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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 6.1On March 1, Bates Board Shop sells 300 surfboards to a local lifeguard station at a sales price of $400 per board. The cost to Bates is $140 per board. The terms of the sale are 3/15, n/30, with an invoice date of March 1. Create the journal entries for Bates to recognize the following transactions.

  1. the initial sale
  2. the subsequent customer payment on March 10
EA 2.

LO 6.1Marx Corp. purchases 135 fax machines on credit from a manufacturer on April 7 at a price of $250 per machine. Terms of the purchase are 4/10, n/20 with an invoice date of April 7. Marx Corp pays in full for the fax machines on April 17. Create the journal entries for Marx Corp. to record:

  1. the initial purchase
  2. the subsequent payment on April 17
EA 3.

LO 6.1Match each of the following terms with the best corresponding definition.

A. Sales allowance i. A customer returns merchandise for a full refund
B. Purchase return ii. A retailer receives a partial refund but keeps the defective merchandise
C. Sales discount iii. A customer receives a partial refund but keeps the defective merchandise
D. Purchase discount iv. A customer pays their account in full within the discount window
E. Sales return v. A type of purchase discount negotiated between a manufacturer and a retailer before settlement on a final price
F. Trade discount vi. A retailer returns merchandise for a full refund
G. Purchase allowance vii. A retailer pays their account in full within the discount window
EA 4.

LO 6.2The following is selected information from Mars Corp. Compute net purchases, and cost of goods sold for the month of March.

List of Inventory, February 28, 2018: $450,000; Inventory, March 31, 2018: $330,500; Purchase Discounts: $12,450; Purchase Returns and Allowances: $23,870; Sales: $276,900; Sales Discounts: $34,660; and Gross Purchases: $120,400.
EA 5.

LO 6.2On April 5, a customer returns 20 bicycles with a sales price of $250 per bike to Barrio Bikes. Each bike cost Barrio Bikes $100. The customer had yet to pay on their account. The bikes are in sellable condition. Prepare the journal entry or entries to recognize this return if the company uses

  1. the perpetual inventory system
  2. the periodic inventory system
EA 6.

LO 6.3Record journal entries for the following purchase transactions of Flower Company.

Oct. 13 Purchased 85 bushels of flowers with cash for $1,300.
Oct. 20 Purchased 240 bushels of flowers for $20 per bushel on credit. Terms of the purchase are 5/10, n/30, invoice dated October 20.
Oct. 30 Paid account in full from the October 20 purchase.
EA 7.

LO 6.3Record journal entries for the following purchase transactions of Apex Industries.

Nov. 6 Purchased 24 computers on credit for $560 per computer. Terms of the purchase are 4/10, n/60, invoice dated November 6.
Nov. 10 Returned 5 defective computers for a full refund from the manufacturer.
Nov. 22 Paid account in full from the November 6 purchase.
EA 8.

LO 6.3Record the journal entry for each of the following transactions. Glow Industries purchases 750 strobe lights at $23 per light from a manufacturer on April 20. The terms of purchase are 10/15, n/40, invoice dated April 20. On April 22, Glow discovers 100 of the lights are the wrong model and is granted an allowance of $8 per light for the error. On April 30, Glow pays for the lights, less the allowance.

EA 9.

LO 6.4Record journal entries for the following sales transactions of Flower Company.

Oct. 12 Sold 25 bushels of flowers to a customer for $1,000 cash; cost of sale $700.
Oct. 21 Sold 40 bushels of flowers for $30 per bushel on credit. Terms of the sale are 4/10, n/30, invoice dated October 21. Cost per bushel is $20 to Flower Company.
Oct. 31 Received payment in full from the October 21 sale.
EA 10.

LO 6.4Record the journal entries for the following sales transactions of Apache Industries.

Nov. 7 Sold 10 computers on credit for $870 per computer. Terms of the sale are 5/10, n/60, invoice dated November 7. The cost per computer to Apache is $560.
Nov. 14 The customer returned 2 computers for a full refund from Apache. Apache returns the computers to their inventory at full cost of $560 per computer.
Nov. 21 The customer paid their account in full from the November 7 sale.
EA 11.

LO 6.4Record the journal entry or entries for each of the following sales transactions. Glow Industries sells 240 strobe lights at $40 per light to a customer on May 9. The cost to Glow is $23 per light. The terms of the sale are 5/15, n/40, invoice dated May 9. On May 13, the customer discovers 50 of the lights are the wrong color and are granted an allowance of $10 per light for the error. On May 21, the customer pays for the lights, less the allowance.

EA 12.

LO 6.5Review the following situations and record any necessary journal entries for Mequon’s Boutique.

May 10 Mequon’s Boutique purchases $2,400 worth of merchandise with cash from a manufacturer. Shipping charges are an extra $130 cash. Terms of the purchase are FOB Shipping Point.
May 14 Mequon’s Boutique sells $3,000 worth of merchandise to a customer who pays with cash. The merchandise has a cost to Mequon’s of $1,750. Shipping charges are an extra $150 cash. Terms of the sale are FOB Shipping Point.
EA 13.

LO 6.5Review the following situations and record any necessary journal entries for Letter Depot.

Mar. 9 Letter Depot purchases $11,420 worth of merchandise on credit from a manufacturer. Shipping charges are an extra $480 cash. Terms of the purchase are 2/10, n/40, FOB Destination, invoice dated March 9.
Mar. 20 Letter Depot sells $7,530 worth of merchandise to a customer who pays on credit. The merchandise has a cost to Letter Depot of $2,860. Shipping charges are an extra $440 cash. Terms of the sale are 3/15, n/50, FOB Destination, invoice dated March 20.
EA 14.

LO 6.5Review the following situations and record any necessary journal entries for Nine Lives Inc.

Jan. 15 Nine Lives Inc. purchases $8,770 worth of merchandise with cash from a manufacturer. Shipping charges are an extra $345 cash. Terms of the purchase are FOB Shipping Point.
Jan. 23 Nine Lives Inc. sells $4,520 worth of merchandise to a customer who pays with cash. The merchandise has a cost to Nine Lives of $3,600. Shipping charges are an extra $190 cash. Terms of the sale are FOB Destination.
EA 15.

LO 6.6The following select account data is taken from the records of Reese Industries for 2019.

List of Sales: $640,363; Merchandise Inventory: $582,620; Sales Discounts: $58,040; Interest Expense: $3,677; Sales Returns and Allowances: $90,232; Interest Revenue: $10,268; Cost of Goods Sold: $224,598; Rent Expense: $15,080; Depreciation Expense - Office Equipment: $3,200; Insurance Expense: $2,450; Advertising Expense: $12,906; Accounts Receivable: $100,440; Office Supplies Expense: $1,600; Rent Revenue: $23,622; Sales Salaries Expense: $30,410; Accounts Payable: $135,404; Common Stock: $59,419; and Marketing Expense: $31,000.
  1. Use the data provided to compute net sales for 2019.
  2. Prepare a simple income statement for the year ended December 31, 2019.
  3. Compute the gross margin for 2019.
  4. Prepare a multi-step income statement for the year ended December 31, 2019.
EA 16.

LO 6.7Record journal entries for the following purchase transactions of Flower Company.

  1. On October 13, Flower Company purchased 85 bushels of flowers with cash for $1,300.
  2. On October 20, Flower Company purchased 240 bushels of flowers for $20 per bushel on credit. Terms of the purchase were 5/10, n/30, invoice dated October 20.
  3. On October 30, Flower Company paid its account in full for the October 20 purchase.
EA 17.

LO 6.7Record journal entries for the following purchase transactions of Apex Industries.

Nov. 6 Purchased 24 computers on credit for $560 per computer. Terms of the purchase are 4/10, n/60, invoice dated November 6.
Nov. 10 Returned 5 defective computers for a full refund from the manufacturer.
Nov. 22 Paid account in full from the November 6 purchase.
EA 18.

LO 6.7Record the journal entries for the following sales transactions of Julian Sundries.

Nov. 7 Sold 10 tables on credit for $870 per table. Terms of the sale are 5/10, n/60, invoice dated November 7. The cost per table to Julian is $560.
Nov. 14 The customer returned 2 slightly damaged tables for a full refund from Julian.
Nov. 21 The customer paid their account in full from the November 7 sale.
EA 19.

LO 6.7Record the journal entry or entries for each of the following sales transactions. Glow Industries sells 240 strobe lights at $40 per light to a customer on May 9. The cost to Glow is $23 per light. The terms of the sale are 5/15, n/40, invoice dated May 9. On May 13, the customer discovers 50 of the lights are the wrong color and are granted an allowance of $10 per light for the error. On May 21, the customer pays for the lights, less the allowance.

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