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CHAPTER 3
The Accounting Information System
ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC)
Topics
Questions
Brief
Exercises
Exercises
Problems
1.
Transaction
identification.
1, 2, 3, 5
1, 2
1, 3, 4, 17
1
2.
Nominal accounts.
4, 7
7.
Inventory and cost
of goods sold.
9
12, 14, 15
8.
Comprehensive
accounting cycle.
1, 2, 6, 11
ASSIGNMENT CLASSIFICATION TABLE (BY LEARNING OBJECTIVE)
Learning Objectives
Questions
Brief
Exercises
Exercises
Problems
1. Describe the basic accounting
information system.
1, 2, 3,
4, 5, 7
2. Record and summarize basic
transactions.
3, 6
1, 2, 3, 4,
5, 6, 7
1, 2, 3,
4, 9, 17
1, 4
*6. Differentiate the cash basis of
accounting from the accrual basis of
accounting.
15, 16,
17
12
18, 19
10
ASSIGNMENT CHARACTERISTICS TABLE
Item
Description
Level of
Difficulty
Time
(minutes)
E3.1
Transaction analysis–service company.
Simple
15–20
E3.2
Corrected trial balance.
Simple
10–15
E3.3
Corrected trial balance.
Simple
15–20
E3.9
Adjusting entries.
Moderate
15–20
E3.10
Adjusting entries.
Complex
25–30
E3.11
Prepare financial statements.
Moderate
20–25
E3.12
Prepare financial statements.
Moderate
20–25
E3.13
Closing entries.
Simple
10–15
E3.14
Closing entries.
Moderate
10–15
P3.1
Transactions, financial statements–service company.
Moderate
25–35
P3.2
Adjusting entries and financial statements.
Moderate
35–40
P3.3
Adjusting entries.
Moderate
25–30
P3.4
Financial statements, adjusting and closing entries.
Moderate
40–50
ANSWERS TO QUESTIONS
1. Examples are:
(a) Payment of an accounts payable.
2. Transactions (a), (b), (d) are considered business transactions and are recorded in the accounting
records because a change in assets, liabilities, or equity has been effected as a result of a transfer
3. Transaction (a): Accounts Receivable (debit), Service Revenue (credit).
Transaction (b): Cash (debit), Accounts Receivable (credit).
4. Revenue and expense accounts are referred to as temporary or nominal accounts because each
period they are closed out to Income Summary in the closing process. Their balances are reduced
5. Andrea is not correct. The double-entry system means that for every debit amount there must be a
6. Although it is not absolutely necessary that a trial balance be taken periodically, it is customary
and desirable. The trial balance accomplishes two principal purposes:
(1) It tests the accuracy of the entries in that it proves that debits and credits of an equal amount
LO: 2, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
7. (a) Real account; statement of financial position.
(b) Real account; statement of financial position.
(c) Inventory is generally considered a real account appearing on the statement of financial position. It
Questions Chapter 3 (Continued)
8. At December 31, the three days’ salaries and wages due to the employees represent a current
9. (a) In a service company, revenues are service revenues and expenses are operating expenses.
In a merchandising company, revenues are sales revenues and expenses consist of cost of
10. (a) No change.
(b) Before closing, balances exist in these accounts; after closing, no balances exist.
11. Adjusting entries are prepared prior to the preparation of financial statements in order to bring the
accounts up to date and are necessary (1) to achieve a proper recognition of revenues and
12. Closing entries are prepared to transfer the balances of nominal accounts to capital (retained
earnings) after the adjusting entries have been recorded and the financial statements prepared.
13. Cost – Residual Value = Depreciable Cost: €4,000 – $0 = €4,000. Depreciable Cost ÷ Useful Life =
Depreciation Expense for One Year €4,000 ÷ 5 years = €800 per year. The asset was used for
14.
December 31
Interest Receivable ................................................................................................
10,000
Questions Chapter 3 (Continued)
*15. Under the cash basis of accounting, revenue is recorded only when cash is received and
expenses are recorded only when paid. Under the accrual basis of accounting, revenue is
recognized when a performance obligation is satisfied and expenses are recognized when
*16. Salaries and wages paid during the year will include the payment of any salaries and wages
attributable to the prior year but unpaid at the end of the prior year. This amount is an expense of
*17. Although similar to the strict cash basis, the modified cash basis of accounting requires that
expenditures for capital items be charged against income over all the periods to be benefited. This
*18. Reversing entries are made at the beginning of the period to reverse accruals and some deferrals.
Reversing entries are not required. They are made to simplify the recording of certain transactions
*19. Disagree. A worksheet is not a permanent accounting record and its use is not required in the ac-
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 3.1
May
1
Cash ................................................................................................
4,000
Share Capital-Ordinary ................................
4,000
BRIEF EXERCISE 3.2
Aug.
2
Cash ................................................................................................
12,000
Equipment ................................................................
2,500
Agazzi, Capital ................................................................
14,500
BRIEF EXERCISE 3.2 (Continued)
15
Rent Expense ................................................................
600
BRIEF EXERCISE 3.3
July
1
Prepaid Insurance ................................................................
15,000
Cash ................................................................
15,000
BRIEF EXERCISE 3.4
July
1
Cash ................................................................................................
15,000
Unearned Insurance Revenue ................................
15,000
BRIEF EXERCISE 3.5
Feb.
1
Prepaid Insurance ................................................................
72,000
Cash ................................................................
72,000
BRIEF EXERCISE 3.6
Nov.
1
Cash ................................................................................................
2,400
Unearned Rent Revenue ................................
2,400
BRIEF EXERCISE 3.7
Dec.
31
Salaries and Wages Expense ................................
4,800
Salaries and Wages Payable
(€8,000 X 3/5) ................................................................
4,800
BRIEF EXERCISE 3.8
Dec.
31
Interest Receivable ................................................................
300
Interest Revenue ................................................................
300
BRIEF EXERCISE 3.9
Aug.
31
Interest Expense ................................................................
300
Interest Payable ................................................................
300
BRIEF EXERCISE 3.10
Depreciation Expense ................................................................
2,000
Accumulated Depreciation—Equipment ................................
2,000
BRIEF EXERCISE 3.11
Sales Revenue ................................................................
808,900
Interest Revenue ................................................................
13,500
Income Summary ................................................................
822,400
*BRIEF EXERCISE 3.12
(a)
Cash receipts from customers ................................
$142,000
+ Increase in accounts receivable
(€18,600 – €13,000) ................................................................
5,600
Service revenue ................................................................
$147,600
*BRIEF EXERCISE 3.13
(a)
Salaries and Wages Payable .............................................................
4,200
Salaries and Wages Expense ................................
4,200
SOLUTIONS TO EXERCISES
EXERCISE 3.1 (15–20 minutes)
Apr.
2
Cash ................................................................................................
30,000
Equipment ................................................................
14,000
Kai Edo, Capital ................................................................
44,000
11
Accounts Receivable ................................................................
1,100
Service Revenue ................................................................
1,100
12
Cash ................................................................................................
3,200
Unearned Service Revenue ................................
3,200
EXERCISE 3.1 (Continued)
30
Supplies Expense ................................................................
120
Supplies ................................................................
120
EXERCISE 3.2 (10–15 minutes)
GERONIMO AG
Trial Balance
April 30, 2019
Debit
Credit
Cash ........................................................................
€ 2,100
Accounts Receivable .............................................
2,750
Prepaid Insurance (€700 + €1,000) ........................
1,700
Equipment ...............................................................
8,000
EXERCISE 3.3 (15–20 minutes)
The ledger accounts are reproduced below, and corrections are shown in
the accounts.
Cash
Accounts Payable
Supplies
Retained Earnings
Bal.
2,967
Bal.
2,000
Bal.
2,420
(1) 1,850 – 1,580
EXERCISE 3.3 (Continued)
SCARLATTI CORPORATION
Trial Balance (Corrected)
April 30, 2019
Debit
Credit
Cash .........................................................................
$ 5,992
Accounts Receivable ..............................................
4,970
EXERCISE 3.4 (15–20 minutes)
OAKLEY NV
Trial Balance
June 30, 2019
Debit
Credit
Cash (€2,870 + €360 – €65 – €65) (1) & (4) ...............................
€ 3,100
Accounts Receivable (€3,231 – €360) ................................
2,871
Supplies (€800 – €500) (2) ........................................................
300
EXERCISE 3.5 (10–15 minutes)
1.
Depreciation Expense (€250 X 3) ................................
750
Accumulated Depreciation—Equipment ................................
750
EXERCISE 3.5 (Continued)
4.
Supplies Expense ................................................................
2,150
Supplies (€2,800 – €650) ............................................................
2,150
EXERCISE 3.6 (10–15 minutes)
1.
Accounts Receivable ................................................................
750
Service Revenue ................................................................
750
EXERCISE 3.7 (15–20 minutes)
(a)
Ending balance of supplies .................................
£ 900
Add: Adjusting entry ...........................................
950
Deduct: Purchases ..............................................
850
Beginning balance of supplies ............................
£1,000
The “T” account for salaries and Wages payable is
Salaries and Wages Payable
Paid
900
Beg. Bal.
?
January
End Bal.
800
The beginning balance is therefore
Ending balance of Salaries
EXERCISE 3.7 (Continued)
(d)
Service revenue ...........................................
£2,000
EXERCISE 3.8 (10–15 minutes)
(1)
Salaries and Wages Expense ...........................................................
2,900
Salaries and Wages Payable .....................................................
2,900
