Concept explainers
(a)
Accrual basis of accounting:
In accrual Basis of accounting, the company records all the transaction that brings changes in the financial statement of the company. In accrual basis of accounting, the revenue is recognized for the accounting period, in which the goods are sold, or the service performed even if cash is not exchanged. Similarly the expenses are recognized for the accounting period, in which the business incurred expenses even if cash is not exchanged.
To identify: The accounts of Company C, which provide evidence that Company C uses accrual accounting.
The income statement account of Company C, which would be affected by the adjustments process.
(b)
To identify: The accounts of Company VF, which provide evidence that Company VF uses accrual accounting.
The accounts of Company VF, which provide evidence that Company VF uses accrual accounting.
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Chapter 4 Solutions
FIN. ACCT.-TOOLS FOR BUS.DEC.MAKING-CODE
- Businesses using the allowance method for the recognition of uncollectible accounts expense commonly experience four accounting events: a. Recognition of uncollectible accounts expense through a year-end adjusting entry. b. Write-off of uncollectible accounts. c. Recognition of revenue on account. d. Collection of cash from accounts receivable. Required Show the effect of each event on the elements of the financial statements, using a horizontal statements model like the one shown here. Use the following coding scheme to record your answers: increase is +, decrease is –, leave the cell blank for not affected. In the cash flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). The first transaction is entered as an example. Effect of Events on the Financial Statements Balance Sheet Income Statement Stockholders' Net Event Assets Liabilities Revenue Expense Cash Flow Equity Income 1. %3D + 2. 3. 4. +arrow_forwardThe financial statements of Chehade Services included the following accounts. a Under the column Financial Statement, choose from the list of codes below, the appropriate financial statement where the accounts listed would appear. Code Income Statement US Balance Sheet B/S Statement of Owner's Equity OE Financial Statement b For the column Balance Sheet Classification, choose the appropriate balance sheet classification from the list of codes below. If the account does not belong on the balance sheet, use the code na Balance Sheet Classification Code Current Assets Long-term Investments Property. Plant, and Equipment Intangibles Goodwill Current Liabilities Non-Current Liabilities Owner's Equity Not on the Balance Sheet 35-odgga PPE NCL NCLarrow_forwardFalcon Incorporated has the following transactions with Wildcat Corporation. Transactions Falcon’s Related Account 1. Falcon purchases common stock of Wildcat. 2. Falcon borrows from Wildcat by signing a note. 3. Falcon provides services to Wildcat. 4. Falcon pays interest to Wildcat on borrowing. Investment Notes payable Service revenue Interest expense Required:1. For each transaction, indicate whether Falcon would report the related account in the balance sheet or income statement.2. For accounts in the balance sheet, indicate whether it would be classified as an asset, liability, or stockholders’ equity. For accounts in the income statement, indicate whether it would be classified as a revenue or an expense.3. Indicate whether each transaction is classified as operating, investing, or financing activity.arrow_forward
- Listed below are eight technical accounting terms introduced in this chapter:Realization principle CreditTime period principle Accounting periodMatching principle ExpensesNet income Accounting cycleEach of the following statements may (or may not) describe one of these technical terms. Foreach statement, indicate the term described, or answer “None” if the statement does not correctlydescribe any of the terms.a. The span of time covered by an income statement.b. The sequence of accounting procedures used to record, classify, and summarize accountinginformation.c. The traditional accounting practice of resolving uncertainty by choosing the solution thatleads to the lowest amount of income being recognized.d. An increase in owners’ equity resulting from profitable operations.e. The underlying accounting principle that determines when revenue should be recorded in theaccounting records.f. The type of entry used to decrease an asset or increase a liability or owners’ equity account.g. The…arrow_forwardListed below are the current Accounting Assumptions and Principles Economic Entity Assumption Monetary Unit Assumption Historical Cost Principle Going Concern Assumption Revenue Recognition Principle Full Disclosure Principle Time Period Assumption Matching Principle Required: For the following situations, identify whether the situation represents a violation or a correct application of GAAP, and which assumption/principle is applicable. a. In May 2021, Regent Corporation recorded as revenue $5,000 received in advance from a customer for a job that would be completed in June 2021. Violation: (Yes/No) Applicable Assumption/Principle: b. Sally Maze made sure to keep her personal expenditures separate from her marketing company books.…arrow_forwardFor each of the tollowing transactions or adjustments, indicate the effect of the transaction or adjustment on assets, liabilities, and net income by entering for each account affected the account name and amount and indicating whether it is an nddition () or a subtraction ( Transaction a has been done as an illustration. Net income is not affected by every transaction. In some cases, only one column may be affected because all of the specific accounts affected by the transaction are included in that category. a. Recorded $200 of depreciation expense. b. Sold land that had originally cost $9,000 for $14,000 in cash. c. Acquired a new machine under a financing lease. The present value of future lease payments, discounted at 10%, was $10,000. d. Recorded the first annuai payment of $2.200 for the leased machine (in part c). e. Recorded a $5,100 payment for the cost of developing and registering a trademark. f. Recognized periodic amortization for the trademark (in part e) using a 34-year…arrow_forward
- Which sentence is incorrect? Select one: a. According to the GAAP in Accrual-Basis Accounting, companies recognise revenues when they perform for their services. b.The Accrual and Cash-basis accounting are in accordance with generally accepted accounting principles. c.In the Accrual-Basis Accounting, expenses are recognized when incurred. d. IFRS & GAAP use the same process for recording transactions.arrow_forwardFor each of the following situations, indicate whether you agree or disagree with the financial reporting practiceemployed and state the accounting concept that is applied (if you agree) or violated (if you disagree).1. Wagner Corporation adjusted the valuation of all assets and liabilities to reflect changes in the purchasingpower of the dollar.arrow_forwardBest Buy Co. follows the accrual basis of accounting. Which of the following statements is false? Best Buy Co. reports expenses in the same accounting period as the revenues to which the expenses relate. Best Buy Co. reports revenues and expenses in the accounting period in which it receives cash or pays cash. The accrual basis of accounting follows the matching principle. Best Buy Co. reports revenues on the income statement in the accounting period in which it carns the revenues.arrow_forward
- "How does adjusting entries affect the six main categories of accounting? Think about what accruals and deferrals do both individually to accounts and overall to the financial statements."arrow_forwardfor each of the financial statement items, identify the estimate(s) from the following (1-11) list that are required in the measurement of that item on the financial statements. For each select 3 of them. Account Receivable A. b, C, • Inventory A. b, C, Equipment A. b, C, Warranty Liability A. b, C, Sales revenue А, b, C, Revenue from long term contract b, A. Cost of good sold. C, A. C, 1. Cost to repair or replace product. 2. Cost of each item sold/held. 3. Customer default rate 4. Degree of progress fulfilling contract. 5. Pattern of benefit obtained. 6. Prices of inventory items 7. Profitability of contract 8. Rate of defect 9. Residual value at end of useful life 10. Speed of collection 11. Useful livesarrow_forwardListed below are nine technical accounting terms introduced in this chapter: Assets Liabilities Going Concerns Accounting Equation Cost Principles Liquidity Balance Sheet Inflation Owner's Equity Each of the following statements may (or may not) describe one of these technical terms. In the space provided below each statement, indicate the accounting term described, or answer "None" if the statement does not correctly describe any of the terms. Do not use a term more than once. (A.) Having the financial ability to pay debts as they become due. (B.) An assumption that a business will operate in the foreseeable future. (C.) Economic resources owned by businesses that are expected to benefit future operations. (D.) The debts or obligations of a business organization. (E.) Assets = Liabilities + Owners' Equity (F.) The principle which states that assets are valued in the balance sheet at their historical cost. (G.) A residual amount equal to assets minus liabilities.arrow_forward
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