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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
1.

LO 6.1Which of the following is an example of a contra revenue account?

  1. sales
  2. merchandise inventory
  3. sales discounts
  4. accounts payable
2.

LO 6.1What accounts are used to recognize a retailer’s purchase from a manufacturer on credit?

  1. accounts receivable, merchandise inventory
  2. accounts payable, merchandise inventory
  3. accounts payable, cash
  4. sales, accounts receivable
3.

LO 6.1Which of the following numbers represents the discount percentage applied if a customer pays within a discount window and credit terms are 3/15, n/60?

  1. 3
  2. 15
  3. 60
  4. 3 and 15
4.

LO 6.1If a customer purchases merchandise on credit and returns the defective merchandise before payment, what accounts would recognize this transaction?

  1. sales discount, cash
  2. sales returns and allowances, cash
  3. accounts receivable, sales discount
  4. accounts receivable, sales returns and allowances
5.

LO 6.2Which of the following is a disadvantage of the perpetual inventory system?

  1. Inventory information is in real-time.
  2. Inventory is automatically updated.
  3. It allows managers to make current decisions about purchases, stock, and sales.
  4. It is cost-prohibitive.
6.

LO 6.2Which of the following is an advantage of the periodic inventory system?

  1. frequent physical inventory counts
  2. cost prohibitive
  3. time consuming
  4. real-time information for managers
7.

LO 6.2Which of the following is not a reason for the physical inventory count to differ from what is recognized on the company’s books?

  1. mismanagement
  2. shrinkage
  3. damage
  4. sale of services to customers
8.

LO 6.2Which of the following is not included when computing Net Purchases?

  1. purchase discounts
  2. beginning inventory
  3. purchase returns
  4. purchase allowances
9.

LO 6.3Which of the following accounts are used when recording a purchase?

  1. cash, merchandise inventory
  2. accounts payable, merchandise inventory
  3. A or B
  4. cash, accounts payable
10.

LO 6.3A retailer pays on credit for $650 worth of inventory, terms 3/10, n/40. If the merchandiser pays within the discount window, how much will the retailer remit in cash to the manufacturer?

  1. $19.50
  2. $630.50
  3. $650
  4. $195
11.

LO 6.3A retailer returns $400 worth of inventory to a manufacturer and receives a full refund. What accounts recognize this return before the retailer remits payment to the manufacturer?

  1. accounts payable, merchandise inventory
  2. accounts payable, cash
  3. cash, merchandise inventory
  4. merchandise inventory, cost of goods sold
12.

LO 6.3A retailer obtains a purchase allowance from the manufacturer in the amount of $600 for faulty inventory parts. Which of the following represents the journal entry for this transaction if the retailer has already remitted payment?


  1. Accounts Payable debit of $600 and Merchandise Inventory credit of $600.

  2. Cash credit of $600 and Merchandise Inventory credit of $600.

  3. Accounts Payable debit of $600 and credits to Merchandise Inventory of $10 and Cash of $590.
13.

LO 6.4Which of the following accounts are used when recording the sales entry of a sale on credit?

  1. merchandise inventory, cash
  2. accounts receivable, merchandise inventory
  3. accounts receivable, sales
  4. sales, cost of goods sold
14.

LO 6.4A customer pays on credit for $1,250 worth of merchandise, terms 4/15, n/30. If the customer pays within the discount window, how much will they remit in cash to the retailer?

  1. $1,250
  2. $1,200
  3. $50
  4. $500
15.

LO 6.4A customer returns $870 worth of merchandise and receives a full refund. What accounts recognize this sales return (disregarding the merchandise condition entry) if the return occurs before the customer remits payment to the retailer?

  1. accounts receivable, sales returns and allowances
  2. accounts receivable, cash
  3. sales returns and allowances, merchandise inventory
  4. accounts receivable, cost of goods sold
16.

LO 6.4A customer obtains a purchase allowance from the retailer in the amount of $220 for damaged merchandise. Which of the following represents the journal entry for this transaction if the customer has not yet remitted payment?


  1. Debit to Sales Returns and Allowance of $220 and credit to Cash of $220.

  2. Debit to Sales Returns and Allowances of $220 and credit to Accounts Receivable of $220.

  3. Debits to Cash and Sales Returns and Allowances of $200 and $20, respectively, and credit to Accounts Receivable of $220.
17.

LO 6.5Which of the following is not a characteristic of FOB Destination?

  1. The seller pays for shipping.
  2. The seller owns goods in transit.
  3. The point of transfer is when the goods leave the seller’s place of business.
  4. The point of transfer is when the goods arrive at the buyer’s place of business.
18.

LO 6.5Which two accounts are used to recognize shipping charges for a buyer, assuming the buyer purchases with cash and the terms are FOB Shipping Point?

  1. delivery expense, cash
  2. merchandise inventory, cash
  3. merchandise inventory, accounts payable
  4. The buyer does not record anything for shipping since it is FOB Shipping Point.
19.

LO 6.5Which of the following is not a characteristic of FOB Shipping Point?

  1. The buyer pays for shipping.
  2. The buyer owns goods in transit.
  3. The point of transfer is when the goods leave the seller’s place of business.
  4. The point of transfer is when the goods arrive at the buyer’s place of business.
20.

LO 6.6A multi-step income statement ________.

  1. separates cost of goods sold from operating expenses
  2. considers interest revenue an operating activity
  3. is another name for a simple income statement
  4. combines cost of goods sold and operating expenses
21.

LO 6.6Which of the following accounts would be reported under operating expenses on a multi-step income statement?

  1. sales
  2. advertising expense
  3. sales returns and allowances
  4. interest expense
22.

LO 6.6A simple income statement ________.

  1. combines all revenues into one category
  2. does not combine all expenses into one category
  3. separates cost of goods sold from operating expenses
  4. separates revenues into several categories
23.

LO 6.6Which of the following accounts would not be reported under revenue on a simple income statement?

  1. interest revenue
  2. net sales
  3. rent revenue
  4. operating expenses
24.

LO 6.7Which of the following accounts are used when recording a purchase using a periodic inventory system?

  1. cash, purchases
  2. accounts payable, sales
  3. accounts payable, accounts receivable
  4. cash, merchandise inventory
25.

LO 6.7A retailer obtains a purchase allowance from the manufacturer in the amount of $600 for faulty inventory parts. Which of the following represents the journal entry for this transaction, assuming the retailer has already remitted payment?


  1. Accounts Payable debit of $600 and Merchandise Inventory credit of $600.

  2. Cash debit of $600 and Purchase Returns and Allowances credit of $600.

  3. Accounts payable debit of $600 and credits to Purchase Discounts of $10 and to Cash of $590.
26.

LO 6.7A customer returns $690 worth of merchandise and receives a full refund. What accounts recognize this sales return, assuming the customer has not yet remitted payment to the retailer?

  1. accounts receivable, sales returns and allowances
  2. accounts receivable, cash
  3. sales returns and allowances, purchases
  4. sales discounts, cost of goods sold
27.

LO 6.7A customer obtains an allowance from the retailer in the amount of $450 for damaged merchandise. Which of the following represents the journal entry for this transaction, assuming the customer has not remitted payment?


  1. Sales Returns and Allowances debit of $450 and Cash credit of $450.

  2. Sales Returns and Allowances debit of $450 and Accounts Receivable credit of $450.

  3. Debits to Cash of $400 and Sales Returns and Allowances of $50, and Accounts Receivable credit of $450.
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