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What makes accounting a valuable discipline?2DQ3DQHow are expenses and withdrawals similar, and how are they different?How do generally accepted accounting principles (GAAP) differ from the laws of mathematics?Why do managers in governmental and not-for-profit organizations need to understand financial information as much as managers in profit-seeking businesses?1SEMatch the descriptions that follow with the appropriate forms of business organization.Determine the amount missing from each accounting equation that follows.Use the accounting equation to answer each question that follows. 1. Ambria Companys assets are 240,000, and its liabilities are 90,000. What is the amount of its owners equity? 2. Dao Companys liabilities equal one-fifth of the total assets. The owners equity is 40,000. What is the amount of the liabilities?Use the accounting equation to answer each question that follows. 1. At the beginning of the year, Palette Companys assets were 90,000, and its owners equity was 50,000. During the year, assets increased by 30,000 and liabilities increased by 5,000. What was the owners equity at the end of the year? 2. At the beginning of the year, Carmines Company had liabilities of 100,000 and owners equity of 96,000. If assets increased by 40,000 and liabilities decreased by 30,000, what was the owners equity at the end of the year?6SEUse the following accounts and balances to prepare a balance sheet with the accounts in proper order for Manteno Company at June 30, 2014, using Exhibit 8 as a model:Randall Company engaged in activities during the first year of its operations that resulted in the following: service revenue, 4,800; expenses, 2,450; and withdrawals, 410. In addition, the year-end balances of selected accounts were as follows: Cash, 1,890; Other Assets, 1,000; Accounts Payable, 450; and Owners Capital, 2,440. Prepare Randalls income statement, statement of owners equity, and balance sheet (assume the year ends on December 31, 2014). (Hint: You must solve for the beginning balance of Owners Equity for 2014.)9SE10SE1EAFinancial accounting uses money measures to gauge the impact of business transactions on a separate business entity. Indicate whether each of the following words or phrases relates most closely to (a) a business transaction, (b) a separate entity, or (c) a money measure. 1. U.S. dollars 2. Indian rupees 3. Partnership 4. Receipt of cash 5. Sole proprietorship 6. Corporation 7. Sales of products 8. Owners investments 9. Japanese yen 10. Purchase of suppliesYou have been asked to compare the sales and assets of four companies that make computer chips to determine which company is the largest in each category. You have gathered the following data, but they cannot be used for direct comparison because each companys sales and assets are in its own currency: Assuming that the exchange rates in Exhibit 2 are current and appropriate, convert all the figures to U.S. dollars (multiply amount by exchange rate) and determine which company is the largest in sales and which is the largest in assets.Use the accounting equation to answer each question that follows. Show any calculations you make. 1. Oshkosh Companys assets are 400,000, and its owners equity is 155,000. What is the amount of its liabilities? 2. Salvatore Companys liabilities and owners equity are 72,000 and 79,500, respectively. What is the amount of the assets? 3. Radisson Companys liabilities equal one-third of the total assets, and owners equity is 160,000. What is the amount of its liabilities? 4. At the beginning of the year, Sun Companys assets were 275,000, and its owners equity was 150,000. During the year, assets increased 75,000 and liabilities decreased 22,500. What is the owners equity at the end of the year?Daiichi Companys total assets and liabilities at the beginning and end of the year follow. Determine Daiichis net income or loss for the year under each of the following alternatives: 1. The owner made no investments in or withdrawals from the business during the year. 2. The owner made no investments in the business but withdrew 27,500 during the year. 3. The owner invested 16,250 in the business but made no withdrawals during the year. 4. The owner invested 12,500 in the business and withdrew 27,500 during the year.1. Indicate whether each of the following accounts is an asset (A), a liability (L), or a part of owners equity (OE): a. Building b. Salaries Payable c. Accounts Receivable d. Owners Capital e. Cash f. Accounts Payable g. Equipment 2. Indicate whether each account that follows would be shown on the income statement (IS), the statement of owners equity (OE), or the balance sheet (BS). a. Commissions Earned b. Automobile c. Utilities Expense d. Land e. Supplies Expense f. Accounts Payable g. WithdrawalsListed in random order are some of Oxford Services Companys account balances as of December 31, 2014. Place the balances in proper order and prepare a balance sheet similar to the one in Exhibit 8.Dukakis Company had the following accounts and balances during 2014: Service Revenue, 13,200; Rent Expense, 1,200; Wages Expense, 8,340; Advertising Expense, 1,350; Utilities Expense, 900; and Withdrawals, 700. In addition, the yearend balances of selected accounts were as follows: Cash, 1,550; Accounts Receivable, 750; Supplies, 100; Land, 1,000; Accounts Payable, 450; Investment by Owner, 1,240; and beginning capital balance of 1,000. Prepare Dukakiss income statement, statement of owners equity, and balance sheet (assume the year ends on December 31, 2014). (Hint: You must first solve for the net income and ending balances of owners equity for 2014.)9EA10EAComplete the financial statements that follow by determining the amounts that correspond to the letters. (Assume no new investments by owners.)12EAMatch the terms that follow with the appropriate descriptions. 1. Communication 2. Business transactions 3. Investors 4. Financial Accounting Standards Board (FASB) 5. Creditors 6. Management 7. Bookkeeping 8. Securities and Exchange Commission (SEC) 9. Money measure 10. Sarbanes-Oxley Act 11. Financial statements 12. Management information system a. The recording of all business transactions in terms of money b. A process by which information is exchanged between individuals through a common system of symbols, signs, or behavior c. The process of identifying and assigning values to business transactions d. Legislation requiring CEOs and CFOs to swear that any reports they file with the SEC are accurate and complete e. Show how well a company is meeting the goals of profitability and liquidity f. Collectively, the people who have overall responsibility for operating a business and meeting its goals g. People who commit money to earn a financial return h. The interconnected subsystems that provide the information needed to run a business i. The most important body for developing and issuing rules on accounting practice, called Statements of Financial Accounting Standards j. An agency set up by Congress to protect the public by regulating the issuing, buying, and selling of stocks k. Economic events that affect a businesss financial position l. People or businesses to whom money is due14EA15EA1PThe following three independent sets of financial statements have several amounts missing: REQUIRED 1. Complete each set of financial statements by determining the missing amounts that correspond to the letters. 2. ACCOUNTING CONNECTION Why is it necessary to prepare the income statement prior to the balance sheet?Fuel Designs financial accounts follow. The company has just completed its tenth year of operations ended December 31, 2014. REQUIRED 1. Prepare Fuel Designs income statement, statement of owners equity, and balance sheet. There were no investments by the owner during the year. 2. ACCOUNTING CONNECTION The owner is considering expansion. What other financial statement would be useful to the owner in assessing whether the companys operations are generating sufficient funds to support the expenses? Why would it be useful?The accounts of Frequent Ad, an agency that develops marketing materials for print, radio, and television, follow. The agencys first year of operations just ended on January 31, 2014. REQUIRED 1. Prepare Frequent Ads income statement, statement of owners equity, and balance sheet. 2. BUSINESS APPLICATION Review the financial statements and comment on the financial challenges Frequent Ad faces.Athena Riding Clubs financial statements follow.A list of financial statement items follows. REQUIRED 1. Indicate whether each item is found on the income statement (IS), statement of owners equity (OE), and/or balance sheet (BS). 2. BUSINESS APPLICATION Which statement is most closely associated with the goal of profitability?Three independent sets of financial statements with several amounts missing follow. REQUIRED 1. Complete each set of financial statements by determining the amounts that correspond to the letters. 2. Accounting Connection In what order is it necessary to prepare the financial statements and why?8AP9APAqua Swimming Clubs financial statements follow. REQUIRED 1. ACCOUNTING CONNECTION Explain how Aqua Swimming Clubs four statements relate to each other. 2. BUSINESS APPLICATION Which statements are most closely associated with the goals of liquidity and profitability? Why? 3. BUSINESS APPLICATION If you were the owner of this business, how would you evaluate the companys performance? Give specific examples. 4. ACCOUNTING CONNECTION If you were a banker considering Aqua Swimming Club for a loan, why might you want the company to be audited by an independent CPA? What would the audit tell you?Costco Wholesale Corporation is Americas largest membership retail company. According to its letter to stockholders: For the first time [in 2011], four of our locations had more than 300 million in annual sales, including one which had more than 400 million in sales. This rate of top line revenue per building stands out in the retail industry and results from our ongoing focus on valuethat winning combination of quality and price on every item we sell that, we believe, sets Costco apart from many of its competitors. To achieve its strategy, Costco must organize its management by functions that relate to the principal activities of a business. Discuss the three basic activities Costco will engage in to achieve its goals, and suggest some examples of each. What is the role of Costcos management? What functions must its management perform to carry out these activities?2C3C4CRefer to the CVS annual report and the financial statements of Southwest Airlines Co. in the Supplement to Chapter 16 to answer the questions that follow. 1. Which company is larger in terms of assets and in terms of revenues? What do you think is the best way to measure the size of a company? 2. Which company is more profitable in terms of net income? What is the trend of profitability over the past three years for both companies? 3. Which company has more cash? Which increased its cash the most in the last year? Which has more liquidity as measured by cash flows from operating activities?6C7CA company incurs a cost for a part that is needed to repair a piece of equipment. Is the cost an asset or an expense? Explain.2DQ3DQ4DQHow are assets and expenses related, and why are the debit and credit effects for asset accounts and expense accounts the same?6DQ7DQ8DQTell whether each of the following accounts is an asset, a liability, a revenue, an expense, or none of these: a. Accounts Payable b. Supplies c. Withdrawals d. Fees Earned e. Supplies Expense f. Accounts Receivable g. Unearned Revenue h. Equipment2SE3SE4SE5SE6SE7SEPrepare a general journal form like the one in Exhibit 8 and label it Page 4. Record the following transactions in the journal:Prepare three ledger account forms like the one in Exhibit 9 for the following accounts: Cash (111), Accounts Receivable (113), and Service Revenue (411). Post the transactions that are recorded in SE8 to the ledger accounts for 2014, at the same time making the proper posting references. Also prepare a trial balance.10SE11SE12SEWhich of the following events would be recognized and recorded in Abril Companys accounting records on the date indicated?You are given the following list of accounts with dollar amounts: Insert each account name at the top of its corresponding T account and enter the dollar amount as a normal balance in the account. Then show that the accounting equation is in balance.The following ledger accounts are for Afocentric Service Company: a. Supplies b. Utilities Expense c. Accounts Receivable d. D. Minimus, Capital e. Land f. Prepaid Rent g. Accounts Payable h. Investments in Securities i. Service Revenue j. Supplies Expense k. Prepaid Insurance l. Wages Expense m. Fees Earned n. D. Minimus, Withdrawals o. Wages Payable p. Unearned Revenue q. Office Equipment r. Rent Payable s. Notes Receivable t. Interest Expense u. Notes Payable v. Cash w. Interest Receivable x. Rent Expense Complete the following table, using Xs to indicate each accounts classification and normal balance (whether a debit or a credit increases the account).4EAThe accounts that follow are applicable to Harolds Car Service, a company that repairs cars. 1. Cash 2. Accounts Receivable 3. Supplies 4. Equipment 5. Accounts Payable 6. Repair Services Revenue 7. Wages Expense 8. Rent Expense Harolds completed the following transactions: Analyze each transaction and show the accounts affected by entering the corresponding numbers in the appropriate debit or credit columns as shown in transaction a. Indicate no entry, if appropriate.6EA7EA8EAAfter recording the transactions in E6A, prepare a trial balance in proper sequence for Ferdinand Repair Service as of June 30, 2014. a. Collin Ferdinand opened Ferdinand Repair Service by investing 8,600 in cash and 3,200 in repair equipment. b. Paid 800 for the current months rent. c. Purchased repair supplies on credit, 1,000. d. Purchased additional repair equipment for cash, 600. e. Paid salary to an employee, 900. f. Paid 400 of amount purchased on credit in c. g. Accepted cash for repairs completed, 3,720. h. Withdrew 1,200 in cash.The list that follows presents Shah Companys accounts (in alphabetical order) as of March 31, 2014. The list does not include the amount of Accounts Payable. Prepare a trial balance with the proper heading (see Exhibit 7) and with the accounts listed in the chart of accounts sequence (see Exhibit 2). Compute the balance of Accounts Payable.Which of the following errors would cause a trial balance to have unequal totals? Explain your answers. a. A payment to a creditor was recorded as a debit to Accounts Payable for 258 and as a credit to Cash for 204. b. A payment of 300 to a creditor for an account payable was debited to Accounts Receivable and credited to Cash. c. A purchase of office supplies of 840 was recorded as a debit to Office Supplies for 84 and as a credit to Cash for 84. d. A purchase of equipment for 900 was recorded as a debit to Supplies for 900 and as a credit to Cash for 900.12EARecord the transactions in E6A in the general journal. a. Collin Ferdinand opened Ferdinand Repair Service by investing 8,600 in cash and 3,200 in repair equipment. b. Paid 800 for the current months rent. c. Purchased repair supplies on credit, 1,000. d. Purchased additional repair equipment for cash, 600. e. Paid salary to an employee, 900. f. Paid 400 of amount purchased on credit in c. g. Accepted cash for repairs completed, 3,720. h. Withdrew 1,200 in cash.14EA15EA16EAHighland Design Company creates radio and television advertising for local businesses in the twin cities. The following alphabetical list shows Highland Designs account balances as of January 31, 2014: Required Insert the account title at the top of its corresponding T account and enter the dollar amount as a normal balance in the account. Determine the balance of Equipment and then show that the accounting equation is in balance.The following accounts are applicable to Georges Warehouse Sweeps: 1. Cash 2. Accounts Receivable 3. Supplies 4. Prepaid Insurance 5. Equipment 6. Notes Payable 7. Accounts Payable 8. R. Marcuson, Capital 9. R. Marcuson, Withdrawals 10. Service Revenue 11. Rent Expense 12. Repair Expense Georges Warehouse Sweeps completed the following transactions: Required Analyze each transaction and show the accounts affected by entering the corresponding numbers in the appropriate debit or credit column as shown in transaction a. Indicate no entry, if appropriate.Jennifer Lopez opened a school for administrative skills called Lopez Office Training and completed the following transactions: a. Contributed the following assets to the business: Cash 5,700 Computers 4,300 Office Equipment 3,600 b. Found a location for her business and paid the first months rent, 260. c. Paid for an advertisement announcing the opening of the school, 190. d. Received applications from three students for a four-week secretarial program and two students for a ten-day keyboarding course. The students will be billed a total of 1,300. e. Purchased supplies on credit, 330. f. Billed the enrolled students, 1,740. g. Purchased a second-hand computer, 480, and office equipment, 380, on credit. h. Paid for the supplies purchased on credit in e, 330. i. Paid cash to repair a broken computer, 40. j. Received partial payment from students previously billed, 1,080. k. Paid the utility bill for the current month, 90. l. Paid an assistant one weeks salary, 440. m. Made a cash withdrawal of 300. Required 1. Set up the following T accounts: Cash; Accounts Receivable; Supplies; Computers; Office Equipment; Accounts Payable; J. Lopez, Capital; J. Lopez, Withdrawals; Tuition Revenue; Salaries Expense; Utilities Expense; Rent Expense; Repair Expense; and Advertising Expense. 2. Record the transactions directly in the T accounts, using the transaction letter to identify each debit and credit. 3. Prepare a trial balance using todays date. 4. Business Application Examine transactions f and j. What were the revenues, and how much cash was received from the revenues? What business issues might you see arising from the differences in these numbers?Sid Patel bid for and won a concession to rent bicycles in the local park during the summer. During the month of April, Patel completed the following transactions for his bicycle rental business: Apr.2 Began business by placing 14,400 in a business checking account in the name of the company. 3 Purchased supplies on account for 300. 4 Purchased 10 bicycles for 5,000, paying 2,400 down and agreeing to pay the rest in 30 days. 5 Paid 5,800 in cash for a small shed to store the bicycles and to use for other operations. 8 Paid 800 in cash for shipping and installation costs (considered an addition to the cost of the shed) to place the shed at the park entrance. 9 Hired a part-time assistant to help out on weekends at 14 per hour. 10 Paid a maintenance person 150 to clean the grounds. 13 Received 1,940 in cash for rentals. 17 Paid 300 for the supplies purchased on April 3. 18 Paid a 110 repair bill on bicycles. 23 Billed a company 220 for bicycle rentals for an employee outing. 25 Paid the 200 fee for April to the Park District for the right to operate the bicycle concession. 27 Received 1,920 in cash for rentals. 29 Paid the assistant 480. 30 Made a cash withdrawal of 1,000. Required 1. Prepare journal entries to record these transactions. 2. Set up the following T accounts and post all the journal entries: Cash; Accounts Receivable; Supplies; Shed; Bicycles; Accounts Payable; S. Patel, Capital; S. Patel, Withdrawals; Rental Revenue; Wages Expense; Maintenance Expense; Repair Expense; and Concession Fee Expense. 3. Prepare a trial balance for Patel Rentals as of April 30, 2014. 4. Concept Compare and contrast how the issues of recognition, valuation, and classification are settled in the transactions of April 3 and 10.Nordtown Company is a marketing firm. The companys trial balance on August 31, 2014, follows. During the month of September, the company completed the following transactions: Sept. 2 Paid rent for September, 650. 3 Received cash from customers on account, 2,300. 7 Ordered supplies, 380. 10 Billed customers for services provided, 2,800. 12 Made a payment on accounts payable, 1,300. 14 Received the supplies ordered on September 7 and agreed to pay for them in 30 days, 380. 17 Discovered some of the supplies were not as ordered and returned them for full credit, 80. 19 Received cash from a customer for services provided, 4,800. 24 Paid the utility bill for September, 250. 26 Received a bill, to be paid in October, for advertisements placed in the local newspaper during the month of September to promote Nordstrom Company, 700. 29 Billed a customer for services provided, 2,700. 30 Paid salaries for September, 3,800. 30 Made a cash withdrawal of 1,200. Required 1. Open accounts in the ledger for the accounts in the trial balance plus the following accounts: D. Guetta, Withdrawals (313); Marketing Fees (411); Salaries Expense (511); Utilities Expense (512); Rent Expense (514); and Advertising Expense (516). 2. Enter the August 31, 2014, account balances from the trial balance. 3. Enter the September transactions in the general journal (page 22). 4. Post the journal entries to the ledger accounts. Be sure to make the appropriate posting references in the journal and ledger as you post. 5. Prepare a trial balance as of September 30, 2014. 6. Business Application Examine the transactions for September 3, 10, 19, and 29. What were the revenues, and how much cash was received from the revenues? What business issues might you see arising from the differences in these numbers?6APThe following accounts are applicable to Raymonds Chimney Sweeps: 1. Cash 2. Accounts Receivable 3. Supplies 4. Prepaid Insurance 5. Equipment 6. Notes Payable 7. Accounts Payable 8. R. Foth, Capital 9. R. Foth, Withdrawals 10. Service Revenue 11. Rent Expense 12. Repair Expense Raymonds Chimney Sweeps completed the following transactions: REQUIRED Analyze each transaction and show the accounts affected by entering the corresponding numbers in the appropriate debit or credit column as shown in transaction a. Indicate no entry, if appropriate.8APDavid Roberts began an upholstery cleaning business on August 1 and engaged in the following transactions during the month: Aug. 1 Began business by depositing 30,000 in a bank account in the name of the company. 2 Ordered cleaning supplies, 6,000. 3 Purchased cleaning equipment for cash, 5,600. 4 Made two months van lease payment in advance, 2,400. 7 Received the cleaning supplies ordered on August 2 and agreed to pay half the amount in 10 days and the rest in 30 days. 9 Paid for repairs on the van with cash, 2,160. 12 Received cash for cleaning upholstery, 1,920. 17 Paid half the amount owed on supplies received on August 7, 3,000. 21 Billed customers for cleaning upholstery, 2,680. 24 Paid cash for additional repairs on the van, 160. 27 Received 1,200 from the customers billed on August 21. 31 Made a cash withdrawal of 1,400. REQUIRED 1. Set up the following T accounts: Cash; Accounts Receivable; Cleaning Supplies; Prepaid Lease; Cleaning Equipment; Accounts Payable; D. Roberts, Capital; D. Roberts, Withdrawals; Cleaning Revenue; and Repair Expense. 2. Record transactions directly in the T accounts. Identify each entry by date. 3. Prepare a trial balance for Roberts Upholstery Cleaning as of August 31, 2014. 4. CONCEPT Compare and contrast how the issues of recognition, valuation, and classification are settled in the transactions of August 7 and 9.10AP1C2C3C4C5C6C7C8C1DQWill the carrying value of a long-term asset normally equal its market value?If, at the end of the accounting period, you were looking at the T account for a prepaid expense like supplies, would you look for the amounts expended in cash on the debit or credit side? On which side would you find the amount expensed during the period?4DQ5DQ6DQMatch the concepts of accrual accounting that follow with the appropriate assumptions or actions. 1. Assumes expenses should be assigned to the accounting period in which they are used to produce revenues 2. Assumes a business will last indefinitely 3. Assumes revenues are earned at a point in time 4. Assumes net income that is measured for a short period of time, such as one quarter a. Periodicity b. Continuity c. Accrual accounting d. Revenue recognitionThe Prepaid Insurance account began the year with a balance of 460. During the year, insurance in the amount of 1,040 was purchased. At the end of the year (December 31), the amount of insurance still unexpired was 700. Prepare the year-end journal entry to record the adjustment for insurance expense for the year.The Supplies account began the year with a balance of 380. During the year, supplies in the amount of 980 were purchased. At the end of the year (December 31), the inventory of supplies on hand was 440. Prepare the year-end journal entry to record the adjustment for supplies expense for the year.4SE5SEDuring the month of August, deposits in the amount of 1,100 were received for services to be performed. By the end of the month, services in the amount of 760 had been performed. Prepare the necessary adjustment for Service Revenue at the end of the month.7SEMalesherbes Companys adjusted trial balance on June 30, 2014, contains the following accounts and balances: C. Fondren, Capital, 12,750; C. Fondren, Withdrawals, 580; Service Revenue, 6,300; Rent Expense, 900; Wages Expense, 1,050; Utilities Expense, 300; and Telephone Expense, 90. Prepare an income statement and statement of owners equity for the month of June.9SE10SECarlos Companys accountant makes the assumptions or performs the activities listed below. Tell which of the following concepts of accrual accounting most directly relates to each assumption or action: (a) periodicity, (b) continuity, (c) accrual accounting, (d) revenue recognition, (e) deferral, and (f) accrual. 1. Recognizes the usefulness of financial statements prepared on a monthly basis even though they are based on estimates. 2. Prepares an income statement that shows the revenues earned and the expenses incurred during the accounting period. 3. In estimating the life of a building, assumes that the business will last indefinitely. 4. Postpones the recognition of a one-year insurance policy as an expense by initially recording the expenditure as an asset. 5. Records a sale when the customer is billed. 6. Recognizes, by making an adjusting entry, wages expense that has been incurred but not yet recorded.Four conditions must be met before revenue should be recognized. In each of the following cases, tell which condition has not been met: a. Company Alpha accepts a contract to perform services in the future for 4,000. b. Company Beta ships products worth 6,000 to another company without an order from the other company but tells the company it can return the products if it does not sell them. c. Company Centric performs 20,000 of services for a firm with financial problems. d. Company Radiant agrees to work out a price later for services that it performs for another company.3EA4EA5EA6EA7EA8EAPrepare year-end adjusting entries for each of the following: 1. Office Supplies has a balance of 168 on January 1. Purchases debited to Office Supplies during the year amount to 830. A year-end inventory reveals supplies of 570 on hand. 2. Depreciation of office equipment is estimated to be 4,260 for the year. 3. Property taxes for six months, estimated at 1,750, have accrued but have not been recorded. 4. Unrecorded interest income on U.S. government bonds is 1,700. 5. Unearned Revenue has a balance of 1,800. Services for 600 received in advance have now been performed. 6. Services totaling 400 have been performed; the customer has not yet been billed.10EA11EAWipro Companys income statement included the following expenses for 2014: The related balance sheet account balances at year end for last year and this year follow. 1. Compute the cash paid for rent during the year. 2. Compute the cash paid for interest during the year. 3. Compute the cash paid for salaries during the year.At the end of the first three months of operation, Kubose Answering Services trial balance appears as follows. Dhaval Bose, Kuboses owner, has hired an accountant to prepare financial statements to determine how well the company is doing after three months. Upon examining the accounting records, the accountant finds the following items of interest: a. An inventory of office supplies reveals supplies on hand of 133. b. The Prepaid Rent account includes the rent for the first three months plus a deposit for Aprils rent. c. Depreciation on the equipment for the first three months is 208. d. The balance of the Unearned Answering Service Revenue account represents a 12-month service contract paid in advance on February 1. e. On March 31, accrued wages total 80. REQUIRED All adjustments affect one balance sheet account and one income statement account. For each of these situations, show the accounts affected, the amount of the adjustment (using a + or to indicate an increase or decrease), and the balance of the account after the adjustment in the following format:On November 30, the end of the current fiscal year, the following information is available to assist Allerton Companys accountants in making adjusting entries: a. Allertons Supplies account shows a beginning balance of 2,350. Purchases during the year were 4,218. The end-of-year inventory reveals supplies on hand of 1,397. b. The Prepaid Insurance account shows the following on November 30: The beginning balance represents the unexpired portion of a one-year policy purchased in September of the previous year. The July 1 entry represents a new one-year policy, and the October 1 entry represents additional coverage in the form of a three-year policy. c. The following table contains the cost and annual depreciation for buildings and equipment, all of which Allerton purchased before the current year: d. On October 1, the company completed negotiations with a client and accepted an advance of 18,600 for services to be performed monthly for a year. The 18,600 was credited to Unearned Services Revenue. e. The company calculated that, as of November 30, it had earned 7,000 on an 11,000 contract that would be completed and billed in January. f. Among the liabilities of the company is a note payable in the amount of 300,000. On November 30, the accrued interest on this note amounted to 18,000. g. On Saturday, December 2, the company, which is on a six-day workweek, will pay its regular employees their weekly wages of 15,000. h. On November 29, the company completed negotiations and signed a contract to provide services to a new client at an annual rate of 23,000. REQUIRED 1. Prepare adjusting entries for each item listed above. 2. CONCEPT Explain how the conditions for revenue recognition are applied to transactions e and h.Kinokawa Consultants Companys trial balance on December 31, 2014, follows. The following information is also available: a. Ending inventory of office supplies, 86 b. Prepaid rent expired, 700 c. Depreciation of office equipment for the period, 600 d. Interest accrued on the note payable, 600 e. Salaries accrued at the end of the period, 200 f. Service revenue still unearned at the end of the period, 1,410 g. Service revenue earned but not billed, 600 REQUIRED 1. Open T accounts for the accounts in the trial balance plus the following: Interest Payable; Salaries Payable; Office Supplies Expense; Depreciation ExpenseOffice Equipment; and Interest Expense. Enter the account balances. 2. Determine the adjusting entries and post them directly to the T accounts. 3. Prepare an adjusted trial balance. 4. ACCOUNTING CONNECTION Which financial statements do each of the above adjustments affect? What financial statement is not affected by the adjustments?Hertz Limo Service was organized to provide limousine service between the airport and various suburban locations. It has just completed its second year of business. Its trial balance follows. The following information is also available: a. To obtain space at the airport, Hertz paid two years rent in advance when it began the business. b. An examination of insurance policies reveals that 2,800 expired during the year. c. To provide regular maintenance for the vehicles, Hertz deposited 12,000 with a local garage. An examination of maintenance invoices reveals charges of 10,944 against the deposit. d. An inventory of spare parts shows 1,902 on hand. e. Hertz depreciates all of its limousines at the rate of 12.5 percent per year. No limousines were purchased during the year. (Round answer to the nearest dollar.) f. A payment of 1,500 for one full years interest on notes payable is now due. g. Unearned Passenger Service Revenue on June 30 includes 17,815 for tickets that employers purchased for use by their executives but which have not yet been redeemed. REQUIRED 1. Determine the adjusting entries and enter them in the general journal (Page 14). 2. Open ledger accounts for the accounts in the trial balance plus the following: Interest Payable (213); Rent Expense (514); Insurance Expense (515); Spare Parts Expense (516); Depreciation ExpenseLimousines (517); Maintenance Expense (518); and Interest Expense (519). Record the balances shown in the trial balance. 3. Post the adjusting entries from the general journal to the ledger accounts, showing proper references. 4. Prepare an adjusted trial balance, an income statement, a statement of owners equity, and a balance sheet. The owner made no investments during the period. 5. ACCOUNTING CONNECTION What effect do the adjusting entries have on the income statement?At the end of its fiscal year, Berwyn Cleaners trial balance is as follows. The following information is also available: a. A study of the companys insurance policies shows that 680 is unexpired at the end of the year. b. An inventory of cleaning supplies shows 1,244 on hand. c. Estimated depreciation on the building for the year is 12,800. d. Accrued interest on the mortgage payable is 1,000. e. On September 1, the company signed a contract, effective immediately, with Hope County Hospital to dry clean, for a fixed monthly charge of 400, the uniforms used by doctors in surgery. The hospital paid for four months service in advance. f. Sales and delivery wages are paid on Saturday. The weekly payroll is 2,520. September 30 falls on a Thursday, and the company has a six-day pay week. REQUIRED All adjustments affect one balance sheet account and one income statement account. For each of the above situations, show the accounts affected, the amount of the adjustment (using a + or to indicate an increase or decrease), and the balance of the account after the adjustment in the following format:Brave Advisors Services trial balance on December 31, 2014, is as follows. The following information is also available: a. Ending inventory of office supplies, 264 b. Prepaid rent expired, 440 c. Depreciation of office equipment for the period, 660 d. Accrued interest expense at the end of the period, 550 e. Accrued salaries at the end of the period, 330 f. Service revenue still unearned at the end of the period, 1,166 g. Service revenue earned but unrecorded, 2,200 REQUIRED 1. Open T accounts for the accounts in the trial balance plus the following: Interest Payable; Salaries Payable; Office Supplies Expense; Depreciation ExpenseOffice Equipment; and Interest Expense. Enter the balances shown on the trial balance. 2. Determine the adjusting entries and post them directly to the T accounts. 3. Prepare an adjusted trial balance. 4. ACCOUNTING CONNECTION Which financial statements do each of the above adjustments affect? Which financial statement is not affected by the adjustments?7P8P9APOn March 31, the end of the current fiscal year, the following information is available to assist Zun Cleaning Companys accountants in making adjusting entries: a. Zuns Supplies account shows a beginning balance of 5,962. Purchases during the year were 10,294. The end-of-year inventory reveals supplies on hand of 3,105. b. The Prepaid Insurance account shows the following on March 31: The beginning balance represents the unexpired portion of a one-year policy purchased in January of the previous year. The September 1 entry represents a new oneyear policy, and the January 1 entry represents additional coverage in the form of a three-year policy. c. The following table contains the cost and annual depreciation for buildings and equipment, all of which Zun purchased before the current year: d. On December 1, the company completed negotiations with a client and accepted an advance of 32,000 for services to be performed monthly for a year. The 32,000 was credited to Unearned Services Revenue. (Round to the nearest dollar.) e. The company calculated that, as of March 31, it had earned 9,200 on a 17,000 contract that would be completed and billed in January. f. Among the liabilities of the company is a note payable in the amount of 600,000. On March 31, the accrued interest on this note amounted to 17,470. g. On Saturday, April 3, the company, which is on a six-day workweek, will pay its regular employees their weekly wages of 22,000. (Round to the nearest dollar.) h. On March 31, the company completed negotiations and signed a contract to provide services to a new client at an annual rate of 19,000, beginning April 1. REQUIRED 1. Prepare adjusting entries for each item listed above. 2. CONCEPT Explain how the conditions for revenue recognition are applied to transactions e and h.Lee Technology Corporations trial balance on December 31, 2014, is as follows. The following information is also available: a. Ending inventory of office supplies, 538 b. Prepaid rent expired, 1,200 c. Depreciation of office equipment for the period, 800 d. Interest accrued on the note payable, 750 e. Salaries accrued at the end of the period, 800 f. Service revenue still unearned at the end of the period, 3,675 g. Service revenue earned but not billed, 1,800 REQUIRED 1. Open T accounts for the accounts in the trial balance plus the following: Interest Payable; Salaries Payable; Office Supplies Expense; Depreciation ExpenseOffice Equipment; and Interest Expense. Enter the account balances. 2. Determine the adjusting entries and post them directly to the T accounts. 3. Prepare an adjusted trial balance. 4. ACCOUNTING CONNECTION Which financial statements do each of the above adjustments affect? What financial statement is not affected by the adjustments?12AP13APScoop Consulting Services trial balance on December 31, 2014, is as follows. The following information is also available: a. Ending inventory of office supplies, 564 b. Prepaid rent expired, 470 c. Depreciation of office equipment for the period, 820 d. Accrued interest expense at the end of the period, 730 e. Accrued salaries at the end of the period, 630 f. Service revenue still unearned at the end of the period, 2,722 g. Service revenue earned but unrecorded, 2,500 REQUIRED 1. Open T accounts for the accounts in the trial balance plus the following: Interest Payable; Salaries Payable; Office Supplies Expense; Depreciation ExpenseOffice Equipment; and Interest Expense. Enter the balances shown on the trial balance. 2. Determine the adjusting entries and post them directly to the T accounts. 3. Prepare an adjusted trial balance. 4. ACCOUNTING CONNECTION Which financial statements do each of the above adjustments affect? Which financial statement is not affected by the adjustments?15AP16APNever Flake Company provided a rust-prevention coating for the underside of new automobiles. The company advertised widely and offered its services through new-car dealers. When a dealer sold a new car, the salesperson attempted to sell the rust-prevention coating as an option. A key selling point was Never Flakes warranty, which stated that it would repair any damage due to rust at no charge for as long as the buyer owned the car. For several years, Never Flake had been very successful, but in 2013, the company suddenly declared bankruptcy. Company officials said that the firm had only 5.5 million in assets against liabilities of 32.9 million. Most of the liabilities represented potential claims under the companys lifetime warranty. It seemed that owners were keeping their cars longer than they had previously. Therefore, more damage was being attributed to rust. Discuss what accounting decisions could have helped Never Flake to survive under these circumstances.2C3C4C5C6CWhy is the accounting cycle called a cycle?Could closing entries be made without using the Income Summary account?Why does the post-closing trial balance contain only balance sheet accounts?4DQ5DQMatch the following concepts to the related statements: a. periodicity b. accrual accounting c. permanent accounts d. temporary accounts 1. Encompasses all the techniques that determine income for an accounting period. 2. Accumulate from zero each accounting period. 3. Concept that embodies assumption that life of business can be divided into accounting periods. 4. Have a balance that carries forwarded from one accounting period to another.Resequence the following activities to indicate the usual order of the accounting cycle: a. Close the accounts. b. Analyze the transactions. c. Post the entries to the ledger. d. Prepare the financial statements. e. Adjust the accounts. f. Record the transactions in the journal. g. Prepare the post-closing trial balance. h. Prepare the initial trial balance. i. Prepare the adjusted trial balance.3SE4SEAssuming that total revenues were 5,200 and total expenses were 3,000, prepare the journal entry to close the Income Summary account to the P. Mehta, Capital account. The accounting period ends December 31.6SE7SE8SE9SE10SEPrepare the required closing journal entries for the year ended December 31, using the items from the Income Statement columns of a work sheet that follow and assuming that withdrawals by the owner, A. Riley, were 7,000.Hamilton Realty Companys income statement accounts at the end of its fiscal year, December 31, follow. Prepare the required closing entries. Lewis Hamilton is the owner.2EA3EA4EAThe Capital, Withdrawals, and Income Summary accounts for Strausss Hair Salon are shown in the T accounts that follow. The closing entries have been recorded for the year ended December 31, 2014. Prepare a statement of owners equity for Strausss Hair Salon.6EA7EAIn the partial work sheet for K. Joe Company that follows, the Trial Balance and Income Statement columns have been completed. All amounts are in dollars. 1. Show the adjusting entries without giving an explanation. 2. Prepare a balance sheet for December 31, 2014.Salinas Trailer Rental rents small trailers by the day for local moving jobs. Its adjusted trial balance at the end of the current fiscal year follows. REQUIRED 1. From the information given, record closing entries. 2. CONCEPT If closing entries were not prepared at the end of the accounting period, what problems would result in the next accounting period?Carlton Tennis Clubs adjusted trial balance at the end of its fiscal year follows. REQUIRED 1. Prepare T accounts and enter the balances for J. Kojas, Capital; J. Kojas, Withdrawals; Income Summary, and all revenue and expense accounts. 2. Enter the four required closing entries in the T accounts, labeling the components a (credit balances), b (debit balances), c (Income Summary), and d (withdrawals), as appropriate. 3. Prepare an income statement, a statement of owners equity, and a balance sheet for Carlton Tennis Club. 4. CONCEPT Explain why it is necessary to make closing entries at the end of an accounting period.3P4POn May 1, 2014, Leon Stoker opened Stokers Repair Service. During the month, he completed the following transactions for the company: May 1 Began business by depositing 10,000 in a bank account in the name of the company. 1 Paid the rent for the store for current month, 850. 1 Paid the premium on a one-year insurance policy, 960. 2 Purchased repair equipment from Latin Company, 8,400. Terms were 1,200 down and 600 per month for one year. First payment is due June 1. 5 Purchased repair supplies from Tanaka Company on credit, 936. 8 Paid cash for an advertisement in a local newspaper, 120. 15 Received cash repair revenue for the first half of the month, 800. 21 Paid Tanaka Company on account, 450. 31 Received cash repair revenue for the last half of May, 1,950. 31 Made a withdrawal, 600. REQUIRED FOR MAY 1. Prepare journal entries to record the May transactions. Include the Post. Ref. column and fill in using the account numbers listed in requirement 2. 2. Open the following accounts: Cash (111); Prepaid Insurance (117); Repair Supplies (119); Repair Equipment (144); Accumulated DepreciationRepair Equipment (145); Accounts Payable (212); L. Stoker, Capital (311); L. Stoker, Withdrawals (313); Income Summary (314); Repair Revenue (411); Store Rent Expense (511); Advertising Expense (512); Insurance Expense (513); Repair Supplies Expense (514); and Depreciation ExpenseRepair Equipment (515). Post the May journal entries to the ledger accounts. 3. Using the following information, record adjusting entries in the general journal and post to the ledger accounts: a. One months insurance has expired. b. The remaining inventory of unused repair supplies is 338. c. The estimated depreciation on repair equipment is 140. 4. From the accounts in the ledger, prepare an adjusted trial balance. (Note: Normally, a trial balance is prepared before adjustments but is omitted here to save time.) 5. From the adjusted trial balance, prepare an income statement, a statement of owners equity, and a balance sheet for May. 6. Prepare and post closing entries. 7. Prepare a post-closing trial balance. (Optional) During June, Leon Stoker completed these transactions for Stokers Repair Service. June 1 Paid the monthly rent, 850. 1 Made the monthly payment to Latin Company, 600. 6 Purchased additional repair supplies on credit from Tanaka Company, 1,726. 15 Received cash repair revenue for the first half of the month, 1,828. 20 Paid cash for an advertisement in the local newspaper, 120. 23 Paid Tanaka Company on account, 1,200. 30 Received cash repair revenue for the last half of the month, 1,634. 30 Recorded a withdrawal by owner, 600. 8. Prepare and post journal entries to record the June transactions. 9. Using the following information, record adjusting entries in the general journal and post to the ledger accounts. a. One months insurance has expired. b. The inventory of unused repair supplies is 826. c. The estimated depreciation on repair equipment is 140. 10. From the accounts in the ledger, prepare an adjusted trial balance. 11. From the adjusted trial balance, prepare the June income statement, statement of owners equity, and balance sheet. 12. Prepare and post closing entries. 13. Prepare a post-closing trial balance.Villa Consultant Companys adjusted trial balance at the end of its fiscal year follows. REQUIRED 1. Prepare the required closing entries. 2. CONCEPT Explain why closing entries are necessary at the end of the accounting period.7AP8APJulio Theater Companys trial balance at the end of its current fiscal year follows. REQUIRED 1. Enter Julio Theaters trial balance amounts in the Trial Balance columns of a work sheet and complete the work sheet using the following information: a. Expired insurance, 34,800. b. Inventory of unused office supplies, 488. c. Inventory of unused cleaning supplies, 936. d. Estimated depreciation on the building, 28,000. e. Estimated depreciation on the theater furnishings, 72,000. f. Estimated depreciation on the office equipment, 6,320. g. The company credits all gift books sold during the year to the Gift Books Liability account. A gift book is a booklet of ticket coupons that is purchased in advance as a gift. The recipient redeems the coupons at some point in the future. On June 30 it was estimated that 75,600 worth of the gift books had been redeemed. h. Accrued but unpaid usher wages at the end of the accounting period, 1,720. 2. Prepare an income statement, a statement of owners equity, and a balance sheet. Assume no additional investments by the owner, P. Julio. 3. Prepare adjusting, closing, and, when necessary, reversing entries from the work sheet. 4. BUSINESS APPLICATION Can the work sheet be used as a substitute for the financial statements? Explain your answer.On June 1, 2014, Bob Lutz opened Lutz Repair Service. During the month, he June 1 Began business by depositing 20,000 in a bank account in the name of the company. 1 Paid the rent for the store for current month, 1,700. 1 Paid the premium on a one-year insurance policy, 1,920. 2 Purchased repair equipment from Bilbao Company, 16,800. Terms were 2,400 down and 1,200 per month for one year. First payment is due June 1. 5 Purchased repair supplies from Rusin Company on credit, 1,872. 8 Paid cash for an advertisement in a local newspaper, 240. 15 Received cash repair revenue for the first half of the month, 1,600. 30 Paid Rusin Company on account, 900. 30 Received cash repair revenue for the last half of May, 3,900. 30 Made a withdrawal, 1,200. REQUIRED FOR JUNE 1. Prepare journal entries to record the June transactions. Include the Post. Ref. column and fill in using the account numbers listed in requirement 2. 2. Open the following accounts: Cash (111); Prepaid Insurance (117); Repair Supplies (119); Repair Equipment (144); Accumulated DepreciationRepair Equipment (145); Accounts Payable (212); B. Lutz, Capital (311); B. Lutz, Withdrawals (313); Income Summary (314); Repair Revenue (411); Store Rent Expense (511); Advertising Expense (512); Insurance Expense (513); Repair Supplies Expense (514); and Depreciation ExpenseRepair Equipment (515). Post the May journal entries to the ledger accounts. 3. Using the following information, record adjusting entries in the general journal and post to the ledger accounts: d. One months insurance has expired. e. The remaining inventory of unused repair supplies is 676. f. The estimated depreciation on repair equipment is 280. 4. From the accounts in the ledger, prepare an adjusted trial balance. (Note: Normally, a trial balance is prepared before adjustments but is omitted here to save time.) 5. From the adjusted trial balance, prepare an income statement, a statement of owners equity, and a balance sheet for June. 6. Prepare and post closing entries. 7. Prepare a post-closing trial balance. (Optional) During July, Bob Lutz completed these transactions for Lutz Repair Service: July 1 Paid the monthly rent, 1,700. 1 Made the monthly payment to Bilbao Company, 1,200. 6 Purchased additional repair supplies on credit from Rusin Company, 3,452. 15 Received cash repair revenue for the first half of the month, 3,656. 20 Paid cash for an advertisement in the local newspaper, 240. 23 Paid Rusin Company on account, 2,400. 30 Received cash repair revenue for the last half of the month, 3,268. 30 Recorded a withdrawal by owner, 1,200. 8. Prepare and post journal entries to record the July transactions. 9. Using the following information, record adjusting entries in the general journal and post to the ledger accounts. d. One months insurance has expired. e. The inventory of unused repair supplies is 1,652. f. The estimated depreciation on repair equipment is 280. 10. From the accounts in the ledger, prepare an adjusted trial balance. 11. From the adjusted trial balance, prepare the July income statement, statement of owners equity, and balance sheet. 12. Prepare and post closing entries. 13. Prepare a post-closing trial balance.1C2C3CThomas Odzer, an accountant for Mennix Company, has made adjusting entries and is preparing the adjusted trial balance for the first six months of the year. Financial statements must be delivered to the bank by 5 P.M. to support a critical loan agreement. By noon, Odzer has been unable to balance the adjusted trial balance. The figures are off by 1,320, so he increases the balance of the owners Capital account by 1,320. He closes the accounts, prepares the statements, and sends them to the bank on time. He hopes that no one will notice the problem and believes that he can find the error and correct it by the end of next month. Are Odzers actions ethical? Why or why not? Did he have other alternatives?5C6C7C1DQ2DQ3DQ4DQ5DQ6DQ7DQ1SE2SETell whether each of the following accounts is a current asset; an investment; property, plant, and equipment; an intangible asset; a current liability; a long-term liability; owners equity; or not on the balance sheet: 1. Delivery Trucks 2. Accounts Payable 3. Note Payable (due in 90 days) 4. Delivery Expense 5. Owners Capital 6. Prepaid Insurance 7. Trademark 8. Investment to Be Held Six Months 9. Factory Not Used in Business4SE5SE6SE7SEThe lettered items that follow represent a classification scheme for the concepts of financial accounting. Match each numbered term in the list that follows with the letter of the category in which it belongs. a. Qualitative characteristics b. Financial statements c. Objective of accounting information d. Accounting measurement considerations e. Accounting processing considerations f. Decision makers (users of accounting information) g. Accounting conventions h. Business activities or entities relevant to accounting measurement 1. Conservatism 2. Verifiability 3. Statement of cash flows 4. Materiality 5. Faithful representation 6. Recognition 7. Cost-benefit 8. Predictive value 9. Business transactions 10. Consistency 11. Full disclosure 12. Furnishing information that is useful to investors and creditors 13. Specific business entities 14. Classification 15. Management 16. Neutrality 17. Internal accounting control 18. Valuation 19. Investors 20. Completeness 21. Relevance 22. Furnishing information that is useful in assessing cash flow prospectsEach of the statements that follow violates one or more accounting concepts. State which of these selected qualitative characteristics and accounting conventionsrelevance, faithful representation, comparability, verifiability, timeliness, understandability, cost constraint, consistency, materiality, conservatism, or full disclosure is (are) violated. 1. A company changes its method of accounting for depreciation. 2. The asset account for a pickup truck still used in the business is written down to what the truck could be sold for, even though the carrying value under conventional depreciation methods is higher. 3. A series of reports that are time-consuming and expensive to prepare are presented to the owner each month, even though they are never used. 4. The company in 1 does not indicate in the financial statements that the method of depreciation was changed, nor does it specify the effect of the change on net income. 5. A companys new office building, which is built next to the companys existing factory, is debited to the factory account because it represents a fairly small dollar amount in relation to the factory. 6. Information is presented in a way that is not useful to users. 7. A transaction is recorded that does not represent the substance of the economic event. 8. Information is presented in a way that is confusing to users. 9. Similar transactions are recorded using different accounting principles. 10. Information is reported long after the economic events they represent. 11. Various experts come up with widely different estimates of an amount.The lettered items that follow represent a classification scheme for a balance sheet, and the numbered items in the list are account titles. Match each account with the letter of the category in which it belongs. a. Current liabilities b. Owners equity c. Current assets d. Intangible assets e. Property, plant, and equipment f. Investments g. Long-term liabilities h. Not on balance sheet 1. Patent 2. Building Held for Sale 3. Prepaid Rent 4. Wages Payable 5. Note Payable in Five Years 6. Building Used in Operations 7. Fund Held to Pay Off Long-Term Debt 8. Inventory 9. Prepaid Insurance 10. Depreciation Expense 11. Accounts Receivable 12. Interest Expense 13. Unearned Revenue 14. Short-Term Investments 15. Accumulated Depreciation 16. Owners Capital4EA5EA6EA7EA8EA1PThe information that follows is from Jasons Hardware Companys June 30, 2014, post-closing trial balance. REQUIRED 1. Prepare a classified balance sheet for Jasons Hardware Company. 2. BUSINESS APPLICATION Compute Jasons Hardwares current ratio and debt to equity ratio. (Round to one decimal place.) 3. BUSINESS APPLICATION As a user of the classified balance sheet, why would you want to know the current ratio or the debt to equity ratio?3P4P5APThe information that follows is from Matts Hardware Companys April 30, 2014, REQUIRED 1. Prepare a classified balance sheet for Matts Hardware. 2. BUSINESS APPLICATION Compute Matts Hardwares current ratio and debt to equity ratio. (Round to one decimal place.) 3. BUSINESS APPLICATION As a user of the classified balance sheet, why would you want to know the current ratio or the debt to equity ratio?7APThe information that follows is from Rodriguezs Tools Companys April 30, 2014, REQUIRED 1. Prepare a classified balance sheet for Rodriguezs Tools. 2. BUSINESS APPLICATION Compute Rodriguezs Tools current ratio and debt to equity ratio. (Round to one decimal place.) 3. BUSINESS APPLICATION As a user of the classified balance sheet, why would you want to know the current ratio or the debt to equity ratio?1C2C3C4C5C6C7C1DQ2DQ3DQAssume a large shipment of uninsured merchandise to your company is destroyed when the delivery truck has an accident and burns. Would you want the terms to be FOB shipping point or FOB destination?5DQ6DQ7DQIndicate whether each of the statements that follow is more applicable to a perpetual inventory system, periodic inventory system, or both. 1. Inventory figure is not accurate until the balance sheet date. 2. Requires a physical count of inventory at end of period. 3. No detailed records of the inventory are maintained during the accounting period. 4. Continuous records are kept of the quantity of inventory on hand. 5. Cost of Goods Sold is calculated only at the end of the accounting period. 6. Effective system for managing inventory and thus avoiding running out of stock. 7. Is more costly to maintain but may lead to increased sales.2SE3SE4SE5SE6SE7SE8SERecord the following transactions using T accounts, assuming the periodic inventory system is used:10SE11SESutton Hills Companys management made the decisions that follow. Indicate which of the decisions relates primarily to (a) classification, (b) merchandising inventory, (c) periodic inventory system, or (d) operating cycle. 1. Decided to purchase and sell goods. 2. Decided to use a form of income statement that would show gross margin separately from operating income. 3. Decided to reduce the credit terms offered to customers from 30 days to 20 days to speed up collection of accounts. 4. Decided that the benefits of keeping track of each item of inventory as it is bought and sold would exceed the costs of such a system.2EAA company has the following data: net sales, 405,000; cost of goods sold, 220,000; selling expenses, 90,000; general and administrative expenses, 60,000; interest expense, 4,000; and interest income, 3,000. 1. Prepare a single-step income statement. 2. Prepare a multistep income statement.4EA5EALinear Company engaged in the following transactions: Prepare journal entries and, assuming the perpetual inventory system, determine the total amount paid to Green.7EA8EA9EA10EA11EA12EA13EA14EA15EAMatuska Tools Corporations income statements follow. Required 1. Prepare a multistep income statement for 2013 and 2014 showing percentages of net sales for each component (e.g., cost of goods sold divided by net sales). (Round percentages to one decimal place.) 2. Accounting Connection Did income from operations increase or decrease between 2013 and 2014? Write a short explanation of why this change occurred.Selected accounts from Murrays Furniture Stores adjusted trial balance as of June 30, 2014, the end of the fiscal year, follow. REQUIRED 1. Prepare a multistep income statement for Murrays. Freight-In should be combined with Cost of Goods Sold. Store Salaries Expense, Advertising Expense, Store Supplies Expense, and Depreciation ExpenseStore Equipment are selling expenses. The other expenses are general and administrative expenses. The company uses the perpetual inventory system. Show details of net sales and operating expenses. 2. BUSINESS APPLICATION Based on your knowledge at this point in the course, how would you use Murrays income statement to evaluate the companys profitability? What other financial statement should you consider and why?3PSelected accounts from Dences Gourmet Shops adjusted trial balance as of March 31, 2014, the end of the current fiscal year, follow. The merchandise inventory for Dences was 81,222 at the beginning of the year and 76,664 at the end of the year. REQUIRED 1. Prepare a multistep income statement for Dences. Store Salaries Expense, Advertising Expense, Store Supplies Expense, and Depreciation ExpenseStore Equipment are selling expenses. The other expenses are general and administrative expenses. The company uses the periodic inventory system. Show details of net sales and operating expenses. 2. BUSINESS APPLICATION Based on your knowledge at this point in the course, how would you use Dences income statement to evaluate the companys profitability? What other financial statements should you consider, and why?5PTeague Company engaged in the following transactions in October 2014: REQUIRED 1. Prepare journal entries to record the transactions, assuming use of the perpetual inventory system. (Hint: Refer to the TriLevel Problem feature.) 2. ACCOUNTING CONNECTION Receiving cash rebates from suppliers based on the past years purchases is a common practice in some industries. If, at the end of the year, Teague receives rebates in cash from a supplier, should these cash rebates be reported as revenue? Why or why not?7AP8AP9AP10AP11AP12AP1C2C3C4C5C6C7C1P2P3P1DQWhich of the following methods do not require a physical inventory: periodic inventory system, perpetual inventory method, retail method, or gross profit method?3DQ4DQ5DQ6DQ7DQ1SEAssume the following data with regard to inventory for Vegan Company: Assuming that the inventory consists of 30 units from the August 8 purchase and 25 units from the purchase of August 22, calculate the cost of ending inventory and cost of goods sold.3SE4SE5SE6SE7SE8SE