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b.
Feb. 1 Bal. 2,850 Feb. 2 750 Feb. 1 Bal. 900 Feb. 6 900
Feb. 6 900 Feb. 28 260 Feb. 18 175
Feb. 28 Bal. 3,080 Feb. 28 Bal. 175
PROBLEM 3.6B
CLOWN AROUND, INC. (continued)
Accounts Receivable
Capital Stock
Cash
Accounts Payable
c.
3,080$
175
d.
Cash
Dividends are not an expense. Thus, they are not deducted from revenue in the determination of
net income reported in the income statement. The reason dividends are not viewed as expenses
is that these payments do not serve to generate revenue. Rather, they are a distribution of profits
to the owners of the business.
February 28, 2015
Accounts receivable
(concluded)
PROBLEM 3.6B
CLOWN AROUND, INC.
Trial Balance
CLOWN AROUND, INC.
a.
Mar. 3 1,200
Accounts Receivable 1,200
Recorded printing expense on account.
Recorded revenue on account.
Collected $1,200 from Kim Mitchell on account.
Purchased cooking supplies with cash.
Issued additional shares of capital stock.
Cash
PROBLEM 3.7B50 Minutes, Strong
2015
General Journal
A
HUNA, INC.
b. Cash
Mar. 1 bal. 5,700 Mar. 11 700 Mar. 1 bal. 1,800 Mar. 3 1,200
Mar. 31 bal. 8,700 Mar. 31 bal. 6,800
Cooking Supplies Accounts Payable
Dividends Payable Dividends
Capital Stock Retained Earnings
Client Revenue Salaries Expense
Travel Expense Printing Expense
Accounts Receivable
PROBLEM 3.7B
AHUNA, INC. (continued)
c.
8,700$
6,800
PROBLEM 3.7B
AHUNA, INC. (concluded)
Trial Balance
Cash
AHUNA, INC.
March 31, 2015
Accounts receivable
Net Total Total Owners'
Error Income Assets Liabilities Equity
NE U NE U
PROBLEM 3.8B10 Minutes, Difficult
Recorded the issuance of capital stock by
debiting Capital Stock and crediting Cash.
BLIND RIVER, INC.
a.
SOLUTIONS TO CRITICAL THINKING CASE
S
REVENUE RECOGNITION
Revenue is realized in the period that services are rendered to customers or goods are delivered to
customers. Using this principle as a guide, the three independent situations are analyzed below:
Period of flight. Airlines earn revenue by rendering a service—transportation—to their
CASE 3.1
15 Minutes, Medium
a.
(1)
CASE 3.2
30 Minutes, Strong
MEASURING INCOME
Discussion of “fairness and reasonableness” of income measurement policies:
Given that most revenue is received in cash and that credit terms are constant, recognizing
revenue on a cash basis will cause little distortion in annual results. Thus, it appears “fair and
ETHICS
,
FRAUD & CORPORATE GOVERNANC
E
It is certainly unethical, and probably illegal, for Ed Grimm's boss to demand that Ed knowingly
engage in fraudulent reporting activities in order to retain his job. Ed may have been told that he would
WHISTLE-BLOWING
CASE 3.3
5 Minutes, Easy
10 Minutes, Easy
PC CONNECTION
CASE 3.
4
INTERNET
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