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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
PB1.

LO 5.1Identify whether each of the following accounts would be considered a permanent account (yes/no) and which financial statement it would be reported on (Balance Sheet, Income Statement, or Retained Earnings Statement).

  1. Common Stock
  2. Dividends
  3. Dividends Payable
  4. Equipment
  5. Income Tax Expense
  6. Income Tax Payable
  7. Service Revenue
  8. Unearned Service Revenue
  9. Net Income
PB2.

LO 5.1The following selected accounts and normal balances existed at year-end. Make the four journal entries required to close the books:

Accounts receivable $33,200, Prepaid insurance 6,000, Land 48,000, Accounts payable 27,050, Notes payable 65,800, Retained earnings 9,350, Dividends 2,200, Fees earned revenue 70,500, Selling expenses 41,770, Administrative expenses 22,400, Miscellaneous expense 1,835.
PB3.

LO 5.1The following selected accounts and normal balances existed at year-end. Notice that expenses exceed revenue in this period. Make the four journal entries required to close the books:

Accounts receivable $85,500, Prepaid insurance 18,000, Land 15,000, Accounts payable 82,350, Notes payable 35,000, Retained earnings 129,650, Dividends 15,000, Fees earned revenue 311,000, Selling expenses 210,000, Administrative expenses 105,000, Miscellaneous expense 8,500.
PB4.

LO 5.1Use the following Adjusted Trial Balance to prepare the four journal entries required to close the books:

Adjusted Trial Balance. Cash 75,500 debit. Accounts receivable 15,500 debit. Accounts Payable 4,000 credit. Unearned Revenue 6,000 credit. Common Stock 20,000 credit. Retained Earnings 12,500 credit. Dividends 30,000 debit. Service revenue 355,000 credit. Advertising expense 30,000 debit. Rent expense 36,000 debit. Utilities expense 9,500 debit. Wages expense 201,000 debit. Total debits and total credits each are 397,500.
PB5.

LO 5.1Use the following Adjusted Trial Balance to prepare the four journal entries required to close the books:

Adjusted Trial Balance. Cash 8,625 debit. Accounts receivable 11,600 debit. Accounts Payable 8,450 credit. Unearned Revenue 1,500 credit. Common Stock 10,000 credit. Retained Earnings 12,275 credit. Dividends 2,000 debit. Service revenue 97,500 credit. Advertising expense 2,500 debit. Rent expense 18,000 debit. Utilities expense 12,000 debit. Wages expense 75,000 debit. Total debits and total credits each are 129,725.
PB6.

LO 5.1Use the following T-accounts to prepare the four journal entries required to close the books:

T-Accounts. Cash debit balance 17,340. Rent Revenue credit balance 240,000. Advertising expense debit balance 12,000. Insurance Expense debit balance 34,500. Salaries Expense debit balance 128,000. Dividends debit balance 22,000. Retained Earnings credit balance 59,500.
PB7.

LO 5.1Assume that the first two closing entries have been made and posted. Use the T-accounts provided below to:

  1. complete the closing entries
  2. determine the ending balance in the Retained Earnings account
T-Accounts. Income Summary debit 148,500 and credit 162,200. Retained Earnings credit balance 11,500. Dividends debit balance 4,000.
PB8.

LO 5.1Correct any obvious errors in the following closing entries by providing the four corrected closing entries. Assume all accounts held normal account balances in the Adjusted Trial Balance.


  1. Debit Income summary and credit Service Revenue 75,000.

  2. Debit Automobile expense 8,800, Insurance expense 4,800, Salaries expense 45,000, Supplies expense 3,500, and credit Income summary 62,100.

  3. Debit Retained earnings and credit Income summary 45,222.

  4. Debit Dividends and credit Retained earnings 6,000.
PB9.

LO 5.2Assuming the following Adjusted Trial Balance, create the Post-Closing Trial Balance that would result after all closing journal entries were made and posted:

Adjusted Trial Balance. Cash 8,625 debit. Accounts receivable 11,600 debit. Accounts payable 8,450 credit. Unearned revenue 1,500 credit. Common stock 10,000 credit. Retained earnings 12,275 credit. Dividends 2,000 debit. Service revenue 97,500 credit. Advertising expense 2,500 debit. Rent expense 18,000 debit. Utilities expense 12,000 debit. Wages expense 75,000 debit. Debit total 129,725, credit total129,725.
PB10.

LO 5.2The following Post-Closing Trial Balance contains errors. Prepare a corrected Post-Closing Trial Balance:

Post-Closing Trial Balance. Cash 32,660 credit. Supplies 7,200 debit. Land 25,000 credit. Notes payable 47,700 debit. Common stock 7,000 credit. Retained earnings 10,160 credit. Total debits 54,900, total credits 74,820.
PB11.

LO 5.2Assuming the following Adjusted Trial Balance, re-create the Post-Closing Trial Balance that would result after all closing journal entries were made and posted:

Adjusted Trial Balance. Cash 5,450 debit. Accounts receivable 4,700 debit. Supplies 250 debit. Prepaid insurance 1,250. Salaries payable 650 credit. Common stock 5,000 credit. Retained earnings 750 credit. Dividends 1,400 debit. Service fee revenue 17,300 credit. Salaries expense 9,050 debit. Supplies expense 1,000 debit. Insurance expense 600 debit. Debit total 23,700, credit total 23,700.
PB12.

LO 5.3Use the following Adjusted Trial Balance to prepare a classified Balance Sheet:

Adjusted Trial Balance. Cash $17,000 debit. Accounts receivable 8,500 debit. Supplies 1,500 debit. Prepaid insurance 5,000 debit. Equipment 12,000 debit. Accounts payable 5,000 credit. Unearned fee revenue 4,000 credit. Common stock 15,000 credit. Service fee revenue 32,500 credit. Salaries expense 9,500 debit. Rent expense 3,000 debit. Total debits and total credits 56,500.
PB13.

LO 5.3Using the following Balance Sheet summary information, calculate for the two years presented:

  1. working capital
  2. current ratio
Company P and Company Q, respectively: Current assets $88,500, $39,000. Current liabilities 67,430, 18,800.
PB14.

LO 5.3Using the following Balance Sheet summary information, calculate for the two years presented:

  1. working capital
  2. current ratio
12/31/18 and 12/31/19, respectively: Current assets $10,500, $12,050. Current liabilities 7,500, 10,800.
PB15.

LO 5.3Using the following account balances, calculate for the two years presented:

  1. working capital
  2. current ratio
12/31/18 and 12/31/19, respectively: Accounts Payable 12,790, 1,530. Accounts receivable 16,330, 2,200. Cash 21,040, 5,550. Prepaid insurance 4,500, 1,200. Salaries payable 6,500, 4,000. Utilities payable 1,200, 550.
PB16.

LO 5.4From the following Company S adjusted trial balance, prepare the following:

  1. Income Statement
  2. Retained Earnings Statement
  3. Balance Sheet (simple—unclassified)
  4. Closing journal entries
  5. Post-Closing Trial Balance
Adjusted Trial Balance. Cash 55,200 debit. Accounts receivable 30,200 debit. Prepaid insurance 6,000 debit. Land 30,000 debit. Accounts payable 14,300 credit. Salaries payable 6,100 credit. Common stock 26,000 credit. Retained earnings 38,900 credit. Dividends 16,500 debit. Service Revenue 211,850 credit. Insurance expense 24,000 debit. Salaries expense 128,350 debit. Miscellaneous expense 6,900 debit. Total debits and total credits 297,150.
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