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Accounting Tools for Business Decision Making - 4th edition by Paul D. Kimmel, Jerry J. Weygandt and Donald E. Kieso

Accounting Tools for Business Decision Making 4th edition

Paul D. KimmelJerry J. Weygandt and Donald E. Kieso

Solutions Manual Test Bank

Accounting : Tools for Business Decision Making (ISBN10: 0470534788; ISBN13: 9780470534786)   

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Solutions Manual Chapter 1 - 23
Test Bank Chapter 1 - 14
Achievement Test Chapter 14 - 23
Final Exam: Chapters 14-23
Comprehensive_exam e - h

Sample Chapter 4


(a) How does the periodicity assumption affect an accountant’s analysis of accounting transactions? (b) Explain the term fiscal year.
Identify and state two generally accepted accounting principles that relate to adjusting the accounts. types of accounts is debited and which is credited in the adjusting entry: (a) asset, (b) liability, (c) revenue, or (d) expense.
Don Wishne, a lawyer, accepts a legal engagement in March, performs the work in April, and is paid in May. If Wishne’s law firm prepares monthly financial statements, when should it recognize revenue from this engagement? Why?
4. In completing the engagement in question 3, Wishne pays no costs in March, $2,500 in April, and $2,200 in May (incurred in April). How much expense should the firm deduct from revenues in the month when it recognizes the revenue? Why? 
 5. “The cost principle of accounting requires adjusting entries.” Do you agree? Explain.
Why may the financial information in an unadjusted trial balance not be up-to-date and complete?
Distinguish between the two categories of adjusting entries, and identify the types of adjustments applicable to each category.
What types of accounts does a company debit and credit in a prepaid expense adjusting entry?
“Depreciation is a process of valuation that results in the reporting of the fair value of the asset.” Do you agree? Explain.
Explain the differences between depreciation expense and accumulated depreciation.
Greenstreet Company purchased equipment for $15,000. By the current balance sheet date, the company had depreciated $7,000. Indicate the balance sheet presentation of the data.
What types of accounts are debited and credited in an unearned revenue adjusting entry?
Data Technologies provides maintenance service for computers and office equipment for companies throughout the Northeast. The sales manager is elated because she closed a $300,000 three-year maintenance contract on December 29, 2011, two days before the company’s year-end. “Now we will hit this year’s net income target for sure,” she crowed. The customer is required to pay $100,000 on December 29 (the day the deal was closed). Two more payments of $100,000 each are also required on December 29, 2012 and 2013. Discuss the effect that this event will have on the company’s financial statements.
ValuMart, a large national retail chain, is nearing its fiscal year-end. It appears that the company is not going to hit its revenue and net income targets. The company’s marketing manager, Chris Ahrentzen, suggests running a promotion selling $50 gift cards for $45. He believes that this would be very popular and would enable the company to meet its targets for revenue and net income. What do you think of this idea?
A company fails to recognize revenue earned but not yet received. Which of the following types of accounts are involved in the adjusting entry: (a) asset, (b) liability, (c) revenue, or (d) expense? For the accounts selected, indicate whether they would be debited or credited in the entry.
A company fails to recognize an expense incurred but not paid. Indicate which of the following
A company makes an accrued revenue adjusting entry for $780 and an accrued expense adjusting entry for $510. How much was net income understated prior to these entries? Explain.
On January 9 a company pays $6,200 for salaries, of which $1,100 was reported as Salaries and Wages Payable on December 31. Give the entry to record the payment.
For each of the following items before adjustment, indicate the type of adjusting entry—prepaid expense, unearned revenue, accrued revenue, and accrued expense— that is needed to correct the misstatement. If an item could result in more than one type of adjusting entry, indicate each of the types. (a) Assets are understated. (b) Liabilities are overstated. (c) Liabilities are understated. (d) Expenses are understated. (e) Assets are overstated. (f) Revenue is understated.
One-half of the adjusting entry is given below. Indicate the account title for the other half of the entry. (a) Salaries and Wages Expense is debited. (b) Depreciation Expense is debited. (c) Interest Payable is credited. (d) Supplies is credited. (e) Accounts Receivable is debited. (f) Unearned Service Revenue is debited.
“An adjusting entry may affect more than one balance sheet or income statement account.” Do you agree? Why or why not?
Which balance sheet account provides evidence that Tootsie Roll records sales on an accrual basis rather than a cash basis? Explain.
Why is it possible to prepare financial statements directly from an adjusted trial balance?
(a) What information do accrual basis financial statements provide that cash basis statements do not? (b) What information do cash basis financial statements provide that accrual basis statements do not?
What is the relationship, if any, between the amount shown in the adjusted trial balance column for an account and that account’s ledger balance?
Identify the account(s) debited and credited in each of the four closing entries, assuming the company has net income for the year.
Some companies employ technologies that allow them to do a so-called “virtual close.” This enables them to close their books nearly instantaneously any time during the year. What advantages does a “virtual close” provide?
Describe the nature of the Income Summary account, and identify the types of summary data that may be posted to this account.
What items are disclosed on a post-closing trial balance, and what is its purpose?
Which of these accounts would not appear in the post-closing trial balance? Interest Payable, Equipment, Depreciation Expense, Dividends, Unearned Service Revenue, Accumulated Depreciation— Equipment, and Service Revenue.
Indicate, in the sequence in which they are made, the three required steps in the accounting cycle that involve journalizing.
Identify, in the sequence in which they are prepared, the three trial balances that are required in the accounting cycle.
Explain the terms earnings management and quality of earnings.
Give examples of how companies manage earnings.
What is the purpose of a worksheet?
What is the basic form of a worksheet?

Brief Exercises

BE4-1 Transactions that affect earnings do not necessarily affect cash. Identify the effect, if any, that each of the following transactions would have upon cash and net income. The first transaction has been completed as an example. Net Cash Income (a) Purchased $100 of supplies for cash. _$100 $ 0 (b) Recorded an adjusting entry to record use of $20 of the above supplies. (c) Made sales of $1,300, all on account. (d) Received $800 from customers in payment of their accounts. (e) Purchased equipment for cash, $2,500. (f) Recorded depreciation of building for period used, $600. 

The ledger of Hubbard Company includes the following accounts. Explain why each account may require adjustment. (a) Prepaid Insurance. (b) Depreciation Expense. (c) Unearned Service Revenue. (d) Interest Payable.

Dicker Company accumulates the following adjustment data at December 31. Indicate (1) the type of adjustment (prepaid expense, accrued revenue, and so on) and (2) the status of the accounts before adjustment (overstated or understated). (a) Supplies of $400 are on hand. Supplies account shows $1,600 balance. (b) Service Revenue earned but unbilled total $700. (c) Interest of $300 has accumulated on a note payable. (d) Rent collected in advance totaling $1,100 has been earned.

Stagg Advertising Company’s trial balance at December 31 shows Supplies $8,800 and Supplies Expense $0. On December 31 there are $1,100 of supplies on hand. Prepare the adjusting entry at December 31 and, using T accounts, enter the balances in the accounts, post the adjusting entry, and indicate the adjusted balance in each account.

At the end of its first year, the trial balance of Jules Company shows Equipment $22,000 and zero balances in Accumulated Depreciation—Equipment and Depreciation Expense. Depreciation for the year is estimated to be $2,750. Prepare the adjusting entry for depreciation at December 31, post the adjustments to T accounts, and indicate the balance sheet presentation of the equipment at December 31.

On July 1, 2012, Ryhn Co. pays $12,400 to Craig Insurance Co. for a 2-year insurance contract. Both companies have fiscal years ending December 31. For Ryhn Co., journalize and post the entry on July 1 and the adjusting entry on December 31.

Using the data in

BE4-6, journalize and post the entry on July 1 and the adjusting entry on December 31 for Craig Insurance Co. Craig uses the accounts Unearned Service Revenue and Service Revenue.

The bookkeeper for Forseth Company asks you to prepare the following accrual adjusting entries at December 31. Identify impact of transactions on cash and net income. (SO 2, 9), C Indicate why adjusting entries are needed. (SO 3), C Prepare adjusting entry for supplies. (SO 4), AP Prepare adjusting entry for depreciation. (SO 4), AP Prepare adjusting entry for prepaid expense. (SO 4), AP Prepare adjusting entry for unearned revenue. (SO 4), AP Prepare adjusting entries for accruals. (SO 5), AP Identify the major types of adjusting entries. (SO 3), AN (a) Interest on notes payable of $300 is accrued. (b) Service revenue earned but unbilled totals $1,700. (c) Salaries of $780 earned by employees have not been recorded. Use these account titles: Service Revenue, Accounts Receivable, Interest Expense, Interest Payable, Salaries and Wages Expense, and Salaries and Wages Payable.

The trial balance of LaGrace Company includes the following balance sheet accounts. Identify the accounts that might require adjustment. For each account that requires adjustment, indicate (1) the type of adjusting entry (prepaid expenses, unearned revenues, accrued revenues, and accrued expenses) and (2) the related account in the adjusting entry. (a) Accounts Receivable. (e) Notes Payable. (b) Prepaid Insurance. (f ) Interest Payable. (c) Equipment. (g) Unearned Service Revenue. (d) Accumulated Depreciation—Equipment.

The adjusted trial balance of Hanlon Corporation at December 31, 2012, includes the following accounts: Retained Earnings $17,200; Dividends $6,000; Service Revenue $32,000; Salaries and Wages Expense $14,000; Insurance Expense $1,800; Rent Expense $3,900; Supplies Expense $1,500; and Depreciation Expense $1,000. Prepare an income statement for the year.

Partial adjusted trial balance data for Hanlon Corporation are presented in

BE4- 10. The balance in Retained Earnings is the balance as of January 1. Prepare a retained earnings statement for the year assuming net income is $10,400.

The following selected accounts appear in the adjusted trial balance for Cohen Company. Indicate the financial statement on which each account would be reported. (a) Accumulated Depreciation. (e) Service Revenue. (b) Depreciation Expense. (f ) Supplies. (c) Retained Earnings (beginning). (g) Accounts Payable. (d) Dividends.

Using the data in

BE4-12, identify the accounts that would be included in a post-closing trial balance.

The income statement for the Timberline Golf Club Inc. for the month ended July 31 shows Service Revenue $16,000; Salaries and Wages Expense $8,400; Maintenance and Repairs Expense $2,500; and Income Tax Expense $1,000. The statement of retained earnings shows an opening balance for Retained Earnings of $20,000 and Dividends $1,300. (a) Prepare closing journal entries. (b) What is the ending balance in Retained Earnings?

The required steps in the accounting cycle are listed in random order below. List the steps in proper sequence. (a) Prepare a post-closing trial balance. (b) Prepare an adjusted trial balance. (c) Analyze business transactions. (d) Prepare a trial balance. (e) Journalize the transactions. (f ) Journalize and post closing entries. (g) Prepare financial statements. (h) Journalize and post adjusting entries. (i) Post to ledger accounts. Prepare an income statement from an adjusted trial balance. (SO 6), AP Prepare a retained earnings statement from an adjusted trial balance. (SO 6), AP Identify financial statement for selected accounts. (SO 6), K Identify post-closing trial balance accounts. (SO 7), K Prepare and post closing entries. (SO 7), AP Analyze accounts in an adjusted trial balance. (SO 6), AN List required steps in the accounting cycle sequence. (SO 8), K

The ledger of Witzling, Inc. on March 31, 2012, includes the following selected accounts before adjusting entries. Debit Credit Prepaid Insurance 2,400 Supplies 2,500 Equipment 30,000 Unearned Service Revenue 10,000 Do it! Do it! Review Prepare adjusting entries for deferrals. (SO 4), AP An analysis of the accounts shows the following: 1. Insurance expires at the rate of $300 per month. 2. Supplies on hand total $900. 3. The office equipment depreciates $200 per month. 4. 2/5 of the unearned service revenue was earned in March.

Prepare the adjusting entries for the month of March.

Tammy Krause is the new owner of Tammy’s Computer Services. At the end of July 2012, her first month of ownership, Tammy is trying to prepare monthly financial statements. She has the following information for the month. 1. At July 31, Krause owed employees $1,100 in salaries that the company will pay in August. 2. On July 1, Krause borrowed $20,000 from a local bank on a 10-year note. The annual interest rate is 9%. 3. Service revenue unrecorded in July totaled $1,600.

Prepare the adjusting entries needed at July 31, 2012.

Indicate in which financial statement each of the following adjusted trial balance accounts would be presented. Service Revenue Accounts Receivable Notes Payable Accumulated Depreciation Common Stock Utilities Expense

After closing revenues and expense, Natraj Company shows the following account balances. Dividends $22,000 Retained Earnings 70,000 Income Summary 36,000 (credit balance) Prepare the remaining closing entries at December 31. Do it! Do it! Do it! Exercises 203 Prepare adjusting entries for accruals. (SO 5), AP Prepare financial statements from adjusted trial balance. (SO 6), C Prepare closing entries. (SO 7), AP


The following independent situations require professional judgment for determining when to recognize revenue from the transactions. (a) Southwest Airlines sells you an advance-purchase airline ticket in September for your flight home at Christmas. (b) Ultimate Electronics sells you a home theatre on a “no money down and full payment in three months” promotional deal. (c) The Toronto Blue Jays sell season tickets online to games in the Skydome. Fans can purchase the tickets at any time, although the season doesn’t officially begin until April. The major league baseball season runs from April through October. (d) You borrow money in August from RBC Financial Group. The loan and the interest are repayable in full in November. (e) In August, you order a sweater from Sears using its online catalog. The sweater arrives in September, and you charge it to your Sears credit card. You receive and pay the Sears bill in October.

Identify when revenue should be recognized in each of the above situations.