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Brief
Exercises
B. Ex. 3.1
B. Ex. 3.2
B. Ex. 3.3
B. Ex. 3.4 Analysis
B. Ex. 3.5
B. Ex. 3.6
B. Ex. 3.7
B. Ex. 3.8
B. Ex. 3.9
B. Ex. 3.10
Exercises
3.1
3.2
3.3
3.4
3.5
3.6 Analysis
3.7
3.8 Revenue
,
ex
p
enses
,
and dividends Anal
y
sis
3.9 Financial statement effects Analysis
3.10 Preparing a trial balance Analysis
3.11 Preparing a trial balance Analysis
3.12
3.13
3.14 Analysis
3.15
CHAPTER 3
THE ACCOUNTING CYCLE:
CAPTURING ECONOMIC EVENTS
Communication, analysis3-1–3-3, 3-7, 3-10
Real World: Home Depot, Inc.
Using an annual report
OVERVIEW OF BRIEF EXERCISES, EXERCISES, PROBLEMS, AND CRITICAL
THINKING CASES
Objectives
Learning
Accounting terminology
The matching principle
Journal and ledger relationships
3-6, 3-7
3-6, 3-7
Analysis
The accounting cycle Skills
Debit and credit rules
Analysis
Analysis
Analysis, judgment
Analysis, judgment
Recording transactions
Topic 3-1, 3-2, 3-5, 3-9,
3-10
3-3–3-5
Analysis
Analysis
Analysis3-3, 3-6
3-6, 3-7
3-6, 3-7
Analysis
3-2–3-6
3-2–3-6
Analysis
3-3, 3-5, 3-8, 3-9
3-3, 3-5, 3-8, 3-9
Accounting equation relationships Analysis, communication
Analysis
3-3, 3-6, 3-8
3-3, 3-6, 3-8
Preparing a trial balance
Analyzing transactions
Analyzing transactions
Real World: Apple Computer Net
income and owners’ e
q
uit
y
3-3, 3-5, 3-8, 3-9
3-3, 3-6, 3-7
3-7, 3-8
3-3, 3-8
Analysis
Recording transactions
Realization and matching principles
Topic
Expense recognition
3-9
3-2–3-5
Revenue realization
Accounting equation relationships
3-6, 3-8
3-4, 3-6–3-8
Learnin
g
Ob
j
ectives
Preparing a trial balance
Analysis3-1–3-10 Skills
Analysis
3-6, 3-7 Communication, analysis
Changes in retained earnings
Matching principle
Revenue realization
Analysis
3-6, 3-7
Problems
Sets A, B
3.1 A,B
3.2 A,B Recording journal entries and
3.3 A,B
3.4 A,B
3.5 A,B
3.6 A,B Short comprehensive proble
m
3.7 A,B Short comprehensive proble
m
3.8 A,B
3.1 Revenue recognition 3-7, 3-10
3.2 Income measurement 3-6, 3-7, 3-10
3.3 3-6, 3-7,3- 1
0
3.4 3-6
Learning
3-3–3-8
3-3–3-8
3-3–3-5
Objectives
Analysis, communication
Topic Skills
3-7–3-9
Analysis, communication3-1–3-10
3-1–3-10
Analysis, judgment,
communication
The accounting cycle
The accounting cycle Analysis, communication
Communication, judgment
Communication, judgment,
analysis
Recording journal entries and
identifying their effects on the
accounting equation
identifying their effects on the
accounting equation
Recording journal entries and
identifying their effects on the
accounting equation
Communication,
technology, judgment,
3-3–3-9
Real World: PC Connection -
Revenue from various sources
(Internet)
3-3, 3-8Analyzing the effects of errors
Analysis, judgment,
communication
Critical Thinkin
g
Cases
Whistle-Blowing
(Ethics, fraud & corporate governance)
Analysis, communication
Analysis
Analysis, communication,
judgment
Communication, judgment,
analysis
Problems (Sets A and B)
30 Medium
30 Medium
35 Medium
60 Strong
50 Strong
50 Strong
50 StrongHome Team Corporation/Blind River, Inc.
3.6 A,B Donegan's Lawn Care Service/Clown Around, Inc.
Requires students to journalize and post transactions, prepare a
trial balance, and understand various relationships among financial
statement elements.
Requires students to analyze the effects of errors on financial
statement elements.
Requires students to journalize and post transactions, prepare a
trial balance, and understand various relationships among financial
statement elements.
3.7 A,B Sanlucas, Inc./Ahuna, Inc.
3.8 A,B
50 Strong3.4 A,B
3.1 A,B A company engages in numerous transactions during its first month
of operations. Students are required to journalize each transaction
and analyze the effect of each transaction on the accounting
equation.
Heartland Construction/North Enterprises
3.2 A,B
Weida Surveying, Inc./Dana, Inc.
Aerial Views/Tone Deliveries, Inc.
Calls for a detailed analysis of numerous transactions, journalizing,
and the application of the realization and matching principles.
3.5 A,B Dr. Schekter, DVM/Dr. Cravati, DMD
Requires students to journalize and post transactions, prepare a
trial balance, and understand the relationships between the income
statement and balance sheet.
Environmental Services, Inc./Lyons, Inc.
3.3 A,B Requires students to journalize transactions and to understand the
relationship between the income statement and the balance sheet.
Requires students to journalize and post transactions, prepare a
trial balance, and understand the relationships between the income
statement and balance sheet.
Critical Thinking Cases
Revenue Recognition 15 Medium
Measuring Income
Whistle-Blowing 5 Easy
Ethics, Fraud & Corporate Governance
PC Connection 10 Easy
Revenue from Various Sources
Internet
3.1
3.2
Requires students to draw conclusions concerning the point at which various
companies should recognize revenue.
Students are to determine whether a company’s methods of measuring income
are fair and reasonable. Also requires students to distinguish between net
income and cash flow.
30 Strong
Using 10-K reports, students are asked to identify revenue from various
sources.
3.3
Students are asked to consider the legal and ethical implications of engaging
in fraudulent reporting activities.
3.4
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
1.
2.
3. Asset accounts:
b
. Decreases are recorded by credits
Liability and owners’ equity accounts:
4.
5.
No, the term debit means an entry on the left-hand side of an account; the term credit simply
means an entry on the right-hand side of an account. Consequently, the term debit means
The double-entry system requires that equal dollar amounts of debit and credit entries be made
for every business transaction recorded.
Although it has no obligation to issue financial statements to creditors or investors, Baker
Construction still should maintain an accounting system. For a start, the company probably has
numerous reporting obligations other than financial statements. These include income tax
returns, payroll tax returns, (including workers' compensation insurance) and payroll data, which
must be reported to individual employees.
In addition, an accounting system provides managers and employees with a wealth of information
vital to daily business operations. For example, the system keeps track of the amounts due from
customers and amounts payable to employees, tax authorities, and suppliers. It also provides
information about the company's cash position and the performance of different departments
within the organization. Another important use of an accounting system is establishing the
accountability of specific employees for the assets and operations under their direct control.
Assets are located on the left side of the balance sheet equation; an increase in an asset account is
recorded by an entry on the left (or debit) side of the account. Liabilities and owners’ equity are
Even though the company is not required by law to issue financial statements, Tom Baker should
find such statements useful in managing the business and also in arranging financing should the
b
usiness ever need additional capital.
6.
Operating profitably causes an increase in owners’ equity. Usually, this increase in equity is
14.
15.
Some of the more analytical functions performed by accountants include determining the
information needs of decision makers, designing information systems, evaluating organizational
A dividend is a distribution of assets (usually cash) by a corporation to its stockholders.
Dividends reduce both assets and owners’ equity (specifically, the Retained Earnings account).
Dividends are not an expense deducted from revenue in the computation of net income. Rather
than being reported in the income statement as a component of net income, dividends are
reported in the statement of retained earnings as a component of the Retained Earnings balance
reported in the balance sheet.
prove that transactions have been analyzed and recorded in the proper accounts and/or for the
proper amounts. Furthermore, if a transaction were completely omitted from the ledger, the error
would not be disclosed by the trial balance.
B. Ex. 3.1 a.
SOLUTIONS TO BRIEF EXERCISES
1. Journalize transactions.
2. Post transaction data to the ledger.
B. Ex. 3.3 a. Jan. 18 400,000
Cash ……………………………………………
…
B. Ex. 3.5
Beginning Retained Earnings (1/1) ………
90,000$
