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f.
35,250$
750
PROBLEM 4.7B
STILLMORE INVESTIGATIONS (concluded)
Add: December depreciation expense (adjusting entry 4)
Accumulated depreciation per unadjusted trial balance
20 Minutes, Strong
a. NE NE NE U U NE
b. O NE O O NE O
Total
Assets Total
Liabilities Owners’
Equity
PROBLEM 4.8B
STEPHEN CORPORATION
Error Total
Revenue Total
Expenses Net
Income
Recorded a declared
but unpaid dividend by
debiting dividends and
crediting Cash.
Recorded a receipt of
an account receivable
as a debit to cash and a
credit to fees earned.
30 Minutes, Medium
a.
SOLUTIONS TO CRITICAL THINKING CASES
YEAR-END ADJUSTMENTS
CASE 4.1
No adjusting entry is needed, because although the revenue was collected in advance on
September 1, it has all been earned prior to year-end. Thus, inclusion of the entire amount in
revenue of the period is correct.
25 Minutes, Medium
a. (1)
CASE 4.2
AVIS RENT-A-CAR
THE CONCEPT OF MATERIALITY:
An event or transaction is “material” when knowledge of the item reasonably may be
expected to influence the decisions of users of financial statements. One
consideration is simply the size of the dollar amounts involved: what is “material” in
relation to the operations of a small business may not be material in relation to the
operations of a large corporation. In addition, the nature of the event plays a key role in
determining whether or not knowledge of the event would influence decision
makers.
10 Minutes, Easy
a.
The decision by management to wait three years before converting the $40,000 capitalized
advertising expenditure to advertising expense clearly violates generally accepted
accounting principles. The matching principle requires that revenue earned during a
ETHICS, FRAUD & CORPORATE GOVERNANCE
CASE 4.3
EXPENSE MANIPULATION
10 Minutes, Easy
1.
2.
3.
Note to the instructor: The adjustments required for several of the accounts listed above are
discussed in subsequent chapters. Some are beyond the scope of an introductory course.
CASE 4.4
IDENTIFYING ACCOUNTS
Accounts from Hershey’s balance sheet likely to have required an adjusting entry are:
Inventories
Accounts Receivable–Trade
Deferred Income Taxes
INTERNET
