ACR 4-4 (Continued)
(h)
Date
Account Titles
Debit
Credit
July 31 Service Revenue ……………………………………………… 39,120
Income Summary ……………………………………. 39,120
31 Income Summary ……………………………………………. 32,350
Salaries and Wages Expense …………………… 22,000
Rent Expense ………………………………………….. 4,000
(i)
GREEN RIVER COMPUTER CONSULTANTS
Post-Closing Trial Balance
July 31, 2017
Debit
Cash ………………………………………………………
$ 52,630
Accounts receivable ……………………………….
13,000
Prepaid insurance …………………………………..
3,300
Supplies …………………………………………………
3,240
4,000
Equipment ……………………………………………..
24,000
Accumulated depreciation—equipment ……
Accounts payable …………………………………..
Interest payable ……………………………………..
Salaries and wages payable ……………………
Income taxes payable ……………………………..
Unearned service revenue ………………………
Notes payable …………………………………………
Common stock ……………………………………….
Retained earnings …………………………………..
CT 4-1 FINANCIAL REPORTING PROBLEM
(a) Items that may result in adjusting entries for deferrals are:
2. Other current assets (prepaid expenses).
4. Deferred revenue.
2. Accrued revenues (other income)
(c) Depreciation and amortization expense was $7,946 (millions) in 2014
(d) The statement of cash flows (at the bottom) reports income taxes paid
CT 4-2 COMPARATIVE ANALYSIS PROBLEM
Accounts that provide evidence of the use of accrual accounting are:
Balance Sheet
Income Statement
(a) Columbia Company
1.
Accounts receivable, net
1.
Sales
2.
4.
Prepaid expenses
Accrued liabilities
2.
4.
Insurance (or supplies) expense
Miscellaneous expense
(b) VFC
2.
4.
Accounts receivable, less allowance
for doubtful accounts
Deferred income taxes
2.
4.
Sales
Income tax expense
LO 1 BT: AN Difficulty: Medium TOT: 20 min. AACSB: Analytic AICPA FC: Reporting
CT 4-3 COMPARATIVE ANALYSIS PROBLEM
Accounts that provide evidence of the use of accrual accounting are:
Balance Sheet
Income Statement
(a) Amazon Company
2.
Accrued expenses and other
2.
Interest expense
1.
3.
Accounts receivable, net and other
Unearned revenue
1.
3.
Product or Service Sales
Product or Service revenue
(b) Wal-Mart
3.
Accounts receivable, net
3.
Sales
5.
Accrued income taxes
5.
Income tax expense
2.
4.
Accumulated depreciation
Accrued liabilities
2.
4.
Depreciation expense
Miscellaneous expense
CT 4-4 INTERPRETING FINANCIAL STATEMENTS
LASER RECORDING SYSTEMS
(a) Laser Recording is handling legal expense via an accrued expense
adjustment. This is explained by the fact that accrued professional
services increased during the year.
CT 4-5 REAL-WORLD FOCUS
(a) The SEC was created by Congress after the stock market crash of 1929.
The SEC was created to restore investor confidence in our capital
markets by providing more structure and government oversight.
(b) Division of Corporation Finance. The Division of Corporation Finance
oversees corporate disclosure of important information to the
investing public. Corporations are required to comply with regulations
pertaining to disclosure that must be made when stock is initially sold
Division of Trading and Markets. The Division of Trading and Markets
establishes and maintains standards for fair, orderly, and efficient markets.
It does this primarily by regulating the major securities market partici-
pants: broker-dealer firms; self-regulatory organizations (SROs), which
include the stock exchanges and the National Association of Securities
Dealers (NASD), Municipal Securities Rulemaking Board (MSRB), and
clearing agencies (SROs that help facilitate trade settlement); transfer
CT 4-5 (Continued)
Division of Enforcement. The Division of Enforcement investigates
possible violations of securities laws, recommends Commission action
when appropriate, either in a federal court or before an administrative
Division of Economic and Risk Analysis
The Division of Economic and Risk Analysis assists the Commission in
executing its mission to protect investors, maintain fair, orderly, and
efficient markets, and facilitate capital formation by integrating robust
economic analysis and rigorous data analytics into the work of the SEC.
There are two main functions for the Division. First, DERA staff provide
vital support in the form of economic analyses in support of Commission
rulemaking and policy development. Second, the Division also provides
( c ) Office of the Chief Accountant
The Chief Accountant is appointed by the Chairman to be the principal
adviser to the Commission on accounting and auditing matters. The Office
of the Chief Accountant assists the Commission in executing its
responsibility under the securities laws to establish accounting principles,
CT 4-5 (Continued)
In addition to its responsibility for accounting standards, the Commission
is responsible for the approval or disapproval of auditing rules put forward
by the Public Company Accounting Oversight Board, a private-sector
regulator established by the Sarbanes-Oxley Act to oversee the auditing
profession. The Commission also has thorough-going oversight
responsibility for all of the activities of the PCAOB, including approval of
CT 4-6 GROUP DECISION CASE
(a) ABBEY PARK
Income Statement
For the Quarter Ended March 31, 2017
Revenues
Rent revenue ($83,000 – $21,000) ……………. $62,000
Expenses
Salaries and wages expense
[$27,600 + ($290 X 3)] ……………………….. $28,470
Advertising expense ($4,200 + $110) ……….. 4,310
(Revenues are recognized when a service has been provided and expenses are recognized
when an asset is used up or a service is used)
(b) The generally accepted accounting principles pertaining to the income
statement that were not recognized by Trudy were the revenue
recognition principle and the expense recognition principle. The revenue
recognition principle states that revenue is recognized when the
performance obligation is satisfied. The revenue of $21,000 for
CT 4-7 COMMUNICATION ACTIVITY
(a) Accrual–basis accounting records the events that change an entity’s
financial statements in the periods in which the events occur, rather than
in the periods in which the entity receives or pays cash. Information
presented on an accrual-basis is useful because it reveals relationships
(b) Politicians might desire a cash-basis accounting system over an accrual–
basis system because if an accrual accounting system is used, it could
(c) Dear Senator,
It is my understanding, after having taken a beginning course in account-
ing principles, that the federal government uses a cash-basis
accounting system rather than an accrual-basis accounting system.
CONCERNED STUDENT
LO 1 BT: S Difficulty: Hard TOT: 45 min. AACSB: Communication and Reflective Thinking AICPA PC:
Communication AICPA BB: Critical Thinking
CT 4-8 ETHICS CASE
(a) The stakeholders in this situation are:
(b) 1. It is unethical for the president to place pressure on Tim to mis-
state net income by requesting him to prepare incorrect adjusting
entries.
(c) Tim can accrue revenues and defer expenses through the preparation
of adjusting entries and be ethical so long as the entries reflect
CT 4-9 ALL ABOUT YOU ACTIVITY
The following is a personal balance sheet using the classified presentation.
Note that the earnings from the part-time job as well as the tuition costs are
not listed since neither of those items is an asset, liability, or equity item.
Assets
Current assets
Cash ………………………………………………………… $1,200
Money market account ……………………………… 1,800
Property, plant, and equipment
Automobile ………………………………………………. 7,000
Liabilities and Owner’s Equity
Current liabilities
Current portion of automobile loan ……………. $1,500
Current portion of credit card payable ……….. 150
Equity
M. Y. Own, Capital ($15,350 – $12,300) ……….. 3,050
CT 4-10 FASB CODIFICATION ACTIVITY
(a) Revenues are “inflows or other enhancements of assets of an entity or
settlements of its liabilities (or a combination of both) from delivering
IFRS 4-1 INTERNATIONAL FINANCIAL REPORTING PROBLEM
(a) Note 1.25 states that revenue includes shipment and transportation
costs re-billed to customers only when these costs are included in
products’ selling prices as a lump sum. Revenue is presented net of all
(b) Note 1.25 state that revenue and the corresponding trade receivables
are reduced by the estimated amount of such returns, and a
(c) Louis Vuitton could have adjustments for prepayments such as:
Depreciation expense, Amortisation of intangible assets, Deferred tax
assets.