for the par value. TRUE TRUE TRUE A capital expenditure will result in an immediate increase in long-term assets. TRUE TRUE TRUE Noncompete covenants should be amortized over the specified life of

A corporation issues bond certificates to A. owners. B. principals. C. creditors. D. debtors. C. C. C. The following facts pertain to Alameda Corporation for 20x5: Based on the above facts, net income for 20x5 for Alameda Corporation amounted to A. $207,500. B. $182,500. C. $232,500. D. $257,500. C. C. C. Each of the following statements is justified by a concept or convention of accounting. Write

The recognition of an expense does not depend on the payment of cash. TRUE TRUE TRUE A corporation's bondholders are the primary recipients of financial leverage. FALSE FALSE FALSE A temporary account is also known as a nominal account. TRUE TRUE TRUE Inventory turnover is a measure of liquidity that focuses on the

Land held for speculative purposes should be classified as a short-term investment. FALSE FALSE FALSE The degree of separation of duties varies with the size of the business. TRUE TRUE TRUE Generally accepted accounting principles state that all business transactions should be valued at fair value both when they occur and at

It is possible to allocate income or loss to partners based solely on interest. FALSE FALSE FALSE A different set of financial statements usually is prepared for each user. FALSE FALSE FALSE Corporate earnings are subject to double taxation. TRUE TRUE TRUE A limited partnership normally has one or more general partners whose

The purchasing department prepares a purchase requisition addressed to the vendor (seller) containing instructions related to the items ordered. FALSE FALSE FALSE There is no limit to the amount of income subject to the FUTA tax. FALSE FALSE FALSE Contributed capital is shown on a corporate balance sheet as two amounts: the

The statement of owner's equity relates the income statement to the balance sheet by showing how the owner's capital account changed during the accounting period. TRUE TRUE TRUE The Retained Earnings portion of a corporation represents the initial contribution of capital to the business. FALSE FALSE FALSE Corporations represent the largest number

Winters Corporation purchased 15,000 shares of Poores Corporation common stock for $60 per share on January 2, 2014. Poores Corporation reported net income of $1,500,000 for 2014 and paid dividends of $300,000 during 2014. Poores has a total of 50,000 shares of common stock outstanding. The entry that would be

Which of the following partnership characteristics is an advantage? A. Mutual agency B. Ease of dissolution C. Unlimited liability D. Limited life B. B. B. Which of the following is the most useful aid to the accountant in preparing closing entries? A. Journal B. Financial statements C. Ledger D. Work sheet D. D. D. On January 2, 2014, Lionel Company issued $40,000 of notes payable, of

Responsibility for ethical financial reporting rests solely with the accountant. FALSE FALSE FALSE A bond sells at the face value when the face interest rate of the bond is identical to the market interest rate for similar bonds on the date of the issue. TRUE TRUE TRUE The salary allocation to partners

If an asset costs $41,000, has a residual value of $3,000, and has a useful life of five years, the entry to record depreciation in the second year, using the double-declining-balance method, is A. debit to Depreciation Expense, 9,430; credit to Cash, 9,430. B. debit to Depreciation Expense, 9,840; credit to Accumulated

Under the perpetual inventory system, the Cost of Goods Sold and Merchandise Inventory accounts are updated with each sale. TRUE TRUE TRUE Inventory is classified as a long-term asset. FALSE FALSE FALSE The work sheet is prepared after the formal adjusting and closing entries. FALSE FALSE FALSE Each partner has a separate Capital,

The receiving department must compare goods received with goods purchased, as indicated on the purchase order. FALSE FALSE FALSE A partnership agreement need not be in writing. TRUE TRUE TRUE Unearned revenue arises from the acceptance of payment in advance for a service to be performed. TRUE TRUE TRUE For accounting purposes, a

In trend analysis, each item is expressed as a percentage of the A. net income amount. B. total assets amount. C. base year amount. D. retained earnings amount. C. C. C. An unrealistic picture of the inventorys current value on the balance sheet is an argument against using A. Specific identification. B. FIFO. C. Average-cost. D. LIFO. D. D. D. Equipment might be depreciated over 15

An estimated liability is not a definite obligation of the firm because the amount cannot be definitely determined. FALSE FALSE FALSE Held-to-maturity securities are always debt securities, and never equity securities. TRUE TRUE TRUE Based on past experience, it should be possible to estimate the amount that a product warranty will cost the company in

The relevance of accounting information means that the information has a direct bearing on a decision. TRUE TRUE TRUE Vertical analysis will reveal the percentage of net sales consumed by salaries expense. TRUE TRUE TRUE The day-by-day accumulation of interest is considered a transaction involving an exchange of value. FALSE FALSE FALSE A

During the closing process, expenses are transferred to the debit side of the Income Summary account. TRUE TRUE TRUE The Sarbanes-Oxley Act requires a company to guarantee that its financial statements are 100 percent accurate. FALSE FALSE FALSE Partner A purchases partner B's $3,000 interest from partner B for $5,000. The entry

Investments with a maturity of less than ninety days are generally classified as cash equivalents. TRUE TRUE TRUE Callable preferred stock is preferred stock that may be redeemed or retired at the option of the issuing corporation. TRUE TRUE TRUE Under the perpetual inventory system, cost of goods sold is not recorded until the end

Use this information to answer the following question. These facts concern the long-term stock investments of DeBord Corporation: The entry to record the sale of 1,000 shares of Vanhook Corporation common stock is: A. Long-Term Investments 38,000 Cash 38,000 B. Long-Term Investments 38,000 Allowance to Adjust Long- Term Investments to Market 38,000 C. Allowance to Adjust

A company with a low debt to equity ratio is in a more vulnerable position during poor economic times than a company with a high debt to equity ratio. FALSE FALSE FALSE When the equity method is used to account for an investment in stock, dividends received by the investor decrease

It is possible to invest no tangible assets into a partnership, yet be given a positive opening capital balance. TRUE TRUE TRUE The post-closing trial balance will typically have more accounts than the adjusted trial balance. FALSE FALSE FALSE A building not currently used because economic conditions have limited a company's expansion

Product warranties are an expense of the period in which the product is sold. TRUE TRUE TRUE A company that factors its receivables will have a less favorable receivable turnover than a company that does not factor. FALSE FALSE FALSE Revenue is equal to the cash received by a company during an

If the market interest rate at the date of issuance of a bond exceeds the face interest rate, the present value of the face value plus the present value of all the future interest payments will equal an amount less than the face value of the bond. TRUE TRUE TRUE Exchange rates

In general, in times of rising prices, using FIFO has a favorable effect on cash flows. FALSE FALSE FALSE The accrual basis of accounting results in a more accurate measurement of net income for the period than does the cash basis of accounting. TRUE TRUE TRUE Knowledge of the exchange rate is

Ending merchandise inventory for LIFO will be the same dollar amount under a periodic inventory system as under a perpetual inventory system. FALSE FALSE FALSE Mineral deposits are subject to a process called depletion. TRUE TRUE TRUE Trading securities are valued on the balance sheet at market value. TRUE TRUE TRUE It is possible for horizontal

The matching rule is most closely related to the cash basis of accounting. FALSE FALSE FALSE The entry to record the retirement of treasury stock will include a debit to Common Stock for the par value of the retired shares. TRUE TRUE TRUE A decrease in a liability is recorded by a

If the market interest rate at the date of issuance of a bond exceeds the face interest rate, the bond will probably be sold at a discount. TRUE TRUE TRUE Social Security and Medicare taxes are borne entirely by the employee. FALSE FALSE FALSE On a statement of cash flows prepared using the

The purchases journal is used to record only purchases made on credit. TRUE TRUE TRUE When compound interest is used, interest accumulates less quickly than when simple interest is used. FALSE FALSE FALSE When a partner invests a noncash asset into the partnership, the partners Capital account is debited and an asset

The sale of treasury stock cannot result in A. an increase in Retained Earnings. B. the crediting of Paid-in Capital, Treasury Stock. C. the debiting of Paid-in Capital, Treasury Stock. D. an increase in total stockholders' equity. A. A. A. An important purpose of the work sheet is to A. accompany the financial statements in the company's annual report. B.

Recording an account with a debit balance as a credit, or vice versa, will cause the trial balance to be out of balance by an amount that is evenly divisible by two. TRUE TRUE TRUE Dividend yield is the most important ratio associated with stockholders equity and is a common measure

Trading securities are always short-term investments. TRUE TRUE TRUE The lower-of-cost-or-market rule implies that it is a violation of the conservatism concept to carry inventory at a cost that is in excess of its market value. TRUE TRUE TRUE Intangible assets are also called wasting assets. FALSE FALSE FALSE The entry to record the issuance of

When the periodic inventory system is used, a physical inventory should be taken at the end of the fiscal year. TRUE TRUE TRUE A capital lease is a lease of property, plant, or equipment that is in effect an installment purchase. TRUE TRUE TRUE The normal balance of an account is the side

Closing entries are made A. to clear revenue and expense accounts of their balances. B. to clear withdrawals of its balance. C. to summarize a periods revenues and expenses. D. All of these choices. D. D. D. Assume a company uses the periodic inventory system and has a beginning merchandise inventory balance of $10,000, purchases of $150,000, and

The amount recorded for Payroll Taxes and Benefits Expense is borne entirely by the employee. FALSE FALSE FALSE If a bond has a face interest rate of 6 percent, a face value of $40,000, and pays interest semiannually, each interest payment will amount to $1,200. TRUE TRUE TRUE If a long-term investment

A bond with a face value of $1,000 has a current price quote of 89.00. This bond is selling for A. $1090.00. B. $1040.00. C. $990.00. D. $890.00. D. D. D. Improperly classifying large expenditures as assets rather than expenses A. could constitute fraud. B. understates income for the period. C. understates equity on the balance sheet. D. results in none of

One of the benefits of forming a partnership is limited liability. FALSE FALSE FALSE Dividend yield is a liquidity ratio. FALSE FALSE FALSE Compound interest is computed quarterly on $700 for seven years at 12 percent annual interest. The future value table is used by multiplying the $700 by which factor? A. 28

The collection of a $2,000 account beyond the 2 percent discount period would result in a(n) A. increase to Cash for $1,960. B. decrease to Accounts Receivable for $2,000. C. decrease to Cash for $2,000. D. increase to Sales Discounts for $40. B. B. B. When bonds are converted to common stock, which of the following could be part