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1. This document provides a chapter summary on accounting information systems. It includes true/false and multiple choice questions covering topics like transactions, accounts, steps in the accounting cycle, adjusting entries, and cash versus accrual accounting.
2. The questions test understanding of basic accounting terminology, double-entry rules, the accounting cycle, preparing financial statements, and differentiating between cash-basis and accrual-basis accounting.
3. Learning objectives include understanding the accounting information system, recording transactions, preparing financial statements, and comparing accounting under GAAP and IFRS standards.
1. This document provides a chapter summary on accounting information systems. It includes true/false and multiple choice questions covering topics like transactions, accounts, steps in the accounting cycle, adjusting entries, and cash versus accrual accounting.
2. The questions test understanding of basic accounting terminology, double-entry rules, the accounting cycle, preparing financial statements, and differentiating between cash-basis and accrual-basis accounting.
3. Learning objectives include understanding the accounting information system, recording transactions, preparing financial statements, and comparing accounting under GAAP and IFRS standards.
1. This document provides a chapter summary on accounting information systems. It includes true/false and multiple choice questions covering topics like transactions, accounts, steps in the accounting cycle, adjusting entries, and cash versus accrual accounting.
2. The questions test understanding of basic accounting terminology, double-entry rules, the accounting cycle, preparing financial statements, and differentiating between cash-basis and accrual-basis accounting.
3. Learning objectives include understanding the accounting information system, recording transactions, preparing financial statements, and comparing accounting under GAAP and IFRS standards.
IFRS questions are available at te en! o" tis #a$ter% TRUE&FA'SE Ans(er No% )es#ri$tion F 1. Recording transactions. T 2. Nominal accounts. F 3. Real (permanent) accounts. F 4. Internal event example. F 5. ia!ilit" and stoc#$olders% e&uit" accounts. F '. (e!its and credits. F ). *teps in accounting c"cle. T +. ,urpose o- trial !alance. T .. /eneral 0ournal. F 11. ,osting and trial !alance. T 11. 2d0usting entries -or prepa"ments. T 12. 3xample o- accrued expense. F 13. 4oo# value o- deprecia!le assets. T 14. Reporting ending retained earnings. F 15. ,ost5closing trial !alance. F 1'. ,osting closing entries. T 1). 6losing entries and Income *ummar". F 71+. 2ccrual !asis accounting. F 71.. ,urpose o- reversing entries. F 721. 2d0usted trial !alance. MU'TIP'E CHOICE*Con#e$tual Ans(er No% )es#ri$tion d 21. ,urpose o- an accounting s"stem. d 22. (e-inition o- posting. d 23. ,urpose o- an accounting s"stem. d 24. 4oo# o- original entr". d 25. ,urpose o- trial !alance. d 2'. Identi-ication o- a real account. ! 2). Identi-ication o- a temporar" account. a 2+. Temporar" accounts. c 2.. (ou!le5entr" accounting s"stem. c 31. (ou!le5entr" s"stem. a 31. 3--ect on stoc#$olders% e&uit". a 32. Transaction anal"sis. a 33. 2ccounting e&uation. ! 34. 2ccounting process vs. accounting c"cle. Test +an, "or Inter-e!iate A##ountin./ Fi"teent E!ition d 35. 2ccounting c"cle steps. d 3'. 6riteria -or recording events. d 3). Identi-ication o- a recorda!le event. c 3+. Identi-ication o- internal events. d 3.. 3xternal events. d 41. imitations o- trial !alance. a 41. /eneral 0ournal. ! 42. 8ournal entr". c 43. 8ournal entr". d 44. 8ournal entr". d 45. Im!alance in a trial !alance. d 4'. ,urpose o- unad0usted trial !alance. ! 4). Format o- ad0usting entr". ! 4+. 3xample o- accrued expense. d 4.. 2ccrual5!asis o- accounting. c 51. 2ccrued expense ad0usting entr". a 51. 3--ect o- not recording accrued expense. ! 52. (escription o- a de-erral. d 53. 3--ect o- not recording accrued revenue. a 54. 3--ect o- not recording depreciation expense. a 55. Timing o- ad0ustments. a 5'. ,repaid expense. a 5). 3xpiration o- prepaid expenses. ! 5+. 3--ect o- depreciation entr". a 5.. 9nearned revenue relations$ips. a '1. 6omputation o- interest expense -or ad0usting entr". d '1. ,urpose o- ad0usting entries. c '2. :atc$ing principle. a '3. ,repaid items. d '4. 2ccrued items. c '5. (e-inition o- unearned revenue. d ''. (e-inition o- accrued expense. c '). 2d0usting entr" -or accrued expense. d '+. Factors to consider in estimating depreciation. d '.. 2d0usting entries. d )1. 3--ect o- ad0usting entries. ! )1. ,repaid expense and t$e matc$ing principle. c )2. 2ccrued revenue and t$e matc$ing principle. ! )3. 9nearned revenue and t$e matc$ing principle. ! )4. 2d0usted trial !alance. c )5. 6losing process. c )'. ,urpose o- closing entries. d )). 6as$ collections vs. revenue recogni;ed. d 7)+. 6as$5!asis revenue. c 7).. 6onvert cas$ receipts to service revenue. c 7+1. 6onvert cas$ paid -or operating expenses. c 7+1. ,urpose o- reversing entries. d 7+2. Identi-ication o- reversing entries. d 7+3. Identi-ication o- reversing entries. ! 7+4. 2d0usting entries reversed. d 7+5. Reporting inventor" on a <or#s$eet. 3 0 1 T$e 2ccounting In-ormation *"stem MU'TIP'E CHOICE*Co-$utational Ans(er No% )es#ri$tion c +'. 3--ect o- transactions on o<ners% e&uit". c +). 3--ect o- transactions on o<ners% e&uit". c ++. 9nearned rent ad0ustment. c +.. 9nearned rent ad0ustment. d .1. (etermine ad0usting entr". c .1. 2d0usting entr" -or !ad de!ts. ! .2. 2d0usting entr" -or !ad de!ts. c .3. 2d0usting entr" -or interest receiva!le. c .4. *u!se&uent period entr" -or interest. d 7.5. 9se o- reversing entr". d .'. 2d0usting entr" -or unearned rent. ! .). 2d0usting entr" -or supplies. d .+. 3--ect o- closing entries. ! 7... 6alculate cas$ received -or interest. ! 7111. 6alculate cas$ paid -or salaries. d 7111. 6alculate cas$ paid -or insurance. c 7112. 6alculate insurance expense. c 7113. 6alculate interest revenue. c 7114. 6alculate salar" expense. d 7115. 2d0usting entr" -or supplies. c 711'. Reversing entries. ! 711). 9nearned rent ad0ustment. a 711+. (etermine ad0usting entr". d 711.. (etermine ad0usting entr". MU'TIP'E CHOICE*CPA A!a$te! Ans(er No% )es#ri$tion c 111. (etermine accrued interest pa"a!le. ! 111. (etermine !alance o- unearned revenues. a 112. 6alculate su!scriptions revenue. c 113. (etermine interest receiva!le. ! 114. 6alculate !alance o- accrued pa"a!le. ! 115. 6alculate accrued salaries. a 11'. 6alculate ro"alt" revenue. d 11). 6alculate de-erred revenue. ! 711+. (i--erence !et<een cas$5!asis and accrual met$od. c 711.. (etermine cas$5!asis revenue. ! 7121. (etermine accrual5!asis revenue. a 7121. 6alculate cost o- goods sold. 7T$is topic is dealt <it$ in an 2ppendix to t$e c$apter. 3 0 3 Test +an, "or Inter-e!iate A##ountin./ Fi"teent E!ition +RIEF E2ERCISES Ite- )es#ri$tion 4335122 (e-initions. 4335123 Terminolog". 4335124 2ccrued and de-erred items.
E2ERCISES 335125 2d0usting entries. 33512' 2d0usting entries. 33512) Financial statements. 733512+ 6as$5!asis vs. accrual5!asis accounting. 733512. 2ccrual !asis. 7335131 2ccrual !asis. 7335131 2ccrual !asis. 7335132 6as$ !asis. PRO+'EMS Ite- )es#ri$tion ,35133 2d0usting entries and account classi-ications. ,35134 2d0usting entries. ,35135 2d0usting and closing entries. 7,3513' 6as$ to accrual accounting. 7,3513) 2ccrual accounting. 7,3513+ 2ccrual accounting. 7,3513. 3ig$t5column <or# s$eet. CHAPTER 'EARNING O+3ECTI4ES 1. 9nderstand !asic accounting terminolog". 2. 3xplain dou!le5entr" rules. 3. Identi-" steps in t$e accounting c"cle. 4. Record transactions in 0ournals= post to ledger accounts= and prepare a trial !alance. 5. 3xplain t$e reasons -or preparing ad0usting entries and identi-" ma0or t"pes o- ad0usting entries. '. ,repare -inancial statements -rom t$e ad0usted trial !alance. ). ,repare closing entries. +. ,repare -inancial statements -or a merc$andising compan". 7.. (i--erentiate t$e cas$ !asis o- accounting -rom t$e accrual !asis o- accounting. 3 0 5 T$e 2ccounting In-ormation *"stem 711. Identi-" ad0usting entries t$at ma" !e reversed. 711. ,repare a 115column <or#s$eet. 12. 6ompare t$e accounting in-ormation s"stems under /22, and IFR*. 3 0 6 Test +an, "or Inter-e!iate A##ountin./ Fi"teent E!ition SUMMARY OF 'EARNING O+3ECTI4ES +Y 7UESTIONS Item Type Item Type Item Type Item Type Item Type Item Type Item Type 'earnin. Ob8e#tive 9 1. TF 3. TF 21. :6 23. :6 25. :6 2). :6 123. 43 2. TF 4. TF 22. :6 24. :6 2'. :6 2+. :6 'earnin. Ob8e#tive 1 5. TF 2.. :6 31. :6 33. :6 '. TF 31. :6 32. :6 34. :6 'earnin. Ob8e#tive 3 ). TF 35. :6 3'. :6 3). :6 3+. :6 3.. :6 'earnin. Ob8e#tive 5 +. TF 11. TF 41. :6 42. :6 44. :6 4'. :6 +). :6 .. TF 25. :6 41. :6 43. :6 45. :6 +'. :6 'earnin. Ob8e#tive 6 11. TF 54. :6 '4. :6 )4. :6 11). :6 11). :6 12. TF 55. :6 '5. :6 ++. :6 11+. :6 122. 43 13. TF 5'. :6 ''. :6 +.. :6 11.. :6 123. 43 4). :6 5). :6 '). :6 .1. :6 111. :6 124. 43 4+. :6 5+. :6 '+. :6 .1. :6 111. :6 125. 3 4.. :6 5.. :6 '.. :6 .2. :6 112. :6 12'. 3 51. :6 '1. :6 )1. :6 .3. :6 113. :6 133. , 51. :6 '1. :6 )1. :6 .4. :6 114. :6 134. , 52. :6 '2. :6 )2. :6 .'. :6 115. :6 135. , 53. :6 '3. :6 )3. :6 .). :6 11'. :6 'earnin. Ob8e#tive : 14. TF )4. :6 12). 3 'earnin. Ob8e#tive ; 15. TF 1'. TF )5. :6 )'. :6 .+. :6 135. , 'earnin. Ob8e#tive < 1). TF 'earnin. Ob8e#tive => 1+. TF +1. :6 112. :6 11.. :6 12.. 3 13'. , )). :6 ... :6 113. :6 121. :6 131. 3 13). , )+. :6 111. :6 114. :6 121. :6 131. 3 13+. , ).. :6 111. :6 11+. :6 12+. 3 132. 3 'earnin. Ob8e#tive =9? 1.. TF +2. :6 +4. :6 115. :6 11+. :6 12'. 3 +1. :6 +3. :6 .5. :6 11'. :6 11.. :c 'earnin. Ob8e#tive =99 21. TF +5. :6 13.. , 'earnin. Ob8e#tive 91 @ IFRS 7uestions 1. TF 2. TF 3. :6 4. :6 5. :6 '. :6 ). :6 3 0 : T$e 2ccounting In-ormation *"stem +. *2 .. *2 Note> TF ? True@False 3 ? 3xercise 43? 4rie- 3xercise :6 ? :ultiple 6$oice , ? ,ro!lem *2 ? *$ort 2ns<er TRUE&FA'SE 1. 2 ledger is <$ere a compan" -irst records transactions and ot$er selected events. 2. Nominal (temporar") accounts are revenue= expense= and dividend accounts and are periodicall" closed. 3. Real (permanent) accounts are revenue= expense= and dividend accounts and are periodicall" closed. 4. 2n example o- an internal event <ould !e a -lood t$at destro"ed a portion o- a compan"As inventor". 5. 2ll lia!ilit" accounts and stoc#$olders% e&uit" accounts are increased on t$e credit side and decreased on t$e de!it side. '. In general= de!its re-er to increases in account !alances= and credits re-er to decreases. ). T$e -irst step in t$e accounting c"cle is t$e 0ournali;ing o- transactions and selected ot$er events. +. Bne purpose o- a trial !alance is to prove t$at de!its and credits are e&ual in t$e general ledger. .. 2 general 0ournal c$ronologicall" lists transactions and ot$er events= expressed in terms o- de!its and credits to accounts. 11. I- a compan" -ails to post one o- its 0ournal entries to its general ledger= t$e trial !alance <ill not s$o< an e&ual amount o- de!it and credit !alance accounts. 11. 2d0usting entries -or prepa"ments record t$e portion o- t$e prepa"ment t$at represents t$e expense incurred or t$e revenue recogni;ed in t$e current accounting period. 12. 2n ad0ustment -or <ages expense= earned !ut unpaid at "ear end= is an example o- an accrued expense. 13. T$e !oo# value o- an" deprecia!le asset is t$e di--erence !et<een its cost and its salvage value. 14. T$e ending retained earnings !alance is reported on !ot$ t$e retained earnings statement and t$e !alance s$eet. 15. T$e post5closing trial !alance consists o- asset= lia!ilit"= o<nersA e&uit"= revenue and expense accounts. 3 0 ; Test +an, "or Inter-e!iate A##ountin./ Fi"teent E!ition 1'. It is not necessar" to post t$e closing entries to t$e ledger accounts !ecause ne< revenue and expense accounts <ill !e opened in t$e su!se&uent accounting period. 1). Total stoc#$olders% e&uit" consists o- common stoc# and t$e earnings retained in t$e !usiness. 71+. T$e accrual5!asis o- accounting recogni;es revenue <$en t$e per-ormance o!ligation is satis-ied and expenses <$en cas$ is paid. 71.. Reversing entries are made at t$e end o- t$e accounting c"cle to correct errors in t$e original recording o- transactions. 721. 2n ad0usted trial !alance t$at s$o<s e&ual de!it and credit columnar totals proves t$e accurac" o- t$e ad0usting entries. True & False Ans(ers * Con#e$tual Ite- Ans% Ite- Ans% Ite- Ans% Ite- Ans% Ite- Ans% 1. F 5. F .. T 13. F 1). T 2. T '. F 11. F 14. T 71+. F 3. F ). F 11. T 15. F 71.. F 4. F +. T 12. T 1'. F 721. F MU'TIP'E CHOICE*Con#e$tual 21. Factors t$at s$ape an accounting in-ormation s"stem include t$e a. nature o- t$e !usiness. !. si;e o- t$e -irm. c. volume o- data to !e $andled. d. 2ll o- t$ese ans<er c$oices are correct. 22. T$e process o- trans-erring -igures -rom t$e !oo# o- original entr" to t$e ledger accounts is called a. ad0usting. !. !alancing. c. ledgering. d. posting. 23. (e!it al(aAs means a. t$e rig$t side o- an account. !. an increase. c. a decrease. d. None o- t$ese ans<er c$oices are correct. 24. 2n accounting record into <$ic$ t$e essential -acts and -igures in connection <it$ all transactions are -irst recorded is called t$e a. ledger. 3 0 < T$e 2ccounting In-ormation *"stem !. account. c. trial !alance. d. None o- t$ese ans<er c$oices are correct. 3 0 > Test +an, "or Inter-e!iate A##ountin./ Fi"teent E!ition 25. 2 trial !alance a. proves t$at de!its and credits are e&ual in t$e ledger. !. supplies a listing o- open accounts and t$eir !alances t$at are used in preparing -inancial statements. c. is normall" prepared t$ree times in t$e accounting c"cle. d. 2ll o- t$ese ans<er c$oices are correct. 2'. C$ic$ o- t$e -ollo<ing is a real (permanent) accountD a. /ood<ill !. *ervice Revenue c. 2ccounts Receiva!le d. 4ot$ /ood<ill and 2ccounts Receiva!le 2). C$ic$ o- t$e -ollo<ing is a nominal (temporar") accountD a. 9nearned *ervice Revenue !. *alaries and Cages 3xpense c. Inventor" d. Retained 3arnings 2+. Nominal accounts are also called a. temporar" accounts. !. permanent accounts. c. real accounts. d. None o- t$ese ans<er c$oices are correct. 2.. T$e dou!le5entr" accounting s"stem means a. 3ac$ transaction is recorded <it$ t<o 0ournal entries. !. 3ac$ item is recorded in a 0ournal entr"= t$en in a general ledger account. c. T$e dual e--ect o- eac$ transaction is recorded <it$ a de!it and a credit. d. None o- t$ese ans<er c$oices are correct. 31. C$en a corporation pa"s a note pa"a!le and interest= a. t$e account notes pa"a!le <ill !e increased. !. t$e account interest expense <ill !e decreased. c. t$e" <ill de!it notes pa"a!le and interest expense. d. t$e" <ill de!it cas$. 31. *toc#$olders% e&uit" is not a--ected !" all a. cas$ receipts. !. dividends. c. revenues. d. expenses. 32. T$e de!it and credit anal"sis o- a transaction normall" ta#es place a. !e-ore an entr" is recorded in a 0ournal. !. <$en t$e entr" is posted to t$e ledger. c. <$en t$e trial !alance is prepared. d. at t$e end o- t$e accounting c"cle. 3 0 9? T$e 2ccounting In-ormation *"stem 33. T$e accounting e&uation must remain in !alance a. t$roug$out eac$ step in t$e accounting c"cle. !. onl" <$en 0ournal entries are recorded. c. onl" at t$e time t$e trial !alance is prepared. d. onl" <$en -ormal -inancial statements are prepared. 34. T$e di--erence !et<een t$e accounting process and t$e accounting c"cle is a. t$e accounting process results in t$e preparation o- -inancial statements= <$ereas t$e accounting c"cle is concerned <it$ recording !usiness transactions. !. t$e accounting c"cle represents t$e steps ta#en to accomplis$ t$e accounting process. c. t$e accounting process represents t$e steps ta#en to accomplis$ t$e accounting c"cle. d. merel" semantic= !ecause !ot$ concepts re-er to t$e same t$ing. 35. 2n optional step in t$e accounting c"cle is t$e preparation o- a. ad0usting entries. !. closing entries. c. a statement o- cas$ -lo<s. d. a post5closing trial !alance. 3'. C$ic$ o- t$e -ollo<ing criteria must !e met !e-ore an event or item s$ould !e recorded -or accounting purposesD a. T$e event or item can !e measured o!0ectivel" in -inancial terms. !. T$e event or item is relevant and relia!le. c. T$e event or item is an element. d. 2ll o- t$ese must !e met. 3). C$ic$ o- t$e -ollo<ing is a recorda!le event or itemD a. 6$anges in managerial polic" !. T$e value o- $uman resources c. 6$anges in personnel d. None o- t$ese ans<er c$oices are correct. 3+. C$ic$ o- t$e -ollo<ing is not an internal eventD a. (epreciation !. 9sing ra< materials in t$e production process c. (ividend declaration and su!se&uent pa"ment d. 2ll o- t$ese are internal transactions. 3.. 3xternal events do not include a. interaction !et<een an entit" and its environment. !. a c$ange in t$e price o- a good or service t$at an entit" !u"s or sells. c. improvement in tec$nolog" !" a competitor. d. using !uildings and mac$iner" in operations. 41. 2 trial !alance ma" prove t$at de!its and credits are e&ual= !ut a. an amount could !e entered in t$e <rong account. !. a transaction could $ave !een entered t<ice. c. a transaction could $ave !een omitted. d. 2ll o- t$ese ans<er c$oices are correct. 3 0 99 Test +an, "or Inter-e!iate A##ountin./ Fi"teent E!ition 41. 2 general 0ournal a. c$ronologicall" lists transactions and ot$er events= expressed in terms o- de!its and credits. !. contains one record -or eac$ o- t$e asset= lia!ilit"= stoc#$olders% e&uit"= revenue= and expense accounts. c. lists all t$e increases and decreases in eac$ account in one place. d. contains onl" ad0usting entries. 42. 2 0ournal entr" to record t$e sale o- inventor" on account <ill include a a. de!it to Inventor". !. de!it to 2ccounts Receiva!le. c. de!it to *ales Revenue. d. credit to 6ost o- /oods *old. 43. 2 0ournal entr" to record a pa"ment on account <ill include a a. de!it to 2ccounts Receiva!le. !. credit to 2ccounts Receiva!le. c. de!it to 2ccounts ,a"a!le. d. credit to 2ccounts ,a"a!le. 44. 2 0ournal entr" to record a receipt o- rent in advance <ill include a a. de!it to Rent Revenue. !. credit to Rent Revenue. c. credit to 6as$. d. credit to 9nearned Revenue. 45. C$ic$ o- t$e -ollo<ing errors <ill cause an im!alance in t$e trial !alanceD a. Bmission o- a transaction in t$e 0ournal. !. ,osting an entire 0ournal entr" t<ice to t$e ledger. c. ,osting a credit o- E)21 to 2ccounts ,a"a!le as a credit o- E)21 to 2ccounts Receiva!le. d. isting t$e !alance o- an account <it$ a de!it !alance in t$e credit column o- t$e trial !alance. * 4'. C$ic$ o- t$e -ollo<ing is not a principal purpose o- an unad0usted trial !alanceD a. It proves t$at de!its and credits o- e&ual amounts are in t$e ledger. !. It is t$e !asis -or an" ad0ustments to t$e account !alances. c. It supplies a listing o- open accounts and t$eir !alances. d. It proves t$at de!its and credits <ere properl" entered in t$e ledger accounts. * 4). 2n ad0usting entr" s$ould never include a. a de!it to an expense account and a credit to a lia!ilit" account. !. a de!it to an expense account and a credit to a revenue account. c. a de!it to a lia!ilit" account and a credit to revenue account. d. a de!it to a revenue account and a credit to a lia!ilit" account. 4+. C$ic$ o- t$e -ollo<ing is an example o- an accrued expenseD a. B--ice supplies purc$ased at t$e !eginning o- t$e "ear and de!ited to an expense account. !. ,ropert" taxes incurred during t$e "ear= to !e paid in t$e -irst &uarter o- t$e su!se&uent "ear. c. (epreciation expense d. Rent recogni;ed during t$e period= to !e received at t$e end o- t$e "ear 3 0 91 T$e 2ccounting In-ormation *"stem , 4.. C$ic$ o- t$e -ollo<ing statements is true a!out t$e accrual !asis o- accountingD a. T$e timing o- cas$ receipts and dis!ursements is emp$asi;ed. !. 2 minimal amount o- record #eeping is re&uired in accrual !asis accounting compared to cas$ !asis. c. T$is met$od is used less -re&uentl" !" !usinesses t$an t$e cas$ met$od o- accounting. d. Revenues are recogni;ed in t$e period t$e per-ormance o!ligation is satis-ied= regardless o- t$e time period t$e cas$ is received. , 51. 2n ad0usting entr" to record an accrued expense involves a de!it to a(an) a. expense account and a credit to a prepaid account. !. expense account and a credit to 6as$. c. expense account and a credit to a lia!ilit" account. d. lia!ilit" account and a credit to an expense account. , 51. T$e -ailure to properl" record an ad0usting entr" to accrue an expense <ill result in an a. understatement o- expenses and an understatement o- lia!ilities. !. understatement o- expenses and an overstatement o- lia!ilities. c. understatement o- expenses and an overstatement o- assets. d. overstatement o- expenses and an understatement o- assets. , 52. C$ic$ o- t$e -ollo<ing properl" descri!es a de-erralD a. 6as$ is received a-ter revenue is recogni;ed. !. 6as$ is received !e-ore revenue is recogni;ed. c. 6as$ is paid a-ter expense is incurred. d. 6as$ is paid in t$e same time period t$at an expense is incurred. , 53. T$e -ailure to properl" record an ad0usting entr" to accrue a revenue item <ill result in an a. understatement o- revenues and an understatement o- lia!ilities. !. overstatement o- revenues and an overstatement o- lia!ilities. c. overstatement o- revenues and an overstatement o- assets. d. understatement o- revenues and an understatement o- assets. , 54. T$e omission o- t$e ad0usting entr" to record depreciation expense <ill result in an a. overstatement o- assets and an overstatement o- o<nersA e&uit". !. understatement o- assets and an understatement o- o<nerAs e&uit". c. overstatement o- assets and an overstatement o- lia!ilities. d. overstatement o- lia!ilities and an understatement o- o<nersA e&uit". 55. 2d0ustments are o-ten prepared a. a-ter t$e !alance s$eet date= !ut dated as o- t$e !alance s$eet date. !. a-ter t$e !alance s$eet date= and dated a-ter t$e !alance s$eet date. c. !e-ore t$e !alance s$eet date= and dated !e-ore t$e !alance s$eet date. d. !e-ore t$e !alance s$eet date= and dated a-ter t$e !alance s$eet date. 5'. 2t t$e time a compan" prepa"s a cost a. it de!its an asset account to s$o< t$e service or !ene-it it <ill receive in t$e -uture. !. it de!its an expense account to matc$ t$e expense against revenues recogni;ed. c. its credits a lia!ilit" account to s$o< t$e o!ligation to pa" -or t$e service in t$e -uture. d. it credits an asset account and de!its an expense account. 3 0 93 Test +an, "or Inter-e!iate A##ountin./ Fi"teent E!ition 5). Fo< do t$ese prepaid expenses expireD Rent Supplies a. Cit$ t$e passage o- time T$roug$ use and consumption !. Cit$ t$e passage o- time Cit$ t$e passage o- time c. T$roug$ use and consumption T$roug$ use and consumption d. T$roug$ use and consumption Cit$ t$e passage o- time 5+. Recording t$e ad0usting entr" -or depreciation $as t$e same e--ect as recording t$e ad0usting entr" -or a. an unearned revenue. !. a prepaid expense. c. an accrued revenue. d. an accrued expense. 5.. 9nearned revenue on t$e !oo#s o- one compan" is li#el" to !e a. a prepaid expense on t$e !oo#s o- t$e compan" t$at made t$e advance pa"ment. !. an unearned revenue on t$e !oo#s o- t$e compan" t$at made t$e advance pa"ment. c. an accrued expense on t$e !oo#s o- t$e compan" t$at made t$e advance pa"ment. d. an accrued revenue on t$e !oo#s o- t$e compan" t$at made t$e advance pa"ment. '1. To compute interest expense on a note -or an ad0usting entr"= t$e -ormula is (principal G annual rate G a -raction). T$e numerator and denominator o- t$e -raction are> Numerator Denominator a. engt$ o- time note $as !een outstanding 12 mont$s !. Total lengt$ o- note 12 mont$s c. engt$ o- time until note matures Total lengt$ o- note d. engt$ o- time note $as !een outstanding Total lengt$ o- note '1. 2d0usting entries are necessar" to 1. o!tain a proper matc$ing o- revenue and expense. 2. ac$ieve an accurate statement o- assets and e&uities. 3. ad0ust assets and lia!ilities to t$eir -air mar#et value. a. 1 !. 2 c. 3 d. 1 and 2 '2. C$" are certain costs o- doing !usiness capitali;ed <$en incurred and t$en depreciated or amorti;ed over su!se&uent accounting c"clesD a. To reduce t$e -ederal income tax lia!ilit" !. To aid management in cas$5-lo< anal"sis c. To matc$ t$e costs o- production <it$ revenues as recogni;ed d. To ad$ere to t$e accounting constraint o- conservatism '3. C$en an expense is paid in cas$ !e-ore it is used= it is called a(n) a. prepaid expense. !. accrued expense. c. estimated expense. d. cas$ expense. 3 0 95 T$e 2ccounting In-ormation *"stem '4. C$en revenue or expense $as !een recogni;ed or incurred !ut not "et collected or paid= it is normall" called a(n) HHHHHHHHHHHH revenue or expense. a. de-erred !. ad0usted c. estimated d. None o- t$ese ans<er c$oices are correct. '5. C$en a revenue is collected and recorded in advance= it is normall" accounted -or as a(n) HHHHHHHHHHH revenue. a. accrued !. prepaid c. unearned d. cas$ ''. 2n accrued expense can !est !e descri!ed as an amount a. paid and currentl" matc$ed <it$ earnings. !. paid and not currentl" matc$ed <it$ earnings. c. not paid and not currentl" matc$ed <it$ earnings. d. not paid and currentl" matc$ed <it$ earnings. '). (uring an accounting period= i- an expense $as !een incurred and consumed !ut not "et paid -or or recorded= t$en t$e end5o-5period ad0usting entr" <ould involve a. a lia!ilit" account and an asset account. !. an asset or contra asset account and an expense account. c. a lia!ilit" account and an expense account. d. a receiva!le account and a revenue account. '+. C$ic$ o- t$e -ollo<ing must !e considered in estimating depreciation on an asset -or an accounting periodD a. T$e original cost o- t$e asset !. Its use-ul li-e c. T$e decline o- its -air value d. 4ot$ t$e original cost o- t$e asset and its use-ul li-e. '.. C$ic$ o- t$e -ollo<ing <ould not !e a correct -orm -or an ad0usting entr"D a. 2 de!it to a revenue and a credit to a lia!ilit" !. 2 de!it to an expense and a credit to a lia!ilit" c. 2 de!it to a lia!ilit" and a credit to a revenue d. 2 de!it to an asset and a credit to a lia!ilit" )1. Iear5end net assets <ould !e overstated and current expenses <ould !e understated as a result o- -ailure to record <$ic$ o- t$e -ollo<ing ad0usting entriesD a. 3xpiration o- prepaid insurance !. (epreciation o- -ixed assets c. 9se o- supplies d. 2ll o- t$ese ans<er c$oices are correct. )1. 2 prepaid expense can !est !e descri!ed as an amount a. paid and currentl" matc$ed <it$ revenues. !. paid and not currentl" matc$ed <it$ revenues. c. not paid and currentl" matc$ed <it$ revenues. d. not paid and not currentl" matc$ed <it$ revenues. 3 0 96 Test +an, "or Inter-e!iate A##ountin./ Fi"teent E!ition )2. 2n accrued revenue can !est !e descri!ed as an amount a. collected and currentl" matc$ed <it$ expenses. !. collected and not currentl" matc$ed <it$ expenses. c. not collected and currentl" matc$ed <it$ expenses. d. not collected and not currentl" matc$ed <it$ expenses. )3. 2n unearned revenue can !est !e descri!ed as an amount a. collected and currentl" matc$ed <it$ expenses. !. collected and not currentl" matc$ed <it$ expenses. c. not collected and currentl" matc$ed <it$ expenses. d. not collected and not currentl" matc$ed <it$ expenses. )4. 2n ad0usted trial !alance a. is prepared a-ter t$e -inancial statements are completed. !. proves t$e e&ualit" o- t$e de!it !alances and credit !alances o- ledger accounts a-ter all ad0ustments $ave !een made. c. is a re&uired -inancial statement under generall" accepted accounting principles. d. cannot !e used to prepare -inancial statements. )5. C$ic$ t"pe o- account is al<a"s de!ited during t$e closing processD a. (ividends !. 3xpense c. Revenue d. Retained earnings * )'. C$ic$ o- t$e -ollo<ing statements !est descri!es t$e purpose o- closing entriesD a. To -aciliate posting and ta#ing a trial !alance. !. To determine t$e amount o- net income or net loss -or t$e -ollo<ing period. c. To reduce t$e !alances o- revenue and expense accounts to ;ero so t$at t$e" ma" !e used to accumulate t$e revenues and expenses o- t$e next period. d. To complete t$e record o- various transactions t$at <ere started in a prior period. , )). I- ending accounts receiva!le exceeds t$e !eginning accounts receiva!le a. cas$ collections during t$e period exceed t$e amount o- revenue recogni;ed. !. net income -or t$e period is less t$an t$e amount o- cas$5!asis income. c. no cas$ <as collected during t$e period. d. cas$ collections during t$e "ear are less t$an t$e amount o- revenue recogni;ed. 7)+. 9nder t$e cas$5!asis o- accounting= revenues are recorded a. <$en t$e" are recogni;ed and reali;ed. !. <$en t$e" are recogni;ed and reali;a!le. c. <$en t$e" are recogni;ed. d. <$en t$e" are reali;ed. 7).. C$en converting -rom cas$5!asis to accrual5!asis accounting= <$ic$ o- t$e -ollo<ing ad0ustments s$ould !e made to cas$ receipts -rom customers to determine accrual5!asis service revenueD a. *u!tract ending accounts receiva!le. !. *u!tract !eginning unearned service revenue. c. 2dd ending accounts receiva!le. d. 2dd cas$ sales. 3 0 9: T$e 2ccounting In-ormation *"stem 7+1. C$en converting -rom cas$5!asis to accrual5!asis accounting= <$ic$ o- t$e -ollo<ing ad0ustments s$ould !e made to cas$ paid -or operating expenses to determine accrual5 !asis operating expensesD a. 2dd !eginning accrued lia!ilities. !. *u!tract !eginning prepaid expense. c. *u!tract ending prepaid expense. d. *u!tract interest expense. 7+1. Reversing entries are 1. normall" prepared -or prepaid= accrued= and estimated items. 2. necessar" to ac$ieve a proper matc$ing o- revenue and expense. 3. use-ul in simpli-"ing t$e recording o- transactions in t$e next accounting period. a. 1 !. 2 c. 3 d. 1 and 2 7+2. 2d0usting entries t$at s$ould !e reversed include t$ose -or prepaid or unearned items t$at a. create an asset or a lia!ilit" account. !. <ere originall" entered in a revenue or expense account. c. <ere originall" entered in an asset or lia!ilit" account. d. create an asset or a lia!ilit" account and <ere originall" entered in a revenue or expense account. 7+3. 2d0usting entries t$at s$ould !e reversed include a. all accrued revenues. !. all accrued expenses. c. t$ose t$at de!it an asset or credit a lia!ilit". d. 2ll o- t$ese ans<er c$oices are correct. * 7+4. 2 reversing entr" s$ould never !e made -or an ad0usting entr" t$at a. accrues unrecorded revenue. !. ad0usts expired costs -rom an asset account to an expense account. c. accrues unrecorded expenses. d. ad0usts unexpired costs -rom an expense account to an asset account. * 7+5. T$e <or#s$eet -or *$ar#o 6o. consisted o- -ive pairs o- de!it and credit columns. T$e dollar amount o- one item appeared in !ot$ t$e credit column o- t$e income statement section and t$e de!it column o- t$e !alance s$eet section. T$at item is a. net income -or t$e period. !. !eginning inventor". c. cost o- goods sold. d. net loss -or t$e period. 3 0 9; Test +an, "or Inter-e!iate A##ountin./ Fi"teent E!ition Multi$le Coi#e Ans(ers*Con#e$tual Ite- Ans% Ite- Ans% Ite- Ans% Ite- Ans% Ite- Ans% Ite- Ans% 21. d 32. a 43. c 54. a '5. c )'. c 22. d 33. a 44. d 55. a ''. d )). d 23. d 34. ! 45. d 5'. a '). c 7)+. d 24. d 35. d 4'. d 5). a '+. d 7).. c 25. d 3'. d 4). ! 5+. ! '.. d 7+1. c 2'. d 3). d 4+. ! 5.. a )1. d 7+1. c 2). ! 3+. c 4.. d '1. a )1. ! 7+2. d 2+. a 3.. d 51. c '1. d )2. c 7+3. d 2.. c 41. d 51. a '2. c )3. ! 7+4. ! 31. c 41. a 52. ! '3. a )4. ! 7+5. d 31. a 42. ! 53. d '4. d )5. c *olutions to t$ose :ultiple 6$oice &uestions -or <$ic$ t$e ans<er is Jnone o- t$ese.K 23. le-t or le-t5side. 24. 0ournal. 3). :an" ans<ers are possi!le. '4. accrued. MU'TIP'E CHOICE*Co-$utational +'. :aso 6ompan" recorded 0ournal entries -or t$e issuance o- common stoc# -or E1'1=111= t$e pa"ment o- E52=111 on accounts pa"a!le= and t$e pa"ment o- salaries expense o- E+4=111. C$at net e--ect do t$ese entries $ave on o<ners% e&uit"D a. Increase o- E1'1=111. !. Increase o- E11+=111. c. Increase o- E)'=111. d. Increase o- E24=111. +). :une 6ompan" recorded 0ournal entries -or t$e declaration o- E151=111 o- dividends= t$e E.'=111 increase in accounts receiva!le -or services rendered= and t$e purc$ase o- e&uipment -or E'3=111. C$at net e--ect do t$ese entries $ave on o<ners% e&uit"D a. (ecrease o- E213=111. !. (ecrease o- E11)=111. c. (ecrease o- E54=111. d. Increase o- E33=111. ++. ,app" 6orporation received cas$ o- E24=111 on *eptem!er 1= 2114 -or one "ear%s rent in advance and recorded t$e transaction <it$ a credit to 9nearned Rent Revenue. T$e (ecem!er 31= 2114 ad0usting entr" is a. de!it Rent Revenue and credit 9nearned Rent Revenue= E+=111. !. de!it Rent Revenue and credit 9nearned Rent Revenue= E1'=111. c. de!it 9nearned Rent Revenue and credit Rent Revenue= E+=111. d. de!it 6as$ and credit 9nearned Rent Revenue= E1'=111. 3 0 9< T$e 2ccounting In-ormation *"stem +.. ,anda 6orporation paid cas$ o- E'1=111 on 8une 1= 2114 -or one "ear%s rent in advance and recorded t$e transaction <it$ a de!it to ,repaid Rent. T$e (ecem!er 31= 2114 ad0usting entr" is a. de!it ,repaid Rent and credit Rent 3xpense= E25=111. !. de!it ,repaid Rent and credit Rent 3xpense= E35=111. c. de!it Rent 3xpense and credit ,repaid Rent= E35=111. d. de!it ,repaid Rent and credit 6as$= E25=111. .1. Tate 6ompan" purc$ased e&uipment on Novem!er 1= 2114 and gave a 35mont$= .L note <it$ a -ace value o- E'1=111. T$e (ecem!er 31= 2114 ad0usting entr" is a. de!it Interest 3xpense and credit Interest ,a"a!le= E5=411. !. de!it Interest 3xpense and credit Interest ,a"a!le= E1=351. c. de!it Interest 3xpense and credit 6as$= E.11. d. de!it Interest 3xpense and credit Interest ,a"a!le= E.11. .1. 4ro<n 6ompan"As account !alances at (ecem!er 31= 2114 -or 2ccounts Receiva!le and t$e related 2llo<ance -or (ou!t-ul 2ccounts are E.21=111 de!it and E1=411 credit= respectivel". From an aging o- accounts receiva!le= it is estimated t$at E23=111 o- t$e (ecem!er 31 receiva!les <ill !e uncollecti!le. T$e necessar" ad0usting entr" <ould include a credit to t$e allo<ance account -or a. E23=111. !. E24=411. c. E21='11. d. E1=411. .2. 6$en 6ompan"As account !alances at (ecem!er 31= 2114 -or 2ccounts Receiva!le and t$e 2llo<ance -or (ou!t-ul 2ccounts are E4+1=111 de!it and E.11 credit. *ales during 2114 <ere E1='51=111. It is estimated t$at 1L o- sales <ill !e uncollecti!le. T$e ad0usting entr" <ould include a credit to t$e allo<ance account -or a. E1)=411. !. E1'=511. c. E15='11. d. E4=+11. .3. *tarr 6orporation loaned E451=111 to anot$er corporation on (ecem!er 1= 2114 and received a 35mont$= +L interest5!earing note <it$ a -ace value o- E451=111. C$at ad0usting entr" s$ould *tarr ma#e on (ecem!er 31= 2114D a. (e!it Interest Receiva!le and credit Interest Revenue= E.=111. !. (e!it 6as$ and credit Interest Revenue= E3=111. c. (e!it Interest Receiva!le and credit Interest Revenue= E3=111. d. (e!it 6as$ and credit Interest Receiva!le= E.=111. .4. 2 compan" receives interest on a E)1=111= +L= 55"ear note receiva!le eac$ 2pril 1. 2t (ecem!er 31= 2114= t$e -ollo<ing ad0usting entr" <as made to accrue interest receiva!le> Interest Receiva!le ............................................................. 4=211 Interest Revenue ..................................................... 4=211 3 0 9> Test +an, "or Inter-e!iate A##ountin./ Fi"teent E!ition 2ssuming t$at t$e compan" does not use reversing entries= <$at entr" s$ould !e made on 2pril 1= 2115 <$en t$e annual interest pa"ment is receivedD a. 6as$ ................................................................................... 1=411 Interest Revenue ..................................................... 1=411 !. 6as$ ................................................................................... 4=211 Interest Receiva!le ................................................. 4=211 c. 6as$ ................................................................................... 5='11 Interest Receiva!le ................................................. 4=211 Interest Revenue ..................................................... 1=411 d. 6as$ ................................................................................... 5='11 Interest Revenue ..................................................... 5='11 7.5. 2 compan" receives interest on a E)1=111= +L= 55"ear note receiva!le eac$ 2pril 1. 2t (ecem!er 31= 2114= t$e -ollo<ing ad0usting entr" <as made to accrue interest receiva!le> Interest Receiva!le ............................................................. 4=211 Interest Revenue ..................................................... 4=211 2ssuming t$at t$e compan" !oes use reversing entries= <$at entr" s$ould !e made on 2pril 1= 2115 <$en t$e annual interest pa"ment is receivedD a. 6as$ ................................................................................... 1=411 Interest Revenue ..................................................... 1=411 !. 6as$ ................................................................................... 4=211 Interest Receiva!le ................................................. 4=211 c. 6as$ .................................................................................. 5='11 Interest Receiva!le ................................................. 4=211 Interest Revenue ..................................................... 1=411 d. 6as$ ................................................................................... 5='11 Interest Revenue...................................................... 5='11 .'. :urp$" 6ompan" su!let a portion o- its <are$ouse -or -ive "ears at an annual rental o- E'1=111= !eginning on :a" 1= 2114. T$e tenant= *$eri 6$arter= paid one "earAs rent in advance= <$ic$ :urp$" recorded as a credit to 9nearned Rent Revenue. :urp$" reports on a calendar5"ear !asis. T$e ad0ustment on (ecem!er 31= 2114 -or :urp$" s$ould !e a. No entr" !. 9nearned Rent Revenue .................................................... 21=111 Rent Revenue ......................................................... 21=111 c. Rent Revenue ..................................................................... 21=111 9nearned Rent Revenue ......................................... 21=111 d. 9nearned Rent Revenue .................................................... 41=111 Revenue Revenue................................................... 41=111 .). (uring t$e -irst "ear o- Cil#inson 6o.As operations= all purc$ases <ere recorded as assets. *upplies in t$e amount o- E25=+11 <ere purc$ased. 2ctual "ear5end supplies amounted to E5='11. T$e ad0usting entr" -or store supplies <ill a. increase net income !" E21=211. !. increase expenses !" E21=211. c. decrease supplies !" E5='11. d. de!it 2ccounts ,a"a!le -or E5='11. 3 0 1? T$e 2ccounting In-ormation *"stem .+. 4ig5:out$ Frog 6orporation $ad revenues o- E311=111= expenses o- E211=111= and dividends o- E45=111. C$en Income *ummar" is closed to Retained 3arnings= t$e amount o- t$e de!it or credit to Retained 3arnings is a a. de!it o- E55=111. !. de!it o- E111=111. c. credit o- E55=111. d. credit o- E111=111. 7... T$e income statement o- (olan 6orporation -or 2114 included t$e -ollo<ing items> Interest revenue E121=111 *alaries and <ages expense 1+1=111 Insurance expense 1+=211 T$e -ollo<ing !alances $ave !een excerpted -rom (olan 6orporationAs !alance s$eets> (ecem!er 31= 2114 (ecem!er 31= 2113 Interest receiva!le E1+=211 E15=111 *alaries and <ages pa"a!le 1)=+11 +=411 ,repaid insurance 2=211 3=111 T$e cas$ received -or interest during 2114 <as a. E112=+11. !. E11)=+11. c. E121=111. d. E124=211. 7111. T$e income statement o- (olan 6orporation -or 2114 included t$e -ollo<ing items> Interest revenue E121=111 *alaries and <ages expense 1+1=111 Insurance expense 1+=211 T$e -ollo<ing !alances $ave !een excerpted -rom (olan 6orporationAs !alance s$eets> (ecem!er 31= 2114 (ecem!er 31= 2113 Interest receiva!le E1+=211 E15=111 *alaries and <ages pa"a!le 1)=+11 +=411 ,repaid insurance 2=211 3=111 T$e cas$ paid -or salaries and <ages during 2114 <as a. E1+.=411. !. E1)1='11. c. E1)1='11. d. E1.)=+11. 7111. T$e income statement o- (olan 6orporation -or 2114 included t$e -ollo<ing items> Interest revenue E121=111 *alaries and <ages expense 1+1=111 Insurance expense 1+=211 3 0 19 Test +an, "or Inter-e!iate A##ountin./ Fi"teent E!ition T$e -ollo<ing !alances $ave !een excerpted -rom (olan 6orporationAs !alance s$eets> (ecem!er 31= 2114 (ecem!er 31= 2113 Interest receiva!le E1+=211 E15=111 *alaries and <ages pa"a!le 1)=+11 +=411 ,repaid insurance 2=211 3=111 T$e cas$ paid -or insurance premiums during 2114 <as a. E1'=111. !. E15=211. c. E1.=111. d. E1)=411. 7112. Blsen 6ompan" paid or collected during 2114 t$e -ollo<ing items> Insurance premiums paid E 25=+11 Interest collected '2=+11 *alaries paid 2'1=411 T$e -ollo<ing !alances $ave !een excerpted -rom BlsenAs !alance s$eets> (ecem!er 31= 2114 (ecem!er 31= 2113 ,repaid insurance E 2=411 E 3=111 Interest receiva!le )=411 5=+11 *alaries and <ages pa"a!le 24='11 21=211 T$e insurance expense on t$e income statement -or 2114 <as a. E21=411. !. E25=211. c. E2'=411. d. E31=211. 7113. Blsen 6ompan" paid or collected during 2114 t$e -ollo<ing items> Insurance premiums paid E 25=+11 Interest collected '2=+11 *alaries paid 2'1=411 T$e -ollo<ing !alances $ave !een excerpted -rom BlsenAs !alance s$eets> (ecem!er 31= 2114 (ecem!er 31= 2113 ,repaid insurance E 2=411 E 3=111 Interest receiva!le )=411 5=+11 *alaries and <ages pa"a!le 24='11 21=211 T$e interest revenue on t$e income statement -or 2114 <as a. E4.='11. !. E'1=211. c. E'4=411. d. E)'=111. 3 0 11 T$e 2ccounting In-ormation *"stem 7114. Blsen 6ompan" paid or collected during 2114 t$e -ollo<ing items> Insurance premiums paid E 25=+11 Interest collected '2=+11 *alaries and <ages paid 2'1=411 T$e -ollo<ing !alances $ave !een excerpted -rom BlsenAs !alance s$eets> (ecem!er 31= 2114 (ecem!er 31= 2113 ,repaid insurance E 2=411 E 3=111 Interest receiva!le )=411 5=+11 *alaries and <ages pa"a!le 24='11 21=211 *alaries and <ages expense on t$e income statement -or 2114 <as a. E214='11. !. E25)=111. c. E2'3=+11. d. E31'=211. 7115. T$e *upplies account $ad a !alance at t$e !eginning o- "ear 3 o- E+=111 (!e-ore t$e reversing entr"). ,a"ments -or purc$ases o- supplies during "ear 3 amounted to E51=111 and <ere recorded as expense. 2 p$"sical count at t$e end o- "ear 3 revealed supplies costing E11=511 <ere on $and. Reversing entries are used !" t$is compan". T$e re&uired ad0usting entr" at t$e end o- "ear 3 <ill include a de!it to> a. *upplies 3xpense -or E3=511. !. *upplies -or E3=511. c. *upplies 3xpense -or E4'=511. d. *upplies -or E11=511. 711'. 2t t$e end o- 2114= (re< 6ompan" made -our ad0usting entries -or t$e -ollo<ing items> 1. (epreciation expense= E25=111. 2. 3xpired insurance= E2=211 (originall" recorded as prepaid insurance.) 3. Interest pa"a!le= E'=111. 4. Rent receiva!le= E11=111. In t$e normal situation= to -acilitate su!se&uent entries= t$e ad0usting entr" or entries t$at ma" !e reversed is (are) a. 3ntr" No. 3 onl". !. 3ntr" No. 4 onl". c. 3ntr" No. 3 and No. 4. d. 3ntr" No. 2= No. 3 and No. 4. 711). /arcia 6orporation received cas$ o- E3'=111 on 2ugust 1= 2114 -or one "earAs rent in advance and recorded t$e transaction <it$ a credit to Rent Revenue. T$e (ecem!er 31= 2114 ad0usting entr" is a. de!it Rent Revenue and credit 9nearned Rent Revenue= E15=111. !. de!it Rent Revenue and credit 9nearned Rent Revenue= E21=111. c. de!it 9nearned Rent Revenue and credit Rent Revenue= E15=111. d. de!it 6as$ and credit 9nearned Rent Revenue= E21=111. 3 0 13 Test +an, "or Inter-e!iate A##ountin./ Fi"teent E!ition 711+. ope; 6ompan" received E14=411 on 2pril 1= 2114 -or one "earAs rent in advance and recorded t$e transaction <it$ a credit to a nominal account. T$e (ecem!er 31= 2114 ad0usting entr" is a. de!it Rent Revenue and credit 9nearned Rent Revenue= E3='11. !. de!it Rent Revenue and credit 9nearned Rent Revenue= E11=+11. c. de!it 9nearned Rent Revenue and credit Rent Revenue= E3='11. d. de!it 9nearned Rent Revenue and credit Rent Revenue= E11=+11. 711.. /i!son 6ompan" paid E12=111 on 8une 1= 2114 -or a t<o5"ear insurance polic" and recorded t$e entire amount as Insurance 3xpense. T$e (ecem!er 31= 2114 ad0usting entr" is a. de!it Insurance 3xpense and credit ,repaid Insurance= E3=511. !. de!it Insurance 3xpense and credit ,repaid Insurance= E+=511. c. de!it ,repaid Insurance and credit Insurance 3xpense= E3=511 d. de!it ,repaid Insurance and credit Insurance 3xpense= E+=511. Multi$le Coi#e Ans(ers*Co-$utational Ite- Ans% Ite- Ans% Ite- Ans% Ite- Ans % Ite- Ans % Ite- Ans% +'. c .1. d .4. c .+. d 7112. c 711'. c +). c .1. c .5. d 7... ! 7113. c 711). ! ++. c .2. ! .'. d 7111. ! 7114. c 711+. a +.. c .3. c .). ! 7111. d 7115. d 711.. d MU'TIP'E CHOICE*CPA A!a$te! 111. Bn *eptem!er 1= 2114= o<e 6o. issued a note pa"a!le to National 4an# in t$e amount o- E.11=111= !earing interest at .L= and pa"a!le in t$ree e&ual annual principal pa"ments o- E311=111. Bn t$is date= t$e !an#As prime rate <as +L. T$e -irst pa"ment -or interest and principal <as made on *eptem!er 1= 2115. 2t (ecem!er 31= 2115= o<e s$ould record accrued interest pa"a!le o- a. E2)=111. !. E24=111. c. E1+=111. d. E1'=111. 111. 3aton 6o. sells ma0or $ouse$old appliance service contracts -or cas$. T$e service contracts are -or a one5"ear= t<o5"ear= or t$ree5"ear period. 6as$ receipts -rom contracts are credited to 9nearned *ervice Revenue. T$is account $ad a !alance o- E3=+11=111 at (ecem!er 31= 2114 !e-ore "ear5end ad0ustment. *ervice contract costs are c$arged as incurred to t$e *ervice 6ontract 3xpense account= <$ic$ $ad a !alance o- E.11=111 at (ecem!er 31= 2114. *ervice contracts still outstanding at (ecem!er 31= 2114 expire as -ollo<s> (uring 2115 E.'1=111 (uring 211' 1=141=111 (uring 211) )11=111 3 0 15 T$e 2ccounting In-ormation *"stem C$at amount s$ould !e reported as 9nearned *ervice Revenue in 3atonAs (ecem!er 31= 2114 !alance s$eetD a. E2=.11=111. !. E2=+11=111. c. E1=.11=111. d. E1=111=111. 112. In Novem!er and (ecem!er 2114= ane 6o.= a ne<l" organi;ed maga;ine pu!lis$er= received E'1=111 -or 1=111 t$ree5"ear su!scriptions at E21 per "ear= starting <it$ t$e 8anuar" 2115 issue. ane included t$e entire E'1=111 in its 2114 income tax return. C$at amount s$ould ane report in its 2114 income statement -or su!scriptions revenueD a. E1. !. E3=333. c. E21=111. d. E'1=111. 113. Bn 8une 1= 2114= Nott 6orp. loaned Forn E+11=111 on a 12L note= pa"a!le in -ive annual installments o- E1'1=111 !eginning 8anuar" 2= 2115. In connection <it$ t$is loan= Forn <as re&uired to deposit E5=111 in a noninterest5!earing escro< account. T$e amount $eld in escro< is to !e returned to Forn a-ter all principal and interest pa"ments $ave !een made. Interest on t$e note is pa"a!le on t$e -irst da" o- eac$ mont$ !eginning 8ul" 1= 2114. Forn made timel" pa"ments t$roug$ Novem!er 1= 2114. Bn 8anuar" 2= 2115= Nott received pa"ment o- t$e -irst principal installment plus all interest due. 2t (ecem!er 31= 2114= NottAs interest receiva!le on t$e loan to Forn s$ould !e a. E1. !. E+=111. c. E1'=111. d. E24=111. 114. Included in 2llen 6orp.As !alance s$eet at 8une 31= 2113 is a 11L= E3=111=111 note pa"a!le. T$e note is dated Bcto!er 1= 2113 and is pa"a!le in t$ree e&ual annual pa"ments o- E1=511=111 plus interest. T$e -irst interest and principal pa"ment <as made on Bcto!er 1= 2114. In 2llenAs 8une 31= 2115 !alance s$eet= <$at amount s$ould !e reported as accrued interest pa"a!le -or t$is noteD a. E33)=511. !. E225=111. c. E112=511. d. E)5=111. 115. 6ola< 6o. pa"s all salaried emplo"ees on a !i<ee#l" !asis. Bvertime pa"= $o<ever= is paid in t$e next !i<ee#l" period. 6ola< accrues salaries expense onl" at its (ecem!er 31 "ear end. (ata relating to salaries earned in (ecem!er 2114 are as -ollo<s> ast pa"roll <as paid on 12@2'@14= -or t$e 25<ee# period ended 12@2'@14. Bvertime pa" earned in t$e 25<ee# period ended 12@2'@14 <as E21=111. Remaining <or# da"s in 2114 <ere (ecem!er 2.= 31= 31= on <$ic$ da"s t$ere <as no overtime. T$e recurring !i<ee#l" salaries total E3'1=111. 3 0 16 Test +an, "or Inter-e!iate A##ountin./ Fi"teent E!ition 2ssuming a -ive5da" <or#<ee#= 6ola< s$ould record a lia!ilit" at (ecem!er 31= 2114 -or accrued salaries o- a. E11+=111. !. E12+=111. c. E21'=111. d. E23'=111. 11'. Tolan 6orp.As trademar# <as licensed to 3dd" 6o. -or ro"alties o- 15L o- sales o- t$e trademar#ed items. Ro"alties are pa"a!le semiannuall" on :arc$ 15 -or sales in 8ul" t$roug$ (ecem!er o- t$e prior "ear= and on *eptem!er 15 -or sales in 8anuar" t$roug$ 8une o- t$e same "ear. Tolan received t$e -ollo<ing ro"alties -rom 3dd"> :arc$ 15 *eptem!er 15 2113 E5=111 E)=511 2114 '=111 .=511 3dd" estimated t$at sales o- t$e trademar#ed items <ould total E31=111 -or 8ul" t$roug$ (ecem!er 2114. In TolanAs 2114 income statement= t$e ro"alt" revenue s$ould !e a. E14=111. !. E15=511. c. E21=111. d. E21=511. 11). 2t (ecem!er 31= 2114= *ue%s 4outi&ue $ad 1=111 gi-t certi-icates outstanding= <$ic$ $ad !een sold to customers during 2114 -or E'1 eac$. *ue%s operates on a gross pro-it o- '1L o- its sales. C$at amount o- revenue pertaining to t$e 1=111 outstanding gi-t certi-icates s$ould !e de-erred at (ecem!er 31= 2114D a. E1. !. E24=111. c. E3'=111. d. E'1=111. 711+. 6ompared to t$e accrual !asis o- accounting= t$e cas$ !asis o- accounting overstates income !" t$e net increase during t$e accounting period o- t$e 2ccounts Receiva!le 2ccrued 3xpenses ,a"a!le a. No No !. No Ies c. Ies No d. Ies Ies 711.. /regg 6orp. reported revenue o- E1=451=111 in its accrual !asis income statement -or t$e "ear ended 8une 31= 2115. 2dditional in-ormation <as as -ollo<s> 2ccounts receiva!le 8une 31= 2114 E411=111 2ccounts receiva!le 8une 31= 2115 531=111 9ncollecti!le accounts <ritten o-- during t$e -iscal "ear 15=111 9nder t$e cas$ !asis= /regg s$ould report revenue o- a. E1=135=111. !. E1=151=111. c. E1=315=111. d. E1=335=111. 3 0 1: T$e 2ccounting In-ormation *"stem 7121. 8im Iount= :.(.= #eeps $is accounting records on t$e cas$ !asis. (uring 2115= (r. Iount collected E351=111 -rom $is patients. 2t (ecem!er 31= 2114= (r. Iount $ad accounts receiva!le o- E41=111. 2t (ecem!er 31= 2115= (r. Iount $ad accounts receiva!le o- E)1=111 and unearned revenue o- E11=111. Bn t$e accrual !asis= $o< muc$ <as (r. IountAs patient service revenue -or 2115D a. E311=111. !. E3)1=111. c. E3+1=111. d. E3.1=111. 7121. T$e -ollo<ing in-ormation is availa!le -or 2ce 6ompan" -or 2114> (is!ursements -or purc$ases E1=3'1=111 Increase in trade accounts pa"a!le 111=111 (ecrease in merc$andise inventor" 41=111 6ost o- goods sold -or 2114 <as a. E1=511=111. !. E1=421=111. c. E1=311=111. d. E1=221=111. Multi$le Coi#e Ans(ers*CPA A!a$te! Ite- Ans% Ite- Ans% Ite- Ans% Ite- Ans% Ite- Ans % Ite- Ans% 111. c 112. a 114. ! 11'. a 711+. ! 7121. ! 111. ! 113. c 115. ! 11). d 711.. c 7121. a 3 0 1; Test +an, "or Inter-e!iate A##ountin./ Fi"teent E!ition )ERI4ATIONS * Co-$utational No% Ans(er )erivation +'. c E1'1=111 5 E+4=111 ? E)'=111. +). c E151=111 5 E.'=111 ? E54=111. ++. c E24=111 x 4@12 ? E+=111. +.. c E'1=111 x )@12 ? E35=111. .1. d 2@12 x .L x E'1=111 ? E.11. .1. c E23=111 M E1=411 ? E21='11. .2. ! E1='51=111 x 1L ? E1'=511. .3. c 1@12 x +L x E451=111 ? E3=111. .4. c E)1=111 x +L ? E5='11N E5='11 5 E4=211 ? E1=411 int. rev. 7.5. d E)1=111 x +L ? E5='11 .'. d E'1=111 x +@12 ? E41=111. .). ! E25=+11 M E5='11 ? E21=211. .+. d E311=111 5 E211=111 ? E111=111. 7... ! E15=111 O E121=111 5 E1+=211 ? E11)=+11. 7111. ! E+=411 O E1+1=111 5 E1)=+11 ? E1)1='11. 7111. d E1+=211 M E3=111 O E2=211 ? E1)=411. 7112. c E25=+11 O E'11 ? E2'=411. 7113. c E'2=+11 M E5=+11 O E)=411 ? E'4=411. 7114. c E2'1=411 M E21=211 O E24='11 ? E2'3=+11. 7115. d E11=511 O E+=111 M E+=111 ? E11=511. 711'. c 711). ! )@12 x E3'=111 ? E21=111. 711+. a 3@12 x E14=411 ? E3='11. 711.. d 1)@24 x E12=111 ? E+=511. 3 0 1< T$e 2ccounting In-ormation *"stem )ERI4ATIONS * CPA A!a$te! No% Ans(er )erivation 111. c (E.11=111 M E311=111) G .L G 4@12 ? E1+=111. 111. ! E.'1=111 O E1=141=111 O E)11=111 ? E2=+11=111. 112. a E1= none o- t$e E'1=111 is recogni;ed. 113. c E+11=111 G 12L G 2@12 ? E1'=111. 114. ! E3=111=111 G .@12 G 11L ? E225=111. 115. ! E21=111 O (E3'1=111 P 11 G 3) ? E12+=111. 11'. a E.=511 O (E31=111 G 15L) ? E14=111. 11). d 1=111 G E'1 ? E'1=111. 711+. ! 6onceptual. 711.. c E1=451=111 O E411=111 M E531=111 M E15=111 ? E1=315=111. 7121. ! E351=111 M E41=111 O E)1=111 M E11=111 ? E3)1=111. 7121. a E1=3'1=111 O E111=111 O E41=111 ? E1=511=111. +RIEF E2ERCISES +E% 30911Q(e-initions. ,rovide clear= concise ans<ers -or t$e -ollo<ing. 1. C$at is t$e accrual5!asis o- accountingD 2. C$at is an accrued expenseD 3. C$at is accrued revenueD 4. C$at is a prepaid expenseD 5. C$at is unearned revenueD 7'. *tate t$e rule t$at indicates <$ic$ ad0usting entries -or prepaid and unearned items s$ould !e reversed. 3 0 1> Test +an, "or Inter-e!iate A##ountin./ Fi"teent E!ition Solution 30911 1. T$e accrual !asis o- accounting recogni;es revenue <$en t$e per-ormance o!ligation is satis-ied and recogni;es expenses in t$e period incurred. 2. 2n accrued expense is an expense <$ic$ is incurred !ut not paid in cas$ or recorded. 3. 2n accrued revenue is a revenue <$ic$ is recogni;ed !ut not "et received in cas$ or recorded. 4. 2 prepaid expense is an expense paid in cas$ and recorded as an asset !e-ore it is used. 5. 9nearned revenues are t$e revenues received in cas$ and recorded as lia!ilities !e-ore t$e" are recogni;ed. 7'. 2d0usting entries t$at create an asset or a lia!ilit" account s$ould !e reversed. T$is <ould include prepaid and unearned items originall" recorded in a revenue or expense account. +E% 30913QTerminolog". In t$e space provided at t$e rig$t= <rite t$e <ord or p$rase t$at is de-ined or indicated. 1. Revenue and expense accounts. 1. HHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH 2. 2n optional step in t$e accounting 2. HHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH c"cle. 3. 2 revenue collected= !ut not recogni;ed.3. HHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH 4. 2 revenue recogni;ed= !ut not collected.4. HHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH 5. 2sset= lia!ilit"= and e&uit" accounts. 5. HHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH '. 2n expense paid= !ut not incurred. '. HHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH ). 2n expense incurred= !ut not paid. ). HHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH Solution 30913 1. Nominal (temporar") accounts. 5. Real (permanent) accounts. 2. Reversing entries. '. ,repaid expense. 3. 9nearned revenue. ). 2ccrued expense. 4. 2ccrued revenue. +E% 30915Q2ccrued items and de-erred (unearned or prepaid) items. /enerall" accepted accounting principles re&uire t$e use o- accruals and de-errals in t$e determination o- income. Fo< is income determined under t$e accrual5!asis o- accountingD Include in "our ans<er <$at constitutes an accrued item and a de-erred (prepaid) item= and give appropriate examples o- eac$. 3 0 3? T$e 2ccounting In-ormation *"stem Solution 30915 2ccrual accounting recogni;es and reports t$e e--ects o- transactions and ot$er events in t$e time periods to <$ic$ t$e" relate rat$er t$an onl" <$en cas$ is received or paid. 2ccrual accounting attempts to matc$ revenues and t$e expenses associated <it$ t$ose revenues in order to determine net income -or an accounting period. 2n accrued item is an item o- revenue or expense t$at $as !een recogni;ed or incurred during t$e period= !ut $as not "et !een collected or paid in cas$. 2n example o- an accrued revenue is rent -or t$e last mont$ o- an accounting period t$at $as !een recogni;ed !" a landlord !ut not "et paid !" t$e tenant. 2n example o- an accrued expense is salaries incurred -or t$e last <ee# o- an accounting period t$at are not pa"a!le until t$e su!se&uent accounting period. 2 de-erred (unearned or prepaid) item is an item o- revenue or expense t$at $as !een received or paid in cas$= !ut $as not "et !een recogni;ed or consumed. 2n example o- a de-erred revenue is unearned su!scription revenue collected in advance o- !eing recogni;ed. 2n example o- a de-erred expense is an insurance premium paid at t$e end o- an accounting period <$ic$ <ill provide insurance coverage -or t$e -irst six mont$s o- t$e su!se&uent period. E2ERCISES EB% 30916Q2d0usting entries. ,resent= in 0ournal -orm= t$e ad0ustments t$at <ould !e made on 8ul" 31= 2115= t$e end o- t$e -iscal "ear= -or eac$ o- t$e -ollo<ing. 1. T$e supplies inventor" on 2ugust 1= 2114 <as E.=351. *upplies costing E22=151 <ere ac&uired during t$e "ear and c$arged to t$e supplies inventor". 2 count on 8ul" 31= 2115 indicated supplies on $and o- E+=+11. 2. Bn 2pril 31= a ten5mont$= 'L note -or E31=111 <as received -rom a customer. 73. Bn :a" 1= E12=111 <as collected as rent -or one "ear and a nominal account <as credited. Solution 30916 1. *upplies 3xpense .................................................................... 22='.1 *upplies ........................................................................ 22='.1 2. Interest Receiva!le .................................................................. 451 Interest Revenue ........................................................... 451 73. Rent Revenue .......................................................................... .=111 9nearned Rent Revenue .............................................. .=111 3 0 39 Test +an, "or Inter-e!iate A##ountin./ Fi"teent E!ition EB% 3091:Q2d0usting entries. Reed 6o. <is$es to enter receipts and pa"ments in suc$ a manner t$at ad0ustments at t$e end o- t$e period <ill not re&uire reversing entries at t$e !eginning o- t$e next period. Record t$e -ollo<ing transactions in t$e indicated manner and give t$e ad0usting entr" on (ecem!er 31= 2114. (T<o entries -or eac$ part.) 1. 2n insurance polic" -or t<o "ears <as ac&uired on 2pril 1= 2114 -or E1+=111. 2. Rent o- E12=111 -or six mont$s -or a portion o- t$e !uilding <as received on Novem!er 1= 2114. Solution 3091: 1. ,repaid Insurance .................................................................... 1+=111 6as$ ............................................................................. 1+=111 Insurance 3xpense ................................................................... '=)51 ,repaid Insurance ......................................................... '=)51 2. 6as$ ....................................................................................... 12=111 9nearned Rent Revenue............................................... 12=111 9nearned Rent Revenue........................................................... 4=111 Rent Revenue ............................................................... 4=111 EB% 3091; T$e ad0usted trial !alance o- R"an Financial ,lanners appears !elo<. 9sing t$e in-ormation -rom t$e ad0usted trial !alance= "ou are to prepare -or t$e mont$ ending (ecem!er 31> 1. an income statement. 2. a retained earnings statement. 3. a !alance s$eet. RI2N FIN2N6I2 ,2NN3R* 2d0usted Trial 4alance (ecem!er 31= 2114 (e!it 6redit 6as$ ............................................................................................... E 2=.11 2ccounts Receiva!le....................................................................... 2=211 *upplies.......................................................................................... 1=+11 3&uipment ....................................................................................... 1'=111 2ccumulated (epreciationQ3&uipment.......................................... E 4=111 2ccounts ,a"a!le............................................................................ 3=311 9nearned *ervice Revenue............................................................ 5=111 6ommon *toc#................................................................................ 11=111 Retained 3arnings........................................................................... 4=411 (ividends........................................................................................ 2=111 *ervice Revenue............................................................................. 4=211 *upplies 3xpense............................................................................ '11 (epreciation 3xpense..................................................................... 2=511 Rent 3xpense.................................................................................. 2=.11 HHHHHH E31=.11 E31=.11 3 0 31 T$e 2ccounting In-ormation *"stem Solution 3091; (21 min) 1. RI2N FIN2N6I2 ,2NN3R* Income *tatement For t$e :ont$ 3nded (ecem!er 31= 2114 Revenues *ervice revenue......................................................................... E 4=211 3xpenses Rent expense............................................................................ E2=.11 (epreciation expense................................................................ 2=511 *upplies expense...................................................................... '11 Total expenses........................................................................ '=111 Net loss........................................................................................... E(1=+11) 2. RI2N FIN2N6I2 ,2NN3R* Retained 3arnings *tatement For t$e :ont$ 3nded (ecem!er 31= 2114 Retained earnings= (ecem!er 1...................................................... E 4=411 ess> Net loss.................................................................................. E1=+11 (ividends............................................................................... 2=111 3=+11 Retained earnings= (ecem!er 31.................................................... E '11 3. RI2N FIN2N6I2 ,2NN3R* 4alance *$eet (ecem!er 31= 2114 2ssets 6as$................................................................................................ E 2=.11 2ccounts receiva!le........................................................................ 2=211 *upplies ....................................................................................... 1=+11 3&uipment ................................................................................... E1'=111 ess> 2ccumulated depreciationQe&uipment.................................. 4=111 12=111 Total assets.............................................................................. E1+=.11 ia!ilities and *toc#$olders% 3&uit" ia!ilities 2ccounts pa"a!le...................................................................... E 3=311 9nearned service revenue......................................................... 5=111 Total lia!ilities................................................................. E +=311 *toc#$olders% 3&uit" 6ommon stoc#........................................................................... 11=111 Retained earnings..................................................................... '11 11='11 Total lia!ilities and stoc#$olders% e&uit"......................... E1+=.11 3 0 33 Test +an, "or Inter-e!iate A##ountin./ Fi"teent E!ition =EB% 3091<Q6as$ !asis vs. accrual !asis o- accounting. 6ontrast t$e cas$ !asis o- accounting <it$ t$e accrual !asis o- accounting. =Solution 3091< T$e essential di--erence !et<een t$e cas$ !asis and t$e accrual !asis o- accounting relates to t$e timing o- t$e recognition o- revenues and expenses. 9nder t$e cas$ !asis o- accounting= t$e e--ects o- transactions and ot$er events are recogni;ed and reported onl" <$en cas$ is received or paid. 9nder t$e accrual !asis o- accounting= t$ese e--ects are recogni;ed and reported in t$e time periods to <$ic$ t$e" relate= regardless o- t$e time o- t$e receipt or pa"ment o- cas$. 4ecause no attempt is made under t$e cas$ !asis o- accounting to matc$ revenues and t$e expenses associated <it$ t$ose revenues= cas$ !asis -inancial statements are not in accordance <it$ generall" accepted accounting principles. =EB% 3091>Q2ccrual !asis. *ales salaries paid during 2114 <ere E+5=111. 2dvances to salesmen <ere E1=111 on 8anuar" 1= 2114= and E+11 on (ecem!er 31= 2114. *ales salaries accrued <ere E1=3'1 on 8anuar" 1= 2114= and E1=++1 on (ecem!er 31= 2114. *$o< t$e computation o- sales salaries on an accrual !asis -or 2114. =Solution 3091> E+5=111 O E1=111 M E+11 M E1=3'1 O E1=++1 ? E+5=+21. =EB% 3093?Q2ccrual !asis. T$e records -or Todd Inc. s$o<ed t$e -ollo<ing -or 2114> 8an. 1 (ec. 31 2ccrued expenses E1=311 E2=151 ,repaid expenses )21 +)1 6as$ paid during t$e "ear -or expenses= E42=511 *$o< t$e computation o- t$e amount o- expense t$at s$ould !e reported on t$e income statement. =Solution 3093? E42=511 M E1=311 O E2=151 O E)21 M E+)1 ? E43=211. 3 0 35 T$e 2ccounting In-ormation *"stem =EB% 30939Q2ccrual !asis. T$e records -or Rile" 6ompan" s$o<ed t$e -ollo<ing -or 2114> 8an. 1 (ec. 31 9nearned revenue E1=111 E2=1'1 2ccrued revenue 1=2'1 .21 6as$ collected during t$e "ear -or revenue= E'5=111 *$o< t$e computation o- t$e amount o- revenue t$at s$ould !e reported on t$e income statement. =Solution 30939 E'5=111 O E1=111 M E2=1'1 M E1=2'1 O E.21 ? E'3='11. =EB% 30931Q6as$ !asis. Revenue on t$e income statement <as E125=+11. 2ccounts receiva!le <ere E3=511 on 8anuar" 1 and E3=541 on (ecem!er 31. 9nearned revenue <as E1=151 on 8anuar" 1 and E1=')1 on (ecem!er 31. *$o< t$e computation o- revenue -or t$e "ear on a cas$ !asis. =Solution 30931 E125=+11 O E3=511 M E3=541 M E1=151 O E1=')1 ? E12'=3+1. PRO+'EMS Pr% 30933Q2d0usting entries and account classi-ication. *elected amounts -rom Trent 6ompan"As trial !alance o- 12@31@14 appear !elo<> 1. 2ccounts ,a"a!le E 1'1=111 2. 2ccounts Receiva!le 151=111 3. 2ccumulated (epreciationQ3&uipment 211=111 4. 2llo<ance -or (ou!t-ul 2ccounts 21=111 5. 4onds ,a"a!le 511=111 '. 6as$ 151=111 ). 6ommon *toc# '1=111 +. 3&uipment .'1=111 .. ,repaid Insurance 31=111 11. Interest 3xpense 11=111 11. Inventor" 311=111 12. Notes ,a"a!le (due '@1@15) 211=111 13. ,repaid Rent 211=111 14. Retained 3arnings +1+=111 15. *alaries and Cages 3xpense 32+=111 (2ll o- t$e a!ove accounts $ave t$eir standard or normal de!it or credit !alance.) 3 0 36 Test +an, "or Inter-e!iate A##ountin./ Fi"teent E!ition ,art 2. ,repare ad0usting 0ournal entries at "ear end= (ecem!er 31= 2114= !ased on t$e -ollo<ing supplemental in-ormation. a. T$e e&uipment $as a use-ul li-e o- 15 "ears <it$ no salvage value. (*traig$t5line met$od !eing used.) !. Interest accrued on t$e !onds pa"a!le is E15=111 as o- 12@31@14. c. ,repaid insurance at 12@31@14 is E25=111. d. T$e rent pa"ment o- E1+1=111 covered t$e six mont$s -rom Novem!er 31= 2114 t$roug$ :a" 31= 2115. e. *alaries and <ages earned !ut unpaid at 12@31@14= E22=111. ,art 4. Indicate t$e proper !alance s$eet classi-ication o- eac$ o- t$e 15 num!ered accounts in t$e 12@31@14 trial !alance before adjustments !" placing appropriate num!ers a-ter eac$ o- t$e -ollo<ing classi-ications. I- t$e account title <ould appear on t$e income statement= do not put t$e num!er in an" o- t$e classi-ications. a. 6urrent assets !. ,ropert"= plant= and e&uipment c. 6urrent lia!ilities d. ong5term lia!ilities e. *toc#$oldersA e&uit" Solution 30933 ,art 2. a. (epreciation 3xpense (E.'1=111 M 1) 15 .................................... '4=111 2ccumulated (epreciationQ3&uipment ............................. '4=111 !. Interest 3xpense ............................................................................ 15=111 Interest ,a"a!le .................................................................. 15=111 c. Insurance 3xpense ......................................................................... 5=111 ,repaid Insurance (E31=111 5 E25=111) .............................. 5=111 d. Rent 3xpense (E211=111 ').......................................................... 35=111 ,repaid Rent ....................................................................... 35=111 e. *alaries and Cages 3xpense ......................................................... 22=111 *alaries and Cages ,a"a!le .............................................. 22=111 ,art 4. a. 6urrent assetsQ2= 4= '= .= 11= 13 !. ,ropert"= plant= and e&uipmentQ3= + c. 6urrent lia!ilitiesQ1= 12 d. ong5term lia!ilitiesQ5 e. *toc#$oldersA e&uit"Q)= 14 3 0 3: T$e 2ccounting In-ormation *"stem Pr% 30935Q2d0usting entries. (ata relating to t$e !alances o- various accounts a--ected !" ad0usting or closing entries appear !elo<. (T$e entries <$ic$ caused t$e c$anges in t$e !alances are not given.) Iou are as#ed to suppl" t$e missing 0ournal entries <$ic$ <ould logicall" account -or t$e c$anges in t$e account !alances. 1. Interest receiva!le at 1@1@14 <as E1=111. (uring 2114 cas$ received -rom de!tors -or interest on outstanding notes receiva!le amounted to E5=111. T$e 2114 income statement s$o<ed interest revenue in t$e amount o- E'=411. Iou are to provide t$e missing ad0usting entr" t$at must $ave !een made= assuming reversing entries are not made. 2. 9nearned rent at 1@1@14 <as E5=311 and at 12@31@14 <as E+=111. T$e records indicate cas$ receipts -rom rental sources during 2114 amounted to E55=111= all o- <$ic$ <as credited to t$e 9nearned Rent Revenue account. Iou are to prepare t$e missing ad0usting entr". 3. 2ccumulated depreciationQe&uipment at 1@1@14 <as E231=111. 2t 12@31@14 t$e !alance o- t$e account <as E2+1=111. (uring 2114= one piece o- e&uipment <as sold. T$e e&uipment $ad an original cost o- E41=111 and <as 3@4 depreciated <$en sold. Iou are to prepare t$e missing ad0usting entr". 4. 2llo<ance -or dou!t-ul accounts on 1@1@14 <as E51=111. T$e !alance in t$e allo<ance account on 12@31@14 a-ter ma#ing t$e annual ad0usting entr" <as E'5=111 and during 2114 !ad de!ts <ritten o-- amounted to E31=111. Iou are to provide t$e missing ad0usting entr". 5. ,repaid rent at 1@1@14 <as E2.=111. (uring 2114 rent pa"ments o- E121=111 <ere made and c$arged to Srent expense.S T$e 2114 income statement s$o<s as a general expense t$e item Srent expenseS in t$e amount o- E145=111. Iou are to prepare t$e missing ad0usting entr" t$at must $ave !een made= assuming reversing entries are not made. '. Retained earnings at 1@1@14 <as E131=111 and at 12@31@14 it <as E211=111. (uring 2114= cas$ dividends o- E51=111 <ere paid and a stoc# dividend o- E41=111 <as issued. 4ot$ dividends <ere properl" c$arged to retained earnings. Iou are to provide t$e missing closing entr". Solution 30935 1. Interest Receiva!le ................................................................... 2=411 Interest Revenue ........................................................... 2=411 Interest revenue per !oo#s E'=411 Interest revenue received related to 2114 (E5=111 M E1=111) 4=111 Interest accrued E2=411 2. 9nearned Rent Revenue .......................................................... 52=311 Rent Revenue ............................................................... 52=311 6as$ receipts E55=111 4eginning !alance 5=311 3nding !alance (+=111) Rent revenue E52=311 3 0 3; Test +an, "or Inter-e!iate A##ountin./ Fi"teent E!ition Solution 30935 (cont.) 3. (epreciation 3xpense .............................................................. +1=111 2ccumulated (epreciationQ3&uipment ........................ +1=111 3nding !alance E2+1=111 4eginning !alance 231=111 (i--erence 51=111 Crite5o-- at time o- sale 3@4 G E41=111 31=111 E +1=111 4. 4ad (e!t 3xpense .................................................................... 45=111 2llo<ance -or (ou!t-ul 2ccounts ................................... 45=111 3nding !alance E'5=111 4eginning !alance 51=111 (i--erence 15=111 Critten o-- 31=111 E45=111 5. Rent 3xpense ........................................................................... 25=111 ,repaid Rent ................................................................. 25=111 Rent expense E145=111 ess cas$ paid 121=111 Reduction in prepaid rent account E 25=111 '. Income *ummar" ..................................................................... 1)1=111 Retained 3arnings ........................................................ 1)1=111 3nding !alance E211=111 4eginning !alance (131=111) (i--erence +1=111 6as$ dividends E51=111 *toc# dividends 41=111 .1=111 E1)1=111 Pr% 30936Q2d0usting and closing entries. T$e -ollo<ing trial !alance <as ta#en -rom t$e !oo#s o- Fis# 6orporation on (ecem!er 31= 2114. 2ccount (e!it 6redit 6as$ E .=111 2ccounts Receiva!le 41=111 Notes Receiva!le 11=111 2llo<ance -or (ou!t-ul 2ccounts E 1=+11 Inventor" 44=111 ,repaid Insurance 4=+11 3&uipment 111=111 2ccumulated (epreciation553&uip. 15=111 2ccounts ,a"a!le 11=+11 6ommon *toc# 44=111 Retained 3arnings 55=111 *ales Revenue 2+1=111 6ost o- /oods *old 12'=111 *alaries and Cages 3xpense 51=111 Rent 3xpense 12=+11 Totals E41'='11 E41'='11 3 0 3< T$e 2ccounting In-ormation *"stem Pr% 30936 (cont.) 2t "ear end= t$e -ollo<ing items $ave not "et !een recorded. a. Insurance expired during t$e "ear= E2=111. !. 3stimated !ad de!ts= 1L o- gross sales. c. (epreciation on e&uipment= 11L per "ear on original cost. d. Interest at 5L is receiva!le on t$e note -or one -ull "ear. 7e. Rent paid in advance at (ecem!er 31= E5=411 (originall" c$arged to expense). -. 2ccrued salaries and <ages at (ecem!er 31= E5=+11. Instru#tions (a) ,repare t$e necessar" ad0usting entries. (!) ,repare t$e necessar" closing entries. Solution 30936 (a) 2d0usting 3ntries a. Insurance 3xpense ................................................................ 2=111 ,repaid Insurance ......................................................... 2=111 !. 4ad (e!t 3xpense ................................................................. 2=+11 2llo<ance -or (ou!t-ul 2ccounts ................................... 2=+11 c. (epreciation 3xpense ............................................................ 11=111 2ccumulated (epreciation553&uip. ................................ 11=111 d. Interest Receiva!le ................................................................ 511 Interest Revenue ........................................................... 511 7e. ,repaid Rent .......................................................................... 5=411 Rent 3xpense ............................................................... 5=411 -. *alaries and Cages 3xpense ................................................ 5=+11 *alaries and Cages ,a"a!le ........................................ 5=+11 (!) 6losing 3ntries *ales ............................................................................................ 2+1=111 Interest Revenue ........................................................................... 511 Income *ummar" ................................................................ 2+1=511 Income *ummar" .......................................................................... 215=111 *alaries and Cages 3xpense ............................................. 55=+11 Rent 3xpense ..................................................................... )=411 (epreciation 3xpense ......................................................... 11=111 4ad (e!t 3xpense .............................................................. 2=+11 Insurance 3xpense ............................................................. 2=111 6ost o- /oods *old ............................................................. 12'=111 Income *ummar" .......................................................................... )5=511 Retained 3arnings .............................................................. )5=511 3 0 3> Test +an, "or Inter-e!iate A##ountin./ Fi"teent E!ition =Pr% 3093:Q6as$ to accrual accounting. T$e -ollo<ing in-ormation is availa!le -or Renn 6orporationAs -irst "ear o- operations> ,a"ment -or merc$andise purc$ases E335=111 3nding merc$andise inventor" 135=111 2ccounts pa"a!le (!alance at end o- "ear) '1=111 6ollections -rom customers 2+1=111 T$e !alance in accounts pa"a!le relates onl" to merc$andise purc$ases. 2ll merc$andise items <ere mar#ed to sell at 35L a!ove cost. C$at s$ould !e t$e ending !alance in accounts receiva!le= assuming all accounts are deemed collecti!leD =Solution 3093: *ince t$is is t$e -irst "ear o- operations and t$ere <ere E2+1=111 o- accounts receiva!le collected= one must compute total sales to determine t$e ending !alance in accounts receiva!le. 6ost o- goods sold is E2'1=111 assuming t$e accounts pa"a!le are -or inventor" (t$e E335=111 constitutes onl" pa"ments made -or purc$ases). *ince t$e mar#up is 35L on cost= t$e sales are E351=111 (E2'1=111 G 135L). *ales o- E351=111 less collections o- E2+1=111 results in an ending accounts receiva!le !alance o- E)1=111 as calculated !elo<. 6as$ purc$ases E335=111 2@, !alance '1=111 Total purc$ases 3.5=111 3nding inventor" 135=111 6ost o- goods sold 2'1=111 G 135L *ales 351=111 ess collections 2+1=111 3nding 2@R E)1=111 =Pr% 3093;Q2ccrual accounting. Iates 6ompan"As records provide t$e -ollo<ing in-ormation concerning certain account !alances and c$anges in t$ese account !alances during t$e current "ear. Transaction in-ormation is missing -rom eac$ item !elo<. Instru#tions ,repare t$e entry to record t$e missing in-ormation -or eac$ account. (6onsider eac$ inde5 pendentl".) 1. 2ccounts Receiva!le> 8an. 1= !alance E41=111= (ec. 31= !alance E55=111= uncollecti!le accounts <ritten o-- during t$e "ear= E'=111N accounts receiva!le collected during t$e "ear= E13.=111. ,repare t$e entr" to record sales revenue. 2. 2llo<ance -or (ou!t-ul 2ccounts> 8an. 1= !alance E4=111= (ec. 31= !alance E)=511= uncollecti!le accounts <ritten o-- during t$e "ear= E21=111. ,repare t$e entr" to record !ad de!t expense. 3. 2ccounts ,a"a!le> 8an. 1= !alance E25=111= (ec. 31= !alance E54=111= purc$ases on account -or t$e "ear= E121=111. ,repare t$e entr" to record pa"ments on account. 4. Interest Receiva!le> 8an. 1 accrued= E3=111= (ec. 31 accrued= E2=111= recogni;ed -or t$e "ear= E35=111. ,repare t$e entr" to record cas$ interest received. 3 0 5? T$e 2ccounting In-ormation *"stem =Solution 3093; 1. 3nding !alance E 55=111 3nding !alance E 55=111 ess> 4eginning !alance 41=111 ,lus> Rec. collected 13.=111 (i--erence 14=111 Crite5o--s '=111 9ncollecti!le accounts '=111 BR 211=111 Receiva!les collected 13.=111 ess> 4eginning !alance 41=111 *ales revenue -or period E15.=111 *ales revenue -or period E15.=111 2ccounts Receiva!le ...................................................................... 15.=111 *ales Revenue.................................................................... 15.=111 2. 3nding !alance E )=511 3nding !alance E )=511 ess> 4eginning !alance 4=111 ,lus> Crite5o-- 21=111 (i--erence 3=511 BR 2)=511 Crite5o-- 21=111 ess> 4eginning !alance 4=111 2d0usting entr" E23=511 2d0usting entr" E23=511 4ad (e!t 3xpense ......................................................................... 23=511 2llo<ance -or (ou!t-ul 2ccounts ......................................... 23=511 3. 3nding !alance E 54=111 4eginning !alance E 25=111 ess> 4eginning !alance 25=111 ,lus> ,urc$ases 121=111 (i--erence 2.=111 BR 145=111 ,urc$ases 121=111 ess> 3nding !alance 54=111 ,a"ments E .1=111 ,a"ments E .1=111 2ccounts ,a"a!le............................................................................ .1=111 6as$ ................................................................................... .1=111 4. Revenue Recogni;ed E35=111 4eginning !alance E 3=111 ess> (ec. 31 accrual (2=111) ,lus> Revenue recogni;ed 35=111 ,lus> 8an. 1 accrual 3=111 BR 3+=111 6as$ received E35=.11 ess> 3nding !alance 2=111 6as$ received E35=.11 6as$............................................................................................... 35=.11 Interest Receiva!le............................................................. 35=.11 (T$is entr" assumes t$at t$e E35=111 interest recogni;ed <as -irst recorded as a receiva!le.) 3 0 59 Test +an, "or Inter-e!iate A##ountin./ Fi"teent E!ition =Pr% 3093<Q2ccrual !asis. /rier T 2ssociates maintains its records on t$e cas$ !asis. Iou $ave !een engaged to convert its cas$ !asis income statement to t$e accrual !asis. T$e cas$ !asis income statement= along <it$ additional in-ormation= -ollo<s> /rier T 2ssociates Income *tatement (6as$ 4asis) For t$e Iear 3nded (ecem!er 31= 2114 6as$ receipts -rom customers E451=111 6as$ pa"ments> *alaries and <ages E1)1=111 Income taxes '5=111 Insurance 41=111 Interest 25=111 311=111 Net income E151=111 2dditional in-ormation> 4alances at 12@31 2114 2113 2ccounts receiva!le E51=111 E31=111 *alaries and <ages pa"a!le 11=111 21=111 Income taxes pa"a!le 24=111 1.=111 ,repaid insurance +=111 4=111 2ccumulated depreciation .5=111 )5=111 Interest pa"a!le 3=111 .=111 No plant assets <ere sold during 2114. =Solution 3093< /rier T 2ssociates Income *tatement (2ccrual 4asis) For t$e Iear 3nded (ecem!er 31= 2114 Revenue (E451=111 O E51=111 M E31=111) E4)1=111 3xpenses *alaries and <ages (E1)1=111 O E11=111 M E21=111) E1'1=111 Income taxes (E'5=111 O E24=111 M E1.=111) )1=111 Insurance (E41=111 O E4=111 M E+=111) 3'=111 (epreciation (E.5=111 M E)5=111) 21=111 Interest (E25=111 O E3=111 M E.=111) 1.=111 Total expenses 315=111 Net Income E1'5=111 3 0 51 T$e 2ccounting In-ormation *"stem =Pr% 3093>Q3ig$t5column <or# s$eet. T$e trial !alance o- Cinsor 6orporation is reproduced on t$e -ollo<ing page. T$e in-ormation !elo< is relevant to t$e preparation o- ad0usting entries needed to !ot$ properl" matc$ revenues and expenses -or t$e period and re-lect t$e proper !alances in t$e real and nominal accounts. Instru#tions 2s t$e accountant -or Cinsor 6orporation= "ou are to prepare ad0usting entries !ased on t$e -ollo<ing data= entering t$e ad0ustments on t$e <or# s$eet and completing t$e additional columns <it$ respect to t$e income statement and !alance s$eet. 6are-ull" #e" "our ad0ustments and la!el all items. ((ue to time constraints= an ad0usted trial !alance is not re&uired.) Round all computations to t$e nearest dollar. (a) Cinsor determined t$at one percent o- sales <ill !ecome uncollecti!le. (!) (epreciation is computed using t$e straig$t5line met$od= <it$ an eig$t5"ear li-e and E1=111 salvage value. (c) *alesmen are paid commissions o- 15L o- sales. 6ommissions on sales -or (ecem!er $ave not !een paid. (d) T$e note <as issued on Bcto!er 1= !earing interest at +L= due Fe!. 1= 2115. (e) 2 p$"sical inventor" o- supplies indicated E341 o- supplies currentl" in stoc#. (-) ,rovisions o- a lease contract speci-" pa"ments must !e made one mont$ in advance= <it$ mont$l" pa"ments at E+11@mo. T$is provision $as !een complied <it$ as o- (ec. 31= 2114. Cinsor 6orporation Cor# *$eet For t$e Iear 3nded (ecem!er 31= 2114 Trial Balance Adjustments Income Statement Balance Sheet Accounts Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash 12,400 Equit In!est. 4,0"0 Accounts #ec. $0,000 Allo%. &or D. A. 420 In!entor 1',(00 Su))lies 1,040 Equi)ment '",000 Accum. De)r.*Equi). +,"00 Accounts ,aa-le 4,400 .otes ,aa-le 10,000 Common Stoc/ 40,000 #et. Earnin0s 2+,'+0 Sales #e!enue $40,000 Cost o& 1oods Sold 2$","20 *alaries and Cages E2). 20,(00 Sales Comm. E2). $+,000 #ent E2)ense 3,200 4isc. E2)ense 2,200 Totals 4$4,010 4$4,010 3 0 53 Test +an, "or Inter-e!iate A##ountin./ Fi"teent E!ition Solution 3093> Cinsor 6orporation Cor# *$eet For t$e Iear 3nded (ecem!er 31= 2114 Trial Balance Adjustments Income Statement Balance Sheet Accounts Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash 12,400 12,400 Equit In!est. 4,0"0 4,0"0 Accounts #ec. $0,000 $0,000 Allo%. &or D. A. 420 5a6 $,400 $,(20 In!entor 1',(00 1',(00 Su))lies 1,040 5e6 300 $40 Equi)ment '",000 '",000 Accum. De)r.*Eq. +,"00 5-6 (,000 13,"00 Accounts ,aa-le 4,400 4,400 .otes ,aa-le 10,000 10,000 Common Stoc/ 40,000 40,000 #et. Earnin0s 2+,'+0 2+,'+0 Sales #e!enue $40,000 $40,000 Cost o& 1oods Sold 2$","20 2$","20 *alaries and Cages E2). 20,(00 20,(00 Sales Comm. E2). $+,000 5c6 12,000 "1,000 #ent E2)ense 3,200 5&6 (00 ',400 4isc. E2)ense 2,200 2,200 Totals 4$4,010 4$4,010 Bad De-t E2). 5a6 $,400 $,400 De)r. E2). 5-6 (,000 (,000 Sales Com. E2) ,a. 5c6 12,000 12,000 Interest E2)ense 5d6 200 200 Interest ,aa-le 5d6 200 200 Su))lies E2)ense 5e6 300 300 ,re)aid #ent 5&6 (00 (00 Totals 2",100 2",100 $2(,220 $40,000 12+,$+0 113,'10 .et Income 11,3(0 11,3(0 Totals $40,000 $40,000 12+,$+0 12+,$+0
2d0usting entries and explanations (a) 4ad (e!t 3xpense (E341=111 x 1L) .............................................. 3=411 2llo<ance -or (ou!t-ul 2ccounts ......................................... 3=411 (!) (epreciation 3xpense .................................................................... +=111 2ccumulated (epreciationQ3&uipment ............................. +=111 (E'5=111 M E1=111 is E'4=111. Bne5eig$t$ o- E'4=111 is E+=111.) 3 0 55 T$e 2ccounting In-ormation *"stem Solution 3093> (cont.) (c) *ales 6ommission 3xpense ........................................................... 12=111 *ales 6ommission 3xpense ,a"a!le ................................. 12=111 (15L o- sales is 15L G E341=111= <$ic$ is E51=111. T$e !alance in t$e *ales 6ommission 3xpense account is E3.=111 !e-ore ad0ustment= indicating t$at E12=111 o- commissions are accrued !ut unpaid.) (d) Interest 3xpense ............................................................................ 211 Interest ,a"a!le .................................................................. 211 (E11=111 G .1+ G 3@12 ? E211) (e) *upplies 3xpense ........................................................................... )11 *upplies .............................................................................. )11 (T$e !alance o- E1=141 in t$e *upplies account !e-ore ad0ustment less t$e correct ending !alance o- E341 is E)11.) (-) ,repaid Rent .................................................................................. +11 Rent 3xpense ..................................................................... +11 (*ince t$e trial !alance contains no account -or prepaid rent= t$e E+11 lease pa"ment $as apparentl" !een de!ited to Rent 3xpense. 2n account must !e set up -or t$e ,repaid Rent.) 3 0 56 Test +an, "or Inter-e!iate A##ountin./ Fi"teent E!ition IFRS 7UESTIONS True & False 1. 2s rules -or accounting -or speci-ic events sometimes di--er across countries= t$e dou!le5entr" accounting s"stem is di--icult to implement as t$e !asis o- <orld<ide accounting s"stem. 2. I2*4 is <or#ing to esta!lis$ $ig$5&ualit" auditing and assurance &ualit" standards t$roug$out t$e <orld. Ans(ers to True & False questionsC 1. False 2. False Multi$le Coi#eC 3. Icon International= a so-t<are compan"= incorporated on 8anuar" 1= 2113 is planning to convert to IFR*. T$e compan" decided to present its -irst IFR* statements -or t$e "ear ended (ecem!er 31= 2115. C$at is t$e transition date o- Icon InternationalD a. 8anuar" 1= 2113 !. 8anuar" 1= 2115 c. (ecem!er 31= 2115 d. (ecem!er 31= 2113 4. Icon International= a so-t<are compan"= incorporated on 8anuar" 1= 2113 is planning to convert to IFR*. T$e compan" decided to present its -irst IFR* statements -or t$e "ear ended (ecem!er 31= 2115. C$at is t$e reporting date o- Icon InternationalD a. 8anuar" 1= 2113 !. 8anuar" 1= 2115 c. (ecem!er 31= 2115 d. (ecem!er 31= 2113 5. C$ic$ o- t$e -ollo<ing is a reason -or recasting prior -inancial statements !ased on IFR*D a. To increase t$e mar#et value o- a compan"%s s$ares !. To report a $ig$ income -or attracting investors c. To report a lo< taxa!le income reducing t$e tax lia!ilit" d. To provide -inancial statement users <it$ compara!le in-ormation '. IFR* 1 re&uires in-ormation in a compan"%s -irst IFR* statement to> a. !e same as in /22, statement. !. !e transparent. c. !e as lengt$" as possi!le. d. provide a suita!le ending point. ). C$ic$ o- t$e -ollo<ing is t$e -irst step to !e ta#en !" a compan" deciding to convert to IFR*D a. ,reparing an opening !alance s$eet at t$e date o- transition !. Identi-"ing t$e timing o- -irst IFR* statement c. *electing accounting principles t$at compl" <it$ IFR* d. Implementing accounting principles retrospectivel" 3 0 5: T$e 2ccounting In-ormation *"stem Ans(ers to Multi$le Coi#eC 3. ! 4. c 5. d '. ! ). ! Sort Ans(erC +. 2re all international companies su!0ect to t$e same internal control standardsD 3xplain. 1. No= all international companies are not su!0ect to t$e same internal control standards. 2ll pu!lic companies t$at list t$eir securitites on 9.*. stoc# exc$anges are su!0ect to t$e internal control testing and assurance provisions o- t$e *ar!anes5Bxle" 2ct. International companies t$at list t$eir securities on non59.*. exc$anges are not su!0ect to t$ese rules and t$ere is de!ate as to <$et$er t$e" s$ould $ave to compl". .. C$at are some o- t$e conse&uences o- international di--erences in internal control standardsD 2. T$ere is concern t$at t$e cost o- compl"ing <it$ $ig$er internal control provisions is ma#ing 9.*. mar#ets -e<er competitive as a place to list securities. T$is in turn could give 9.*. investors less investment opportunties. Bn t$e ot$er $and= some argue t$at t$e en$anced internal control re&uirements in t$e 9.*. increase t$e perceived relia!ilit" o- companies% -inancial statements and $elps reduce t$eir cost o- capital. Furt$ermore= t$e decline in pu!lic listings in t$e 9.*. is more li#el" due to ot$er -actors= suc$ as gro<t$ in non59.*. mar#ets and general glo!ali;ation. T$us= t$e 0ur" is still out on t$e net cost@!ene-it o- *ar!anes5Bxle" and its impact on international competitiveness. 3 0 5;
Guide to Strategic Management Accounting for managers: What is management accounting that can be used as an immediate force by connecting the management team and the operation field?