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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
PA1.

LO 3.1For each of the following situations write the principle, assumption, or concept that justifies or explains what occurred.

  1. A landscaper received a customer’s order and cash prepayment to install sod at a house that would not be ready for installation until March of next year. The owner should record the revenue from the customer order in March of next year, not in December of this year.
  2. A company divides its income statements into four quarters for the year.
  3. Land is purchased for $205,000 cash; the land is reported on the balance sheet of the purchaser at $205,000.
  4. Brandy’s Flower Shop is forecasting its balance sheet for the next five years.
  5. When preparing financials for a company, the owner makes sure that the expense transactions are kept separate from expenses of the other company that he owns.
  6. A company records the expenses incurred to generate the revenues reported.
PA2.

LO 3.2Assuming the following account balances, what is the missing value?

Assets $865,430; Liabilities ?; Equity 759,121.
PA3.

LO 3.2LO 3.4Assuming the following account balance changes for the period, what is the missing value?

Assets $246,300; Liabilities ?; Common stock 160,000; Dividends 30,000; Revenue 245,800; Expenses 175,000.
PA4.

LO 3.2LO 3.4Assuming the following account balance changes for the period, what is the missing value?

Assets $450,600; Liabilities 250,000; Common stock 120,000; Dividends ?; Revenue 433,600; Expenses 323,000.
PA5.

LO 3.2LO 3.4Identify the financial statement on which each of the following account categories would appear: the balance sheet (BS), the income statement (IS), or the retained earnings statement (RE). Indicate the normal balance (Dr for debit; Cr for credit) for each account category.

 
  Financial statement Normal balance
Assets    
Common stock    
Dividends    
Expenses    
Liabilities    
Revenue    
Table 3.16
PA6.

LO 3.4Indicate what impact (+ for increase; – for decrease) the following transactions would have on the accounting equation, Assets = Liabilities + Equity.

 
    Impact 1 Impact 2
A. Issued stock for cash    
B. Purchased supplies on account    
C. Paid employee salaries    
D. Paid note payment to bank    
E. Collected balance on accounts receivable    
Table 3.17
PA7.

LO 3.4Indicate how changes in the following types of accounts would be recorded (Dr for debit; Cr for credit).

 
    Increase Decrease
A. Asset accounts    
B. Liability accounts    
C. Common stock    
D. Revenue    
E. Expense    
Table 3.18
PA8.

LO 3.4Identify the normal balance (Dr for Debit; Cr for Credit) and type of account (A for asset, L for liability, E for equity, E-rev for revenue, E-exp for expense, and E-eq for equity) for each of the following items.

 
    Normal balance Account type
A. Accounts Payable    
B. Supplies    
C. Inventory    
D. Common Stock    
E. Dividends    
F. Salaries Expense    
Table 3.19
PA9.

LO 3.4Indicate the net effect (+ for increase; – for decrease; 0 for no effect) of each of the following transactions on each part of the accounting equation, Assets = Liabilities + Equity. For example, for payment of an accounts payable balance, A (–) = L (–) + E (0).

  1. sale of merchandise to customer on account
  2. payment on note payable
  3. purchase of equipment for cash
  4. collection of accounts receivable
  5. purchase of supplies on account
PA10.

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

 
  Transaction Debit or credit? Normal balance
A. Equipment increase    
B. Dividends Paid increase    
C. Repairs Expense increase    
D. Service revenue decrease    
E. Miscellaneous Expense increase    
F. Bonds Payable decrease    
Table 3.20
PA11.

LO 3.5The following information is provided for the first month of operations for Legal Services Inc.:

  1. The business was started by selling $100,000 worth of common stock.
  2. Six months’ rent was paid in advance, $4,500.
  3. Provided services in the amount of $1,000. The customer will pay at a later date.
  4. An office worker was hired. The worker will be paid $275 per week.
  5. Received $500 in payment from the customer in “C”.
  6. Purchased $250 worth of supplies on credit.
  7. Received the electricity bill. We will pay the $110 in thirty days.
  8. Paid the worker hired in “D” for one week’s work.
  9. Received $100 from a customer for services we will provide next week.
  10. Dividends in the amount of $1,500 were distributed.

Prepare the necessary journal entries to record these transactions. If an entry is not required for any of these transactions, state this and explain why.

PA12.

LO 3.5 Sewn for You had the following transactions in its first week of business.

  1. Jessica Johansen started Sewn for You, a seamstress business, by contributing $20,000 and receiving stock in exchange.
  2. Paid $2,250 to cover the first three months’ rent.
  3. Purchased $500 of sewing supplies. She paid cash for the purchase.
  4. Purchased a sewing machine for $1,500 paying $200 cash and signing a note for the balance.
  5. Finished a job for a customer earning $180. The customer paid cash.
  6. Received a $500 down payment to make a wedding dress.
  7. Received an electric bill for $125 which is due to be paid in three weeks.
  8. Completed an altering job for $45. The customer asked to be billed.

Prepare the necessary journal entries to record these transactions. If an entry is not required for any of these transactions, state this and explain why.

PA13.

LO 3.5George Hoskin started his own business, Hoskin Hauling. The following transactions occurred in the first two weeks:

  1. George Hoskin contributed cash of $12,000 and a truck worth $10,000 to start the business. He received Common Stock in return.
  2. Paid two months' rent in advance, $800.
  3. Agreed to do a hauling job for a price of $1,200.
  4. Performed the hauling job discussed in “C.” We will get paid later.
  5. Received payment of $600 on the hauling job done in “D.”
  6. Purchased gasoline on credit, $50.
  7. Performed another hauling job. Earned $750, was paid cash.

Record the following transactions in T-accounts. Label each entry with the appropriate letter. Total the T-accounts when you are done.

PA14.

LO 3.5Prepare journal entries to record the following transactions. Create a T-account for Cash, post any entries that affect the account, and calculate the ending balance for the account. Assume a Cash beginning balance of $16,333.

  1. February 2, issued stock to shareholders, for cash, $25,000
  2. March 10, paid cash to purchase equipment, $16,000
PA15.

LO 3.5Prepare journal entries to record the following transactions. Create a T-account for Accounts Payable, post any entries that affect the account, and tally ending balance for the account. Assume an Accounts Payable beginning balance of $5,000.

  1. February 2, purchased an asset, merchandise inventory, on account, $30,000
  2. March 10, paid creditor for part of February purchase, $12,000
PA16.

LO 3.5Prepare journal entries to record the following transactions for the month of July:

  1. on first day of the month, paid rent for current month, $2,000
  2. on tenth day of month, paid prior month balance due on accounts, $3,100
  3. on twelfth day of month, collected cash for services provided, $5,500
  4. on twenty-first day of month, paid salaries to employees, $3,600
  5. on thirty-first day of month, paid for dividends to shareholders, $800
PA17.

LO 3.5Prepare journal entries to record the following transactions for the month of November:

  1. on first day of the month, issued common stock for cash, $20,000
  2. on third day of month, purchased equipment for cash, $10,500
  3. on tenth day of month, received cash for accounting services, $14,250
  4. on fifteenth day of month, paid miscellaneous expenses, $3,200
  5. on last day of month, paid employee salaries, $8,600
PA18.

LO 3.5Post the following July transactions to T-accounts for Accounts Receivable, Sales Revenue, and Cash, indicating the ending balance. Assume no beginning balances in these accounts.

  1. on first day of the month, sold products to customers for cash, $13,660
  2. on fifth day of month, sold products to customers on account, $22,100
  3. on tenth day of month, collected cash from customer accounts, $18,500
PA19.

LO 3.5Post the following November transactions to T-accounts for Accounts Payable, Inventory, and Cash, indicating the ending balance. Assume no beginning balances in Accounts Payable and Inventory, and a beginning Cash balance of $36,500.

  1. purchased merchandise inventory on account, $16,000
  2. paid vendors for part of inventory purchased earlier in month, $12,000
  3. purchased merchandise inventory for cash, $10,500
PA20.

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

Accounts payable $9,500; Accounts receivable 14,260; Cash 22,222; Common stock 30,000; Dividends 5,000; Equipment 12,000; Investments (short term) 25,444; Land 20,000; Notes payable 26,000; Retained earnings 12,815; Salaries expense 53,500; Service revenue 89,550; Supplies 2,750; Utility expense 12,689.
PA21.

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

Accounts payable $26,000; Accounts receivable 8,000; Cash 29,000; Common stock 33,000; Dividends 9,000; Equipment 68,000; Notes payable (due next month) 29,000; Salaries expense 42,000; Salaries payable 2,000; Service revenue 75,000; Supplies 5,000; Transportation expense 4,000.
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