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Principles of Accounting, Volume 1: Financial Accounting

Exercise Set A

Principles of Accounting, Volume 1: Financial AccountingExercise Set A
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Table of contents
  1. Preface
  2. 1 Role of Accounting in Society
    1. Why It Matters
    2. 1.1 Explain the Importance of Accounting and Distinguish between Financial and Managerial Accounting
    3. 1.2 Identify Users of Accounting Information and How They Apply Information
    4. 1.3 Describe Typical Accounting Activities and the Role Accountants Play in Identifying, Recording, and Reporting Financial Activities
    5. 1.4 Explain Why Accounting Is Important to Business Stakeholders
    6. 1.5 Describe the Varied Career Paths Open to Individuals with an Accounting Education
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
  3. 2 Introduction to Financial Statements
    1. Why It Matters
    2. 2.1 Describe the Income Statement, Statement of Owner’s Equity, Balance Sheet, and Statement of Cash Flows, and How They Interrelate
    3. 2.2 Define, Explain, and Provide Examples of Current and Noncurrent Assets, Current and Noncurrent Liabilities, Equity, Revenues, and Expenses
    4. 2.3 Prepare an Income Statement, Statement of Owner’s Equity, and Balance Sheet
    5. Key Terms
    6. Summary
    7. Multiple Choice
    8. Questions
    9. Exercise Set A
    10. Exercise Set B
    11. Problem Set A
    12. Problem Set B
    13. Thought Provokers
  4. 3 Analyzing and Recording Transactions
    1. Why It Matters
    2. 3.1 Describe Principles, Assumptions, and Concepts of Accounting and Their Relationship to Financial Statements
    3. 3.2 Define and Describe the Expanded Accounting Equation and Its Relationship to Analyzing Transactions
    4. 3.3 Define and Describe the Initial Steps in the Accounting Cycle
    5. 3.4 Analyze Business Transactions Using the Accounting Equation and Show the Impact of Business Transactions on Financial Statements
    6. 3.5 Use Journal Entries to Record Transactions and Post to T-Accounts
    7. 3.6 Prepare a Trial Balance
    8. Key Terms
    9. Summary
    10. Multiple Choice
    11. Questions
    12. Exercise Set A
    13. Exercise Set B
    14. Problem Set A
    15. Problem Set B
    16. Thought Provokers
  5. 4 The Adjustment Process
    1. Why It Matters
    2. 4.1 Explain the Concepts and Guidelines Affecting Adjusting Entries
    3. 4.2 Discuss the Adjustment Process and Illustrate Common Types of Adjusting Entries
    4. 4.3 Record and Post the Common Types of Adjusting Entries
    5. 4.4 Use the Ledger Balances to Prepare an Adjusted Trial Balance
    6. 4.5 Prepare Financial Statements Using the Adjusted Trial Balance
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  6. 5 Completing the Accounting Cycle
    1. Why It Matters
    2. 5.1 Describe and Prepare Closing Entries for a Business
    3. 5.2 Prepare a Post-Closing Trial Balance
    4. 5.3 Apply the Results from the Adjusted Trial Balance to Compute Current Ratio and Working Capital Balance, and Explain How These Measures Represent Liquidity
    5. 5.4 Appendix: Complete a Comprehensive Accounting Cycle for a Business
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Exercise Set A
    11. Exercise Set B
    12. Problem Set A
    13. Problem Set B
    14. Thought Provokers
  7. 6 Merchandising Transactions
    1. Why It Matters
    2. 6.1 Compare and Contrast Merchandising versus Service Activities and Transactions
    3. 6.2 Compare and Contrast Perpetual versus Periodic Inventory Systems
    4. 6.3 Analyze and Record Transactions for Merchandise Purchases Using the Perpetual Inventory System
    5. 6.4 Analyze and Record Transactions for the Sale of Merchandise Using the Perpetual Inventory System
    6. 6.5 Discuss and Record Transactions Applying the Two Commonly Used Freight-In Methods
    7. 6.6 Describe and Prepare Multi-Step and Simple Income Statements for Merchandising Companies
    8. 6.7 Appendix: Analyze and Record Transactions for Merchandise Purchases and Sales Using the Periodic Inventory System
    9. Key Terms
    10. Summary
    11. Multiple Choice
    12. Questions
    13. Exercise Set A
    14. Exercise Set B
    15. Problem Set A
    16. Problem Set B
    17. Thought Provokers
  8. 7 Accounting Information Systems
    1. Why It Matters
    2. 7.1 Define and Describe the Components of an Accounting Information System
    3. 7.2 Describe and Explain the Purpose of Special Journals and Their Importance to Stakeholders
    4. 7.3 Analyze and Journalize Transactions Using Special Journals
    5. 7.4 Prepare a Subsidiary Ledger
    6. 7.5 Describe Career Paths Open to Individuals with a Joint Education in Accounting and Information Systems
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  9. 8 Fraud, Internal Controls, and Cash
    1. Why It Matters
    2. 8.1 Analyze Fraud in the Accounting Workplace
    3. 8.2 Define and Explain Internal Controls and Their Purpose within an Organization
    4. 8.3 Describe Internal Controls within an Organization
    5. 8.4 Define the Purpose and Use of a Petty Cash Fund, and Prepare Petty Cash Journal Entries
    6. 8.5 Discuss Management Responsibilities for Maintaining Internal Controls within an Organization
    7. 8.6 Define the Purpose of a Bank Reconciliation, and Prepare a Bank Reconciliation and Its Associated Journal Entries
    8. 8.7 Describe Fraud in Financial Statements and Sarbanes-Oxley Act Requirements
    9. Key Terms
    10. Summary
    11. Multiple Choice
    12. Questions
    13. Exercise Set A
    14. Exercise Set B
    15. Problem Set A
    16. Problem Set B
    17. Thought Provokers
  10. 9 Accounting for Receivables
    1. Why It Matters
    2. 9.1 Explain the Revenue Recognition Principle and How It Relates to Current and Future Sales and Purchase Transactions
    3. 9.2 Account for Uncollectible Accounts Using the Balance Sheet and Income Statement Approaches
    4. 9.3 Determine the Efficiency of Receivables Management Using Financial Ratios
    5. 9.4 Discuss the Role of Accounting for Receivables in Earnings Management
    6. 9.5 Apply Revenue Recognition Principles to Long-Term Projects
    7. 9.6 Explain How Notes Receivable and Accounts Receivable Differ
    8. 9.7 Appendix: Comprehensive Example of Bad Debt Estimation
    9. Key Terms
    10. Summary
    11. Multiple Choice
    12. Questions
    13. Exercise Set A
    14. Exercise Set B
    15. Problem Set A
    16. Problem Set B
    17. Thought Provokers
  11. 10 Inventory
    1. Why It Matters
    2. 10.1 Describe and Demonstrate the Basic Inventory Valuation Methods and Their Cost Flow Assumptions
    3. 10.2 Calculate the Cost of Goods Sold and Ending Inventory Using the Periodic Method
    4. 10.3 Calculate the Cost of Goods Sold and Ending Inventory Using the Perpetual Method
    5. 10.4 Explain and Demonstrate the Impact of Inventory Valuation Errors on the Income Statement and Balance Sheet
    6. 10.5 Examine the Efficiency of Inventory Management Using Financial Ratios
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  12. 11 Long-Term Assets
    1. Why It Matters
    2. 11.1 Distinguish between Tangible and Intangible Assets
    3. 11.2 Analyze and Classify Capitalized Costs versus Expenses
    4. 11.3 Explain and Apply Depreciation Methods to Allocate Capitalized Costs
    5. 11.4 Describe Accounting for Intangible Assets and Record Related Transactions
    6. 11.5 Describe Some Special Issues in Accounting for Long-Term Assets
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  13. 12 Current Liabilities
    1. Why It Matters
    2. 12.1 Identify and Describe Current Liabilities
    3. 12.2 Analyze, Journalize, and Report Current Liabilities
    4. 12.3 Define and Apply Accounting Treatment for Contingent Liabilities
    5. 12.4 Prepare Journal Entries to Record Short-Term Notes Payable
    6. 12.5 Record Transactions Incurred in Preparing Payroll
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  14. 13 Long-Term Liabilities
    1. Why It Matters
    2. 13.1 Explain the Pricing of Long-Term Liabilities
    3. 13.2 Compute Amortization of Long-Term Liabilities Using the Effective-Interest Method
    4. 13.3 Prepare Journal Entries to Reflect the Life Cycle of Bonds
    5. 13.4 Appendix: Special Topics Related to Long-Term Liabilities
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Exercise Set A
    11. Exercise Set B
    12. Problem Set A
    13. Problem Set B
    14. Thought Provokers
  15. 14 Corporation Accounting
    1. Why It Matters
    2. 14.1 Explain the Process of Securing Equity Financing through the Issuance of Stock
    3. 14.2 Analyze and Record Transactions for the Issuance and Repurchase of Stock
    4. 14.3 Record Transactions and the Effects on Financial Statements for Cash Dividends, Property Dividends, Stock Dividends, and Stock Splits
    5. 14.4 Compare and Contrast Owners’ Equity versus Retained Earnings
    6. 14.5 Discuss the Applicability of Earnings per Share as a Method to Measure Performance
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  16. 15 Partnership Accounting
    1. Why It Matters
    2. 15.1 Describe the Advantages and Disadvantages of Organizing as a Partnership
    3. 15.2 Describe How a Partnership Is Created, Including the Associated Journal Entries
    4. 15.3 Compute and Allocate Partners’ Share of Income and Loss
    5. 15.4 Prepare Journal Entries to Record the Admission and Withdrawal of a Partner
    6. 15.5 Discuss and Record Entries for the Dissolution of a Partnership
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  17. 16 Statement of Cash Flows
    1. Why It Matters
    2. 16.1 Explain the Purpose of the Statement of Cash Flows
    3. 16.2 Differentiate between Operating, Investing, and Financing Activities
    4. 16.3 Prepare the Statement of Cash Flows Using the Indirect Method
    5. 16.4 Prepare the Completed Statement of Cash Flows Using the Indirect Method
    6. 16.5 Use Information from the Statement of Cash Flows to Prepare Ratios to Assess Liquidity and Solvency
    7. 16.6 Appendix: Prepare a Completed Statement of Cash Flows Using the Direct Method
    8. Key Terms
    9. Summary
    10. Multiple Choice
    11. Questions
    12. Exercise Set A
    13. Exercise Set B
    14. Problem Set A
    15. Problem Set B
    16. Thought Provokers
  18. A | Financial Statement Analysis
  19. B | Time Value of Money
  20. C | Suggested Resources
  21. Answer Key
    1. Chapter 1
    2. Chapter 2
    3. Chapter 3
    4. Chapter 4
    5. Chapter 5
    6. Chapter 6
    7. Chapter 7
    8. Chapter 8
    9. Chapter 9
    10. Chapter 10
    11. Chapter 11
    12. Chapter 12
    13. Chapter 13
    14. Chapter 14
    15. Chapter 15
    16. Chapter 16
  22. Index
EA 1.

LO 16.1Provide journal entries to record each of the following transactions. For each, identify whether the transaction represents a source of cash (S), a use of cash (U), or neither (N).

  1. Declared and paid to shareholders, a dividend of $24,000.
  2. Issued common stock at par value for $12,000 cash.
  3. Sold a tract of land that had cost $10,000, for $16,000.
  4. Purchased a company truck, with a note payable of $38,000.
  5. Collected $8,000 from customer accounts receivable.
EA 2.

LO 16.2In which section of the statement of cash flows would each of the following transactions be included? For each, identify the appropriate section of the statement of cash flows as operating (O), investing (I), financing (F), or none (N). (Note: some transactions might involve two sections.)

  1. paid advertising expense
  2. paid dividends to shareholders
  3. purchased business equipment
  4. sold merchandise to customers
  5. purchased plant assets
EA 3.

LO 16.2In which section of the statement of cash flows would each of the following transactions be included? For each, identify the appropriate section of the statement of cash flows as operating (O), investing (I), financing (F), or none (N). (Note: some transactions might involve two sections.)

  1. borrowed from the bank for business loan
  2. declared dividends, to be paid next year
  3. purchased treasury stock
  4. purchased a two-year insurance policy
  5. purchased plant assets
EA 4.

LO 16.3Use the following information from Albuquerque Company’s financial statements to determine operating net cash flows (indirect method).

Net income $325,000. Change in accumulated depreciation (no sale of depreciable assets this year) 26,200. Loss on sale of company truck 7,800.
EA 5.

LO 16.3What adjustment(s) should be made to reconcile net income to net cash flows from operating activities (indirect method) considering the following balances in current assets?

Accounts receivable, beginning of year $20,000. Accounts receivable, end of year 25,000. Prepaid insurance, beginning of year 12,000. Prepaid insurance, end of year 9,000.
EA 6.

LO 16.3Use the following information from Birch Company’s balance sheets to determine net cash flows from operating activities (indirect method), assuming net income for 2018 of $122,000.

Accounts Receivable, Prepaid Insurance, Accounts Payable, and Accrued Liabilities December 31, 2018, respectively: $12,800, 4,000, 9,000, 2,500. Accounts Receivable, Prepaid Insurance, Accounts Payable, and Accrued Liabilities December 31, 2017, respectively: $15,000, 3,500, 8,200, 2,800.
EA 7.

LO 16.3Use the following information from Chocolate Company’s financial statements to determine operating net cash flows (indirect method).

Income Statement items: Sales $98,500. Cost of Goods Sold (62,000). Salaries Expense (18,000). Depreciation Expense (9,000). Net Income 9,500. Balance Sheet items: Accounts Receivable increase $2,000. Merchandise Inventory decrease 1,600. Salaries Payable increase 450.
EA 8.

LO 16.3Use the following information from Denmark Company’s financial statements to determine operating net cash flows (indirect method).

Net income $145,000. Depreciation expense 16,500. Loss on sale of land 5,000. Decrease in accounts receivable 1,500. Decrease in accounts payable 1,250.
EA 9.

LO 16.3Use the following excerpts from Eagle Company’s financial records to determine net cash flows from financing activities.

Acquired new plant assets $18,000. Borrowed from bank, note payable 40,000. Declared and paid dividends to shareholders 15,000.
EA 10.

LO 16.3Use the following excerpts from Fruitcake Company’s financial records to determine net cash flows from investing activities.

Acquired new plant assets $18,000. Collected interest on investment assets 4,000. Sold land used in business 36,500.
EA 11.

LO 16.3Use the following excerpts from Grenada Company’s financial records to determine net cash flows from operating activities and net cash flows from investing activities.

Net income this year $158,750. Purchased plant assets this year 40,000. Sold track of land this year 35,000. Original cost of land that was sold 25,000.
EA 12.

LO 16.4Provide the missing piece of information for the following statement of cash flows puzzle.

Cash flows from operating activities $60,000. Cash flows from investing activities (28,500). Cash flows from financing activities ?. Cash at the beginning of the year 12,000. Cash at the end of the year 19,500.
EA 13.

LO 16.4Provide the missing piece of information for the following statement of cash flows puzzle.

Cash flows from operating activities $ ?. Cash flows from investing activities 8,900. Cash flows from financing activities (25,000). Cash at the beginning of the year 24,000. Cash at the end of the year 22,100.
EA 14.

LO 16.5Use the following excerpts from Kirsten Company’s Statement of Cash Flows and other financial records to determine the company’s free cash flow.

Statement of cash flows: Cash flow from operating activities $135,000 minus cash flows from investing activities of (50,000) plus cash flows from financing activities of 65,000. From other records: Cash capital expenditures 75,000 and cash dividends paid 15,000.
EA 15.

LO 16.5Use the following excerpts from Franklin Company’s statement of cash flows and other financial records to determine the company’s free cash flow for 2018 and 2017.

Cash flows from operating activities 2018: $222,000; 2017: $200,000; cash flows from investing activities 2018: (33,000); 2017: (35,000); cash flows from financing activities 2018: 66,000; 2017: 60,000. Capital expenditures were 50 percent of investing activities, both years and cash dividends paid were $15,000, both years.
EA 16.

LO 16.5The following are excerpts from Hamburg Company’s statement of cash flows and other financial records.

Statement of cash flows: Cash flow from operating activities $100,000; cash flows from investing activities (50,000); cash flows from financing activities (25,000). From other records: Cash capital expenditure costs 20,000; cash dividend payments 22,500; sales revenue 221,000; and total assets 302,500.

Compute the following for the company:

  1. free cash flow
  2. cash flows to sales ratio
  3. cash flows to assets ratio
EA 17.

LO 16.6Use the following excerpts from Algona Company’s financial statements to determine cash received from customers in 2018.

From Balance Sheets on December 31, 2018: Accounts Receivable 85,000. December 31, 2017: Accounts Receivable $105,000. From Income Statement of 2018: Sales 700,000.
EA 18.

LO 16.6Use the following excerpts from Huckleberry Company’s financial statements to determine cash paid to suppliers for inventory in 2018.

From Balance Sheet on December 31, 2018: Inventory $74,000; Accounts Payable 55,000. December 31, 2017: Inventory $82,000; Accounts Payable 58,000. From Income Statement of 2018: Cost of Goods Sold $520,000.
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