Type
Solution Manual
Book Title
Financial Accounting Fundamentals 5th Edition
ISBN 13
978-0078025754

978-0078025754 Chapter 3 Solution Manual Part 1

March 26, 2020
Chapter 3
Adjusting Accounts for
Financial Statements
QUESTIONS
1. The cash basis of accounting reports revenues when cash is received while the accrual
2. The accrual basis of accounting generally provides a better indication of company
3. Businesses that have major seasonal variations in sales are most likely to select the
natural business year as the fiscal year.
4. A prepaid expense is an item paid for in advance of receiving its benefits. As such, it is
reported as an asset on the balance sheet.
5. Long-term tangible plant assets such as equipment, buildings, and machinery lead to
6. The Accumulated Depreciation contra asset account is used for depreciation. It
7. Unearned revenue refers to cash received in advance of providing products and
8. Accrued revenue is revenue that is earned but is not yet received in cash (and/or other
assets) and the customer has not been billed prior to the end of the period. Therefore,
9.A If prepaid expenses are initially recorded with debits to expense accounts, then the
prepaid expenses asset accounts are debited in the adjusting entries.
10. For Apple, all of the accounts under the category of Property, plant and equipment
(except for Land), require adjusting entries. The expense related to the Depreciation
11. Google reports $16,524 million for property and equipment. For its adjusting entry, it
12. The accrued wages would be reported as part of the liability “Accrued expenses” on
Samsung’s balance sheet.
13. The four-step closing entry process is: (i) close the revenue (and gain) accounts to the
14. Closing entries affect temporary accounts: revenues, expenses, dividends, and
income summary. Specifically, closing entries at the end of an accounting period
15. (i) Closing entries prepare the temporary accountsrevenue and expense (and gain
16. The Income Summary account is used to summarize the period’s revenues and
expenses. As a result, it temporarily has a balance equal to the net income (or net
17. Yes, an error would have occurred because a post-closing trial balance should only
18. A work sheet can be used to collect and organize data for preparing (i) adjusting
19. The adjustments in the Adjustments columns of a work sheet are identified by letters
to link the debits with the credits to ensure that the entries are complete and in
20. A company’s operating cycle is the normal time between paying cash for merchandise
21. Assets on a typical classified balance sheet include current assets and noncurrent
assetswhere noncurrent assets usually include long-term investments, plant assets,
22. Unearned revenue is reported as a liabilityusually a current liability.
23. Plant assets (also called property, plant and equipment or long-lived assets) are
tangible long-lived assets used to produce or sell goods or services.
24.C Reversing entries simplify subsequent entries for accrued expenses and accrued
25.C The following reversing entry could be made as of the first day of the next accounting
period, after the post-closing trial balance is completed and financial statements are
26. The five main categories of noncurrent assets on Apple’s balance sheet are: Long-term
27. Samsung’s current assets are: Cash and cash equivalents; Short-term financial
28. Google has eight current liability accounts: Accounts payable; Short-term debt;
29. The closing entry likely recorded on December 31, 2013, to transfer the company’s net
income to its Retained Earnings account would have been (in millions of Korean won)
QUICK STUDIES
Quick Study 3-1 (5-10 minutes)
1. h 4. c
Quick Study 3-2 (10 minutes)
Cash Accounting
Revenues (cash receipts) ...................................................... $37,000
Quick Study 3-3 (10 minutes)
a. UR Unearned revenue
Quick Study 3-4 (15 minutes)
Adjusting entry
Debit
Credit
Accrue salaries expense
e
c
Quick Study 3-5 (15 minutes)
a. Step 1: Prepaid Insurance equals $4,700
Step 2: Prepaid Insurance should equal $900 (the unexpired part)
Step 3: Adjusting entry to get from Step 1 to Step 2
Quick Study 3-6 (15 minutes)
a. Step 1: Supplies equal $300
Step 2: Supplies should equal $110 (what’s left); and zero purchased*
Step 3: Adjusting entry to get from Step 1 to Step 2
To record supplies used
*$4,000 + $9,400 purchased Supplies used = $2,660
Quick Study 3-7 (10 minutes)
a. Insurance Expense ....................................................... 1,200
Quick Study 3-8 (15 minutes)
a. Step 1: Accumulated Depreciation equals $13,500
Step 2: Accumulated Depreciation should equal $28,100; adding current
period depreciation of $14,600*
Step 3: Adjusting entry to get from Step 1 to Step 2
Quick Study 3-9 (10 minutes)
a. Depreciation ExpenseEquipment ............................ 3,600
Quick Study 3-10 (15 minutes)
a. Step 1: Unearned Rent Revenue equals $6,000
Step 2: Unearned Rent Revenue should equal $5,000; adjusted by current
period earned revenue of $1,000*
Step 3: Adjusting entry to get from Step 1 to Step 2
Quick Study 3-11 (15 minutes)
a. Unearned Revenue ........................................................ 7,500
Quick Study 3-12 (15 minutes)
a. Step 1: Salaries Payable equals $0
Step 2: Salaries Payable should equal $15,500 (not yet recorded)
Step 3: Adjusting entry to get from Step 1 to Step 2
Quick Study 3-13 (10 minutes)
Salaries Expense ........................................................... 400
Quick Study 3-14 (15 minutes)
a. Step 1: Accounts Receivable equals $0
Step 2: Accounts Receivable should equal $19,000 (not yet recorded)
Step 3: Adjusting entry to get from Step 1 to Step 2
Quick Study 3-15 (15 minutes)
Accounts Debited and Credited
Financial Statement
a.
Debit
Unearned Revenue
Balance Sheet
Quick Study 3-16 (15 minutes)
The answer is 2.
Explanation:
Quick Study 3-17 (10 minutes)
The answer is b.
Quick Study 3-18 (10 minutes)
a. Under IFRS, financial statements normally present assets from least liquid
Quick Study 3-19 (10 minutes)
Quick Study 3-20A (5 minutes)
The answer is a.
Quick Study 3-21 (15 minutes)
Dec. 31 Services Revenue ......................................... 13,000
Income Summary .................................. 13,000
To close the revenue account.
Quick Study 3-22 (5 minutes)
Quick Study 3-23 (5 minutes)
1. (e) Analyzing transactions and events.
2. (h) Journalizing transactions and events.
3. (a) Posting the journal entries.
Quick Study 3-24 (10 minutes)
1. B
2. F
Quick Study 3-25 (5 minutes)
Current assets
Cash ............................................................
$ 7,000
Quick Study 3-26B (20 minutes)
Planta Company
Work Sheet
Adjusted
Trial Balance
Income
Statement
Balance Sheet
No.
Account
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
101
Cash......................................
7,000
7,000
106
Accounts receivable ...........
27,200
27,200
401
Plumbing fees earned ........
84,000
84,000
611
Depreciation expense
Trucks ................................
6,500
6,500
622
Salaries expense .................
38,000
38,000
Quick Study 3-27C (10 minutes)
2014NOT required (2014 shown for instructional purposes only)
Dec. 31 Accounts Receivable ........................................... 12,000

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