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  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. Financial Statement Analysis
  19. Time Value of Money
  20. 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
EB1.

LO 3.1Match the correct term with its definition.

A. Financial Accounting Standards Board (FASB) i. used by the FASB, which is a set of concepts that guide financial reporting
B. generally accepted accounting principles (GAAP) ii. independent, nonprofit organization that sets financial accounting and reporting standards for both public- and private-sector businesses that use generally accepted accounting principles (GAAP) here in the United States
C. Securities and Exchange Commission (SEC) iii. standards, procedures, and principles companies must follow when preparing their financial statements
D. conceptual framework iv. assumes a business will continue to operate in the foreseeable future
E. going concern assumption v. independent federal agency protecting the interests of investors, regulating stock markets, and ensuring companies adhere to GAAP requirements
F. time period assumption vi. companies can present useful information in shorter time periods such as years, quarters, or months
EB2.

LO 3.2Consider the following accounts and determine if the account is an asset (A), a liability (L), or equity (E).

  1. Accounts Receivable
  2. Sales Revenue
  3. Land
  4. Unearned Revenue
EB3.

LO 3.2Provide the missing amounts of the accounting equation for each of the following companies.

A table with three columns. The second column is labeled Elias. The third column is labeled Patel. The next row is labeled, left to right: Assets, ?, $125,000. The next row is labeled, left to right: Liabilities, $33,000, ?. The last row is labeled, left to right: Equity, 186,000, 63,000.
EB4.

LO 3.3From the following list, identify which items are considered original sources:

  1. accounts receivable
  2. receipt from post office for post office box
  3. purchase order
  4. general ledger
  5. adjusted trial balance
  6. statement of retained earnings
  7. electric bill
  8. packing slip
  9. company expense account
  10. statement of cash flows
EB5.

LO 3.4Indicate what impact the following transactions would have on the accounting equation, Assets = Liabilities + Equity.

 
    Impact 1 Impact 2
A. Paid this month’s utility bill    
B. Purchased supplies for cash    
C. Received cash for services performed    
D. Collected cash from customer accounts receivable    
E. Paid creditors on account    
Table 3.10
EB6.

LO 3.4For the following accounts indicate whether the normal balance is a debit or a credit.

  1. Unearned Revenue
  2. Interest Expense
  3. Rent Expense
  4. Rent Revenue
  5. Accounts Payable
  6. Cash
  7. Supplies
  8. Accounts Payable
  9. Equipment
  10. Utilities Expense
EB7.

LO 3.4Which two accounts are affected by each of the following transactions?

 
    Account 1 Account 2
A. Received cash from issuance of common stock    
B. Purchased land by issuing a note payable    
C. Paid balance on account for last month’s inventory purchases    
D. Received cash from customers for this month’s sales    
E. Sold merchandise to customers on account    
Table 3.11
EB8.

LO 3.4Identify the normal balance for each of the following accounts. Choose Dr for Debit; Cr for Credit.

 
    Normal balance
A. Insurance Expense  
B. Accounts Receivable  
C. Office Supplies  
D. Sales Revenue  
E. Common Stock  
F. Notes Payable  
Table 3.12
EB9.

LO 3.4Identify whether each of the following transactions would be recorded with a debit (Dr) or credit (Cr) entry.

 
    Debit or credit?
A. Cash decrease  
B. Supplies increase  
C. Accounts Payable decrease  
D. Common Stock increase  
E. Accounts Payable increase  
F. Notes Payable increase  
Table 3.13
EB10.

LO 3.4Identify whether each of the following transactions would be recorded with a debit (Dr) or credit (Cr) entry.

 
    Debit or credit?
A. Equipment increase  
B. Dividends Paid increase  
C. Repairs Expense increase  
D. Service revenue increase  
E. Miscellaneous Expense increase  
F. Bonds Payable increase  
Table 3.14
EB11.

LO 3.4Identify whether ongoing transactions posted to the following accounts would normally have only debit entries (Dr), only credit entries (Cr), or both debit and credit entries (both).

 
    Type of entry
A. Notes Payable  
B. Accounts Receivable  
C. Utilities Expense  
D. Sales Revenue  
E. Insurance Expense  
F. Dividends  
Table 3.15
EB12.

LO 3.2LO 3.4West End Inc., an auto mechanic shop, has the following account balances, given in no certain order, for the quarter ended March 31, 2019. Based on the information provided, prepare West End’s annual financial statements (omit the Statement of Cash Flows).

Electricity expense, $2,365; Accounts payable, 4,835; Dividends, 1,200; Garage machines, 145,000; Office supplies, 235; Repair revenue, 68,245; Mortgage interest expense, 12,240; Accounts receivable, 2,580; Retained earnings, 23,600; Miscellaneous expenses, 725; Cash, 10,745; Common stock, 150,000; Garage supplies, 1,565; Real estate tax expense, 5,200; Waiting room furniture, 3,450; Machine maintenance expense, 1,375; Mechanic shop, 185,000; Mortgage payable, 125,000.

Prepare West End’s annual financial statements. (Omit the Statement of Cash Flows.)

EB13.

LO 3.5State whether the balance in each of the following accounts increases with a debit or a credit.

  1. Office Supplies
  2. Retained Earnings
  3. Salaries Expense
  4. Accounts Receivable
  5. Service Revenue
EB14.

LO 3.5Journalize each of the following transactions or state no entry required and explain why. Be sure to follow proper journal writing rules.

  1. A company is started with an investment of a machine worth $40,000. Common stock is received in exchange.
  2. Office furniture is ordered. The furniture worth $7,850 will be delivered in one week. The payment will be due forty-five days after delivery.
  3. An advertisement was run in the newspaper at a total cost of $250. Cash was paid when the order was placed.
  4. The office furniture is delivered.
  5. Services are performed for a client. The client was billed for $535.
EB15.

LO 3.5Discuss how each of the following transactions will affect assets, liabilities, and stockholders’ equity, and prove the company’s accounts will still be in balance.

  1. A company purchased $450 worth of office supplies on credit.
  2. The company parking lot was plowed after a blizzard. A check for $75 was given to the plow truck operator.
  3. $250 was paid on account.
  4. A customer paid $350 on account.
  5. Provided services for a customer, $500. The customer asked to be billed.
EB16.

LO 3.5For each of the following items, indicate whether a debit or a credit applies.

  1. increase in retained earnings
  2. decrease in prepaid rent
  3. increase in dividends
  4. decrease in salaries payable
  5. increase in accounts receivable
  6. decrease in common stock
  7. decrease in prepaid insurance
  8. decrease in advertising expense
  9. decrease in unearned service fees
  10. increase in office equipment
EB17.

LO 3.5Indicate whether each of the following accounts has a normal debit or credit balance.

  1. prepaid landscaping expense
  2. common stock
  3. delivery vans
  4. maintenance expense
  5. retained earnings
  6. office supplies
  7. revenue earned
  8. accounts payable
  9. unearned painting revenue
  10. interest payable
EB18.

LO 3.5Krespy Corp. has a cash balance of $7,500 before the following transactions occur:

  1. received customer payments of $965
  2. supplies purchased on account $435
  3. services worth $850 performed, 25% is paid in cash the rest will be billed
  4. corporation pays $275 for an ad in the newspaper
  5. bill is received for electricity used $235.
  6. dividends of $2,500 are distributed

What is the balance in cash after these transactions are journalized and posted?

EB19.

LO 3.5A business has the following transactions:

  1. The business is started by receiving cash from an investor in exchange for common stock $10,000.
  2. Rent of $1,250 is paid for the first month.
  3. Office supplies are purchased for $375.
  4. Services worth $3,450 are performed. Cash is received for half.
  5. Customers pay $1,250 for services to be performed next month.
  6. $6,000 is paid for a one year insurance policy.
  7. We receive 25% of the money owed by customers in “D”.
  8. A customer has placed an order for $475 of services to be done this coming week.

How much total revenue does the company have?

EB20.

LO 3.5Prepare journal entries to record the following transactions.

  1. November 19, purchased merchandise inventory, on account, $12,000
  2. November 29, paid creditor for part of November 19 purchase, $10,000
EB21.

LO 3.5Prepare journal entries to record the following transactions:

  1. December 1, collected balance due from customer account, $5,500
  2. December 12, paid creditors for supplies purchased last month, $4,200
  3. December 31, paid cash dividend to stockholders, $1,000
EB22.

LO 3.5Prepare journal entries to record the following transactions:

  1. October 9, issued common stock in exchange for building, $40,000
  2. October 12, purchased supplies on account, $3,600
  3. October 24, paid cash dividend to stockholders, $2,500
EB23.

LO 3.5Post the following August transactions to T-accounts for Accounts Payable and Supplies, indicating the ending balance (assume no beginning balances in these accounts):

  1. purchased supplies on account, $600
  2. paid vendors for supplies delivered earlier in month, $500
  3. purchased supplies for cash, $450
EB24.

LO 3.5Post the following July transactions to T-accounts for Accounts Receivable and Cash, indicating the ending balance (assume no beginning balances in these accounts):

  1. sold products to customers for cash, $8,500
  2. sold products to customers on account, $2,900
  3. collected cash from customer accounts, $1,600
EB25.

LO 3.6Prepare an unadjusted trial balance, in correct format, from the alphabetized account information as follows. Assume all accounts have normal balances.

Accounts payable $8,005; Accounts receivable 12,500; Cash 56,015; Common stock 28,000; Fees earned revenue 75,510; Operating expense 43,000.
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