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Question: For each of the following situations described,


For each of the following situations described, indicate the underlying accounting principle that is being violated. Choose from the following principles.
Matching Materiality
Cost Realization Objectivity
If you do not believe that the practice violates any of these principles, answer “None” and explain. a. The bookkeeper of a large metropolitan auto dealership depreciates the $7.20 cost of metal wastebaskets over a period of 10 years.
b. A small commuter airline recognizes no depreciation expense on its aircraft because the planes are maintained in “as good as new” condition.
c. Palm Beach Hotel recognizes room rental revenue on the date that a reservation is received. For the winter season, many guests make reservations as much as a year in advance.


> Give an example of something that is a good for one person and a bad for another person.

> Give two examples for each of the following: (a) an intangible good, (b) a tangible good, (c) a bad.

> The United States is considered a rich country because Americans can choose from an abundance of goods and services. How can there be scarcity in a land of abundance?

> Discuss the opportunity costs of attending college for four years. Is college more or less costly than you thought it was? Explain.

> Plot the following data and specify the type of relationship between the two variables. (Place “Price” on the vertical axis and “Quantity Demanded” on the horizontal axis.) Price of Apples ($) Quantity Demanded of Apples  0.25 1,000  0.50 800  

> Is it possible for a person to incur an opportunity cost without spending any money? Explain.

> Explain the link between scarcity and each of the following: (a) choice, (b) opportunity cost, (c) the need for a rationing device, (d) competition.

> A theory is an abstraction from reality. What does this mean?

> Janice decides to go out on a date with Kyle instead of Robert. Do you think Janice is using some kind of “rationing device” to decide who she dates? If so, what might that rationing device be?

> The person who smokes cigarettes cannot possibly be thinking in terms of costs and benefits because it has been proven that cigarette smoking increases one’s chances of getting lung cancer. Do you agree or disagree with the part of the statement that rea

> If you found $10 bills on the sidewalk regularly, we might conclude that individuals don’t try to maximize net benefits. Do you agree or disagree with this statement? Explain your answer.

> Jackie’s alarm clock buzzes. She reaches over to the small table next to her bed and turns it off. As she pulls the covers back up, Jackie thinks about her 8:30 American history class. Should she go to the class today or sleep a little longer? She worked

> Would there be a need for a rationing device if scarcity did not exist? Explain your answer.

> What is the difference between positive economics and normative economics? Between microeconomics and macroeconomics?

> When two individuals enter into an exchange, you can be sure that one person benefits and that the other person loses. Do you agree or disagree with this statement? Explain your answer.

> Represent the following data in bar graph form (a) Sales of hot dogs and sales of hot dog buns (b) The price of winter coats and sales of winter coats (c) The price of personal computers and the production of personal computers (d) Sales of toothbrush

> Why do people enter into exchanges?

> A change in X will lead to a change in Y; the predicted change is desirable, so we should change X. Do you agree or disagree? Explain.

> What does an economist mean if she says that there are no $10 bills on the sidewalk?

> Ivan stops studying before the point at which his marginal benefits of studying equal his marginal costs. Is Ivan forfeiting any net benefits? Explain your answer.

> How would an economist define the efficient amount of time spent playing tennis?

> Economists say that individuals make decisions at the margin. What does this mean?

> A layperson says that a proposed government project simply costs too much and therefore shouldn’t be undertaken. How might an economist’s evaluation be different?

> A friend pays for your lunch. Is this an example of a “free lunch”? Why or why not?

> Smith says that we should eliminate all pollution in the world. Jones disagrees. Who is more likely to be an economist, Smith or Jones? Explain your answer.

> Explain the relationship between changes in opportunity costs and changes in behavior.

> For each of the following, what type of relationship would you expect between the variables? (a) Sales of hot dogs and sales of hot dog buns (b) The price of winter coats and sales of winter coats (c) The price of personal computers and the production

> The Georgia Gun Club adjusts its accounts monthly and closes its accounts annually. Club members pay their annual dues in advance by January 4. The entire amount is initially credited to Unearned Membership Dues. At the end of each month, an appropriate

> Florida Palms Country Club adjusts its accounts monthly. Club members pay their annual dues in advance by January 4. The entire amount is initially credited to Unearned Membership Dues. At the end of each month, an appropriate portion of this amount is c

> On November 1, Girtz Corporation purchased a six-month insurance policy from The Tomptee Agency for $4,500. a. Prepare the necessary adjusting entry for Girtz Corporation on November 30, assuming it recorded the November 1 expenditure as Unexpired Insur

> Listed as follows are nine technical accounting terms used in this chapter. Unrecorded revenue Adjusting entries Accrued expenses Book value Matching principle Accumulated depreciation Unearned revenue Materiality Prepaid expenses Each of the following s

> How is deferred revenue reported in the balance sheet?

> Four types of adjusting entries were identified in this chapter Type I Converting Assets to Expenses Type II Converting Liabilities to Revenue Type III Accruing Unpaid Expenses Type IV Accruing Uncollected Revenue Complete the following table by indic

> The Freemont Flyers, a professional soccer team, prepares financial statements on a monthly basis. The soccer season begins in May, but in April the team engaged in the following transactions. 1. Paid $1,500,000 to the municipal stadium as advance rent

> Ted’s Tax Service had earned—but not yet recorded—the following client service revenue at the end of the current accounting period. Prepare the necessary adjusting entry to record Tedâ€&#

> On March 1, Phonic Corporation had office supplies on hand of $1,000. During the month, Phonic purchased additional supplies costing $500. Approximately $200 of unused office supplies remain on hand at the end of the month. Prepare the necessary adjustin

> On February 1, Watson Storage agreed to rent Hillbourne Manufacturing warehouse space for $300 per month. Hillbourne Manufacturing paid the first three months’ rent in advance. a. Prepare the necessary adjusting entry for Hillbourne Manufacturing on Feb

> Hunter’s unadjusted trial balance dated December 31, year 1, reports Income Taxes Expense of $70,000, and Income Taxes Payable of $20,000. The company’s accountant estimates that income taxes expense for the entire year ended December 31, year 1, is $85,

> Jump Corporation borrowed $60,000 on December 1, year 1, by issuing a 2-month, 4 percent note payable to Service One Credit Union. The entire amount of the loan, plus interest, is due February 1, year 2. a. Prepare the necessary adjusting entry for inte

> Milford Corporation pays its employees on the 15th of each month. Accrued, but unpaid, salaries on December 31, year 1, totaled $210,000. Salaries earned by Milford’s employees from January 1 through January 15, year 2, totaled $216,000. a. Prepare the

> Jasper’s unadjusted trial balance reports Unearned Client Revenue of $4,000 and Client Revenue Earned of $30,000. An examination of client records reveals that $2,500 of previously unearned revenue has now been earned. a. Prepare the necessary adjusting

> Jesse Company adjusts its accounts monthly and closes its accounts on December 31. On October 31, year 1, Jesse Company signed a note payable and borrowed $150,000 from a bank for a period of six months at an annual interest rate of 6 percent. a. How mu

> List various accounts in the balance sheet that represent deferred expenses

> Sweeney & Allen, a large marketing firm, adjusts its accounts at the end of each month. The following information is available for the year ending December 31. 1. A bank loan had been obtained on December 1. Accrued interest on the loan at December 31 a

> When Delta Airlines sells tickets for future flights, it debits Cash and credits an account entitled Air Traffic Liability (as opposed to crediting Passenger Revenue Earned). This account, reported recently at approximately $4.5 billion, is among the lar

> The geological consulting firm of Gilbert, Marsh, & Kester prepares adjusting entries on a monthly basis. Among the items requiring adjustment on December 31, year 2, are the following. 1. The company has outstanding a $50,000, 9 percent, 2-year note pa

> Carnival Corporation & PLC is one of the world’s largest cruise line companies. Its printing costs for brochures are initially recorded as Prepaid Advertising and are later charged to Advertising Expense when they are mailed. Passenger deposits for upcom

> Security Service Company adjusts its accounts at the end of the month. On November 30, adjusting entries are prepared to record the following. a. Depreciation expense for November. b. Interest expense that has accrued during November. c. Revenue earne

> The financial statements of Home Depot, Inc., appear in Appendix A at the end of this textbook. Examine the company’s consolidated balance sheet and identify specific accounts that may have required adjusting entries at the end of the year.

> The unadjusted and adjusted trial balances for Tinker Corporation on December 31, current year are shown as follows Journalize the nine adjusting entries that the company made on December 31, current year. TINKER CORPORATION TRIAL BALANCES DECEMBER

> Listed are seven corporations that receive cash from customers prior to earning revenue. Delta Air Lines, Inc. (airline) The New York Times Company (newspaper) Royal Caribbean (Cruise Company) DeVry Education Group (for-profit technical college)

> The following information was reported in a recent balance sheet issued by Microsoft Corporation. 1. The book value of property and equipment is listed at $14.7 billion (net of depreciation). Related notes to the financial statements reveal that accumul

> Would a $1,000 expenditure be considered material to all businesses? Explain.

> Among the ledger accounts used by Rapid Speedway are the following: Prepaid Rent, Rent Expense, Unearned Admissions Revenue, Admissions Revenue, Prepaid Printing, Printing Expense, Concessions Receivable, and Concessions Revenue. For each of the followin

> Why does the recording of adjusting entries require a better understanding of the concepts of accrual accounting than does the recording of routine revenue and expense transactions occurring throughout the period?

> Do adjusting entries affect income statement accounts, balance sheet accounts, or both? Explain.

> What is the purpose of making adjusting entries? Your answer should relate adjusting entries to the goals of accrual accounting.

> What is meant by the term unearned revenue?Where should an unearned revenue account appear in the financial statements? As the work is done, what happens to the balance of an unearned revenue account?

> If services have been rendered to customers during the current accounting period but no revenue has been recorded and no bill has been sent to the customers, why is an adjusting entry needed? What types of accounts should be debited and credited by this

> Why does the purchase of a one-year insurance policy four months ago give rise to insurance expense in the current month?

> The concept of materiality is an underlying principle of financial reporting. a. Briefly explain the concept of materiality. b. Is $2,500 a material dollar amount? Explain. c. Describe two ways in which the concept of materiality may save accountants’

> Discuss the matching principle and how it is applied in the recognition of expenses. Does the payment of cash necessarily coincide with the recognition of an expense? Explain.

> Stephen Corporation recently hired Tom Waters as its new bookkeeper. Waters is very inexperienced and has made seven recording errors during the last accounting period. The nature of each error is described in the following table. Instructions: Indicat

> Explain how Carnival Corporation accounts for customer deposits as passengers purchase cruise tickets in advance.

> Coyne Corporation recently hired Elaine Herrold as its new bookkeeper. Herrold was not very experienced and made seven recording errors during the last accounting period. The nature of each error is described in the following table. Instructions: Indi

> Discuss the realization principle and how it is applied in the recognition of revenue. Does the receipt of cash for customers necessarily coincide with the recognition of revenue? Explain.

> Clint Stillmore operates a private investigating agency called Stillmore Investigations. Some clients pay in advance for services; others are billed after services have been performed. Advance payments are credited to an account entitled Unearned Retaine

> Ken Hensley Enterprises, Inc., is a small recording studio in St. Louis. Rock bands use the studio to mix high-quality demo recordings distributed to talent agents. New clients are required to pay in advance for studio services. Bands with established cr

> Briefly explain the concept of materiality. If an item is not material, how is the item treated for financial reporting purposes?

> Mate Ease is an Internet dating service. All members pay in advance to be listed in the database. Advance payments are credited to an account entitled Unearned Member Dues. Adjusting entries are performed on a monthly basis. An unadjusted trial balance d

> Alpine Expeditions operates a mountain climbing school in Colorado. Some clients pay in advance for services; others are billed after services have been performed. Advance payments are credited to an account entitled Unearned Client Revenue. Adjusting en

> Property Management Professionals provides building management services to owners of office buildings and shopping centers. The company closes its accounts at the end of the calendar year. The manner in which the company has recorded several transactions

> Marvelous Music provides music lessons to student musicians. Some students pay in advance for lessons; others are billed after lessons have been provided. Advance payments are credited to an account entitled Unearned Lesson Revenue. Adjusting entries are

> Terrific Temps fills temporary employment positions for local businesses. Some businesses pay in advance for services; others are billed after services have been performed. Advance payments are credited to an account entitled Unearned Fees. Adjusting ent

> How does accrued but uncollected revenue affect the balance sheet?

> Visit Hershey’s home page at: www.hersheys.com From Hershey’s home page, access its most recent annual report (follow “Corporate Information” to the “Investors” link). Examine the company’s balance sheet and identify the accounts most likely to have been

> The Off-Campus Playhouse adjusts its accounts every month. The following is the company’s unadjusted trial balance dated September 30, current year. Additional information is provided for use in preparing the company’s

> Campus Theater adjusts its accounts every month. The company’s unadjusted trial balance dated August 31, current year, appears as follows. Additional information is provided for use in preparing the company’s adjusting

> On January 2, year 1, Hagen Corporation purchased equipment costing $172,800. Hagen performs adjusting entries monthly. a. Record this equipment’s depreciation expense on December 31, year 6, assuming its estimated life was eight years on January 2, yea

> River Rat, Inc., operates a ferry that takes travelers across the Wild River. The company adjusts its accounts at the end of each month. Selected account balances appearing in the April 30 adjusted trial balance are as follows. Other Data: 1. The fer

> Gunflint Adventures operates an airplane service that takes fishing parties to a remote lake resort in northern Manitoba, Canada. Individuals must purchase their tickets at least one month in advance during the busy summer season. The company adjusts its

> Slippery Slope, Inc., is a downhill ski area in northern New England. In an attempt to attract more ski enthusiasts, Slippery Slope’s management recently engaged in an aggressive preseason advertising campaign in which it spent $9,000 to distribute broch

> Big Oaks, a large campground in Vermont, adjusts its accounts monthly and closes its accounts annually on December 31. Most guests of the campground pay at the time they check out, and the amounts collected are credited to Camper Revenue. The following i

> Enchanted Forest, a large campground in South Carolina, adjusts its accounts monthly. Most guests of the campground pay at the time they check out, and the amounts collected are credited to Camper Revenue. The following information is available as a sour

> The concept of materiality is one of the most basic principles underlying financial accounting. a. Answer the following questions. 1. Why is the materiality of a transaction or an event a matter of professional judgment? 2. What criteria should account

> How do accrued but unpaid expenses affect the balance sheet?

> High Tech Monopoly Co. has plenty of cash to fund any conceivable positive NPV project. Can you describe a situation in which capital rationing could still occur?

> Facebook does not pay dividends. How can it have a positive stock price?

> The modified IRR (MIRR) alleviates two concerns with using the IRR method for evaluating capital investments. What are they?

> You are currently thinking about investing in a stock valued at $25.00 per share. The stock recently paid a dividend of $2.25 and its dividend is expected to grow at a rate of 5 percent for the foreseeable future. You normally require a return of 14 perc

> Why is stock valuation more difficult than bond valuation?

> Explain why preferred stock is considered to be a hybrid of equity and debt securities?

> Ted McKay has just bought the common stock of Ryland Corp. The company expects to grow at the following rates for the next three years: 30 percent, 25 percent, and 15 percent. Last year the company paid a dividend of $2.50. Assume a required rate of retu

> You want to estimate the value of a local advertising firm. The earnings of the firm are expected to be $2 million next year. Based on expected earnings next year, the average price-to-earnings ratio of similar firms in the same industry is 48. Therefore

> You are valuing a company using the WACC approach and have estimated that the free cash flows from the firm (FCFF) in the next five years will be $36.7, $42.6, $45.1, $46.3, and $46.6 million, respectively. Beginning in year 6, you expect the cash flows

> How do the cash flows that are discounted when the WACC approach (FCFF approach) is used to value a business differ from those that are discounted when the free cash flow to equity (FCFE) approach is used to value the equity in a business?

> How is a preferred stock with a fixed maturity valued?

> You have the following information for a company you are valuing and for a comparable company: Comparable company: ………….……………………………… Company you are valuing: Stock price = $23.45 ………………… ………………………………………. Value of debt = $3.68 million Number of shares out

> Your sister wants to open a store that sells antique-style jewelry and accessories. She has $15,000 of savings to invest, but opening the store will require an initial investment of $20,000. Net cash inflows will be −$2,000, −$1,000, and $0 in the first

> Two publicly traded companies in the same industry are similar in all respects except one. Whereas Publicks has issued debt in the public markets, Privicks has never borrowed from any public source. In fact, it always uses private bank debt for its borro

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