Ace 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, 2013, 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, 2014 and 2015. Discuss the effect that this event will have on the company’s financial statements.
> F. P. Fernetti is the chief executive officer of Tomorrow’s Products. Fernetti is an expert engineer but a novice in accounting. Instructions: Write a letter to F. P. Fernetti that explains (a) the three main types of ratios; (b) examples of each, how
> The ledger of Berkman 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.
> This chapter’s Feature Story discusses the fact that although Clif Bar & Company is not a public company, it does share its financial information with its employees as part of its openbook management approach. Further, although it does not publicly share
> As a financial analyst in the planning department for Shonrock Industries, Inc., you have been requested to develop some key ratios from the comparative financial statements. This information is to be used to convince creditors that Shonrock Industries,
> Lori Milner is the bookkeeper for Philco Company, Inc. Lori has been trying to get the company’s balance sheet to balance. She finally got it to balance, but she still isn’t sure that it is correct. Instructions: Expl
> Sue Hartley recently accepted a job in the production department at Tootsie Roll. Before she starts work, she decides to review the company’s annual report to better understand its operations. Instructions: Use the annual report provided in Appendix A t
> Cookie Creations is gearing up for the winter holiday season. During the month of December 2014, the following transactions occur. Dec. 1 Natalie hires an assistant at an hourly wage of $8 to help with cookie making and some administrative duties. 5
> In November 2014, after having incorporated Cookie Creations Inc., Natalie begins operations. She has decided not to pursue the offer to supply cookies to Biscuits. Instead, she will focus on offering cooking classes. The following events occur. Nov. 8
> After investigating the different forms of business organization, Natalie Koebel decides to operate her business as a corporation, Cookie Creations Inc., and she begins the process of getting her business running. While at a trade show, Natalie is introd
> Selected transactions for Protheroe Corporation during its first month in business are presented below. Sept. 1 Issued common stock in exchange for $20,000 cash received from investors. 5 Purchased equipment for $9,000, paying $3,000 in cash and the
> What is the normal balance for each of these accounts? (a) Accounts Receivable. (b) Cash. (c) Dividends. (d) Accounts Payable. (e) Service Revenue. (f) Salaries and Wages Expense. (g) Common Stock.
> State the rules of debit and credit as applied to (a) asset accounts, (b) liability accounts, and (c) the Common Stock account.
> Tyler Bazil is confused about how accounting information flows through the accounting system. He believes information flows in this order: (a) Debits and credits are posted to the ledger. (b) Accounting transaction occurs. (c) Information is entered in t
> What was Tootsie Roll’s largest current asset, largest current liability, and largest item under “Other assets” at December 31, 2011?
> Natalie Koebel spent much of her childhood learning the art of cookie-making from her grandmother. They spent many happy hours mastering every type of cookie\ imaginable and later devised new recipes that were both healthy and delicious. Now at the start
> During 2014, Damon Corp. entered into the following transactions. 1. Borrowed $60,000 by issuing bonds. 2. Paid $9,000 cash dividend to stockholders. 3. Received $13,000 cash from a previously billed customer for services performed. 4. Purchased supplies
> Glenda Wine is president of Better Books. She has no accounting background. Wine cannot understand why fair value is not used as the basis for
> Joe Merando, the president of Lane Company, is pleased. Lane substantially increased its net income in 2014 while keeping its unit inventory relatively the same. Donald Jantz, chief accountant, cautions Joe, however. Jantz says that since Lane changed it
> (a) What is the primary objective of financial reporting? (b) Identify the characteristics of useful accounting information.
> Tim Sands, the founder of Waterboots Inc., needs to raise $500,000 to expand his company’s operations. He has been told that raising the money through debt will increase the riskiness of his company much more than issuing stock. He doesn’t understand why
> A company fails to recognize revenue for services performed 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
> In completing the engagement in Question 3, Milner 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?
> What are the normal balances for the following accounts of Tootsie Roll Industries? (a) Accounts Receivable, (b) Income Taxes Payable, (c) Sales, and (d) Selling, Marketing, and Administrative Expenses.
> For the following transactions, indicate the account debited and the account credited. (a) Supplies are purchased on account. (b) Cash is received on signing a note payable. (c) Employees are paid salaries in cash
> Sam Milner, a lawyer, accepts a legal engagement in March, performs the work in April, and is paid in May. If Milner’s law firm prepares monthly financial statements, when should it recognize revenue from this engagement? Why?
> Review the transactions listed in E3-3 for Persinger Corp. and classify each transaction as either an operating activity, investing activity, or financing activity, or if no cash is exchanged, as a noncash event. Transactions listed in E3: During 2014,
> Partial adjusted trial balance data for Ravine 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.
> Review the transactions listed in E3-1 for Warner Advertising Company and classify each transaction as either an operating activity, investing activity, or financing activity, or if no cash is exchanged, as a noncash event. Transactions listed in E1 Se
> Identify the account(s) debited and credited in each of the four closing entries, assuming the company has net income for the year.
> Why is it possible to prepare financial statements directly from an adjusted trial balance?
> Here is the ledger for Keisler Co Instructions: (a) Reproduce the journal entries for only the transactions that occurred on October 1, 10, and 20, and provide explanations for each. (b) Prepare a trial balance at October 31, 2014. Cash Common Stock
> Remington 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.
> Steve Trevino is interested in comparing the liquidity and solvency of a U.S. software company with a Chinese competitor. Is this possible if the two companies report using different currencies?
> Do the IFRS and GAAP conceptual frameworks differ in terms of the objective of financial reporting? Explain.
> What terms commonly used under IFRS are synonymous with common stock and balance sheet?
> What is the benefit of a single set of high-quality accounting standards?
> Indicate whether each of the following items is most closely associated with the management discussion and analysis (MD&A), the notes to the financial statements, or the auditor’s report. (a) Description of ability to pay near-term obligations. (b) Unqua
> The adjusted trial balance of Ravine Corporation at December 31, 2014, 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 $3,90
> Identify each of the following organizational characteristics with the organizational form or forms with which it is associated. (a) Easier to transfer ownership. (d) Tax advantages. (b) Easier to raise funds. (e) No personal legal l
> Indicate in which financial statement each of the following adjusted trial balance accounts would be presented. Service Revenue Accounts Receivable Notes Payable
> Which is not a required part of an annual report of a publicly traded company? (a) Statement of cash flows. (b) Notes to the financial statements. (c) Management discussion and analysis. (d) All of these are required.
> Indicate whether each of these items is an asset (A), a liability (L), or part of stockholders’ equity (SE). (a) Accounts receivable. (d) Supplies. (b) Salaries and wages payable. (e) Common stock. (c) Equipment. (f) Notes payable.
> Gray’s Books & Music Inc. reported the following selected information at March 31. 2014 Total current assets…………………………………………..$262,787 Total assets ………………………………………………………. 439,832 Total current liabilities ………………………………………. 293,625 Total liabilities ………………
> For each of the following events affecting the stockholders’ equity of Noland, indicate whether the event would: increase retained earnings (IRE), decrease retained earnings (DRE), increase common stock (ICS), or decrease common stock (DCS).
> A list of financial statement items for Morales Company includes the following: accounts receivable $14,000; prepaid insurance $2,600; cash $10,400; supplies $3,800; and debt investments (short-term) $8,200. Prepare the current assets section of the bala
> Journalize these accounting transactions. (a) Stockholders invested $12,000 in the business in exchange for common stock. (b) Insurance of $800 is paid for the year. (c) Supplies of $1,800 are purchased on account. (d) Cash of $7,500 is received for serv
> 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, Steve Edmiston, suggests running a promotion selling $50 gift ca
> The trial balance of Goodwin 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 reven
> Terry Rabas, a fellow student, contends that the double entry system means each transaction must be recorded twice. Is Terry correct? Explain.
> (a) Lorie Power believes that the analysis of financial statements is directed at two characteristics of a company: liquidity and profitability. Is Lorie correct? Explain. (b) Are short-term creditors, long-term creditors, and stockholders primarily inte
> “A company’s net income appears directly on the income statement and the retained earnings statement, and it is included indirectly in the company’s balance sheet.” Do you agree? Explain.
> Geog Lav opened Geog Cleaners on March 1, 2014. During March, the following transactions were completed. Mar. 1 Issued 10,000 shares of common stock for $15,000 cash. 1 Purchased used truck for $8,000, paying $3,000 cash and the balance on account. 3
> On August 1, 2014, the following were the account balances of D&D Repair Service During August, the following summary transactions were completed. Aug. 5 Received $1,200 cash from customers in payment of account. 10 Paid $3,120 for salaries due
> Tutors-Plus Test Prep was organized on May 1, 2013, by Jan Cooper. Jan is a good manager but a poor accountant. From the trial balance prepared by a part-time bookkeeper, Jan prepared the following income statement for her fourth quarter, which ended Apr
> A review of the ledger of Garner Company at December 31, 2014, produces these data pertaining to the preparation of annual adjusting entries. 1. Prepaid Insurance $16,400. The company has separate insurance policies on its buildings and its motor vehicle
> AbDulla Advertising Agency was founded by Miriam AbDulla in January 2009. Presented here are both the adjusted and unadjusted trial balances as of December 31, 2014. Instructions: (a) Journalize the annual adjusting entries that were made. (b) Prepare
> Death Valley Resort opened for business on June 1 with eight air-conditioned units. Its trial balance before adjustment on August 31 is presented here Other data: 1. Insurance expires at the rate of $500 per month. 2. A count of supplies on August 31 sh
> Pat Okendo started her own consulting firm, Okendo Consulting, on May 1, 2014. The trial balance at May 31 is as shown on the next page. In addition to those accounts listed on the trial balance, the chart of accounts for Okendo Consulting also contains
> The bookkeeper for Beltran Company asks you to prepare the following accrual adjusting entries at December 31. Use these account titles: Service Revenue, Accounts Receivable, Interest Expense, Interest Payable, Salaries and Wages Expense, and Salaries an
> The following data are taken from the comparative balance sheets of Golfview Inn, which prepares its financial statements using the accrual basis of accounting. Fees are billed to members based upon their use of the club’s facilities.
> A first year co-op student working for Solutia Inc. recorded the transactions for the month. He wasn’t exactly sure how to journalize and post, but he did the best he could. He had a few questions, however, about the following transactions. 1. Cash recei
> Roxy Theater Inc. was recently formed. All facilities were completed on March 31. On April 1, the ledger showed: Cash $6,300; Land $10,000; Buildings (concession stand, projection room, ticket booth, and screen) $58,000; Equipment $6,000; Accounts Payabl
> This trial balance of Lindbergh Company does not balance. Your review of the ledger reveals that each account has a normal balance. You also discover the following errors. 1. The totals of the debit sides of Prepaid Insurance, Accounts Payable, and Inco
> The trial balance of American Dry Cleaners on June 30 is given here The July transactions were as follows. July 8 Received $10,189 in cash on June 30 accounts receivable. 9 Paid employee salaries $2,100. 11 Received $7,320 in cash for services perf
> Bob Royce incorporated Royce Consulting, an accounting practice, on May 1, 2014. During the first month of operations, these events and transactions occurred. May 1 Stockholders invested $100,000 cash in exchange for common stock of the corporation.
> Beefeaters RV Park was started on April 1 by Sarah Rhodes. These selected events and transactions occurred during April. Apr. 1 Stockholders invested $100,000 cash in the business in exchange for common stock. 4 Purchased land costing $250,000 for ca
> Joe Thyme opened Thyme Company, a veterinary business in Neosho, Missouri, on August 1, 2014. On August 31, the balance sheet showed Cash $9,000; Accounts Receivable $1,700; Supplies $600; Equipment $5,000; Accounts Payable $3,600; Common Stock $10,000;
> Ned Walz started his own delivery service, Walz Service Inc., on June 1, 2014. The following transactions occurred during the month of June. June 1 Stockholders invested $20,000 cash in the business in exchange for common stock. 2 Purchased a used va
> Hyman Inc. was started on May 1. Here is a summary of the May transactions. 1. Stockholders invested $30,000 cash in the company in exchange for common stock. 2. Purchased equipment for $10,000 cash. 3. Paid $700 cash for May office rent. 4. Paid $300 ca
> On July 1, 2014, Seng Co. pays $12,400 to Nance Insurance Co. for a 2-year insurance contract. Both companies have fiscal years ending December 31. For Seng Co., journalize and post the entry on July 1 and the adjusting entry on December 31.
> The financial statements of Divine Company are presented here. DIVINE COMPANY Income Statement For the Year Ended December 31, 2014 Net sales ……………………………………………………………$700,000 Cost of goods sold ………………………………………………. 400,000 Selling and administrative expen
> Comparative statement data for Omaz Company and Wise Company, two competitors, are presented below. All balance sheet data are as of December 31, 2014. Instructions: (a) Compute the net income and earnings per share for each company for 2014. (b) Commen
> You are provided with the following information for Vern Corporation, effective as of its April 30, 2014, year-end. Accounts payable ………………………………………………………$ 3,100 Accounts receivable ……………………………………………………10,150 Accumulated depreciation—equipment ……………………….
> These items are taken from the financial statements of Mueller, Inc. Prepaid insurance ……………………………………………$ 2,400 Equipment ………………………………………………………. 30,000 Salaries and wages expense ……………………………..34,000 Utilities expense …………………………………………………. 2,100 Accumulate
> Suppose the following items are taken from the 2014 balance sheet of Starbucks Corporation. (All dollars are in millions.) Goodwill …………………………………………………………$ 477 Common stock ……………………………………………………40 Equipment ……………………………………………………. 3,036 Accounts payable ………
> Yocum Software International Inc., headquartered in Toronto, specializes in Internet safety and computer security products for both the home and commercial markets. In a recent balance sheet, it reported a deficit (negative retained earnings) of US$5,678
> Selected financial data of two competitors, Home Depot and Lowe’s, are presented here. (All dollars are in millions.) Suppose the data were taken from the 2014 financial statements of each company. Instructions: For each company, compu
> Condensed balance sheet and income statement data for Fellini Corporation are presented below. Instructions: Compute the following values and ratios for 2013 and 2014. (a) Earnings per share. (b) Working capital. (c) Current ratio. (d) Debt to assets r
> Walters Corporation was formed during 2013 by John Walters. John is the president and sole stockholder. At December 31, 2014, John prepared an income statement for Walters Corporation. John is not an accountant, but he thinks he did a reasonable job prep
> Presented below are selected financial statement items for Preacher Corporation for December 31, 2014. Instructions: (a) Determine which items should be included in a statement of cash flows, and then prepare the statement for Preacher Corporation. (b)
> Molina 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
> Shaw’s Garden was started on May 1 with an investment of $45,000 cash. Following are the assets, liabilities, and common stock of the company on May 31, 2014, and the revenues and expenses for the month of May, its first month of operat
> Financial decisions often place heavier emphasis on one type of financial statement over the others. Consider each of the following hypothetical situations independently. (a) An investor is considering purchasing common stock of the 24/7 Fitness company.
> Presented below are five independent situations. (a) Randy Gentry, a college student looking for summer employment, opened a produce stand along a busy local highway. Each morning he buys produce from local farmers, then sells it in the afternoon as peop
> Mike Greenberg opened Clean Window Washing Inc. on July 1, 2014. During July,the following transactions were completed. July 1 Issued 12,000 shares of common stock for $12,000 cash. 1 Purchased used truck for $8,000, paying $2,000 cash and the balanc
> On November 1, 2014, the following were the account balances of Rijo Equipment Repair. During November, the following summary transactions were completed. Nov. 8 Paid $1,220 for salaries due employees, of which $600 is for November and $620 is for Oct
> Astromech Travel Court was organized on July 1, 2013, by Jessica Browning. Jessica is a good manager but a poor accountant. From the trial balance prepared by a part-time bookkeeper, Jessica prepared the following income statement for her fourth quarter,
> A review of the ledger of Dempsey Company at December 31, 2014, produces these data pertaining to the preparation of annual adjusting entries. 1. Prepaid Insurance $15,200. The company has separate insurance policies on its buildings and its motor vehic
> Wolf Creek Golf Inc. was organized on July 1, 2014. Quarterly financial statements are prepared. The trial balance and adjusted trial balance on September 30 are shown here. Instructions: (a) Journalize the adjusting entries that were made. (b) Prepare
> The Solo Hotel opened for business on May 1, 2014. Here is its trial balance before adjustment on May 31. Other data: 1. Insurance expires at the rate of $450 per month. 2. A count of supplies shows $1,050 of unused supplies on May 31. 3. Annual depreci
> Ken Lumas started his own consulting firm, Lumas Consulting, on June 1, 2014. The trial balance at June 30 is as follows. In addition to those accounts listed on the trial balance, the chart of accounts for Lumas also contains the following accounts: Ac
> 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 balanc
> The Sequel Theater Inc. was recently formed. It began operations in March 2014. The Sequel is unique in that it will show only triple features of sequential theme movies. On March 1, the ledger of The Sequel showed Cash $16,000; Land $38,000; Buildings (
> This trial balance of Swisher Co. does not balance. Each of the listed accounts has a normal balance per the general ledger. An examination of the ledger and journal reveals the following errors: 1. Cash received from a customer on account was debited
> This is the trial balance of Solis Company on September 30. The October transactions were as follows. Oct. 5 Received $1,300 in cash from customers for accounts receivable due. 10 Billed customers for services performed $5,100. 15 Paid employee sal
> Foyle Architects incorporated as licensed architects on April 1, 2014. During the first month of the operation of the business, these events and transactions occurred: Apr. 1 Stockholders invested $18,000 cash in exchange for common stock of the corp
> Friendley’s Miniature Golf and Driving Range Inc. was opened on March 1 by Dean Barley. These selected events and transactions occurred during March. Mar. 1 Stockholders invested $50,000 cash in the business in exchange for common stock of the corpor
> Cindy Braun created a corporation providing legal services, Cindy Braun Inc., on July 1, 2014. On July 31 the balance sheet showed Cash $4,000; Accounts Receivable $2,500; Supplies $500; Equipment $5,000; Accounts Payable $4,200; Common Stock $6,200; and
> Nina Finzelberg started her own consulting firm, Finzelberg Consulting Inc., on May 1, 2014. The following transactions occurred during the month of May. May 1 Stockholders invested $15,000 cash in the business in exchange for common stock. 2 Paid $
> On April 1, DeDonder Travel Agency Inc. was established. These transactions were completed during the month. 1. Stockholders invested $30,000 cash in the company in exchange for common stock. 2. Paid $900 cash for April office rent. 3. Purchased office e
