Multiple questions

a 1. The overall objective of financial reporting is to provide information

LO5 a. that is useful for decision making.
b. about an enterprise’s assets, liabilities, and owners’ equity.
c. about an enterprise’s financial performance during a period.
d. that allows owners to assess management's performance.

3.Financial accounting is the area of accounting that emphasizes reporting to

LO1 a. management.
b. regulatory bodies.
c. internal auditors.
d. creditors and investors.

The responsibility to review the work of the accountants and issue opinions
LO1 as to the fairness of the financial statements rests with
a. the external auditor.
b. the board of directors.
c. the internal auditors.
d. management.

As independent (or external) auditors, CPAs are primarily responsible for

LO1 a. preparing financial statements in conformity with GAAP.
b. certifying the accuracy of financial statements.
c. expressing an opinion as to the fairness of financial statements.
d. filing financial statements with the SEC.

A common business transaction that would not affect the amount of owners’
LO2 equity is
a. signing a note payable to purchase equipment.
b. payment of property taxes.
c. billing of customers for services rendered.
d. payment of dividends.

d 15. An accrued expense can be described as an amount

LO3 a. paid and matched with earnings for the current period.
b. paid and not matched with earnings for the current period.
c. not paid and not matched with earnings for the current period.
d. not paid and matched with earnings for the current period.

Which of the following errors will be detected when a trial balance is

LO3 properly prepared?
a. An amount that was entered in the wrong account
b. A transaction that was entered twice
 c. A transaction that had been omitted
d. None of the above

The last step in the accounting cycle is to

LO1 a. prepare a post-closing trial balance.
b. journalize and post closing entries
c. prepare financial statements.
d. journalize and post adjusting entries.

d 3. Accrued revenues would normally appear on the balance sheet as

LO1 a. plant assets.
b. current liabilities.
c. long-term liabilities.
d. current assets.

Which of the following would not be classified as a current asset on a

LO1 classified balance sheet?
a. Investment securities (trading).
b. Short-term investments.
c. Prepaid expenses.
d. Intangible assets.

b 6. Unearned rent would normally appear on the balance sheet as a

LO1 a. plant asset.
b. current liability.
c. long-term liability.
d. current asset.

a 15. Which of the following would not be reported for capital stock in the
LO1 contributed capital section of a classified balance sheet?
a. Dividends per share
b. Shares authorized
c. Shares issued
d. Shares outstanding

b 3. On a multiple-step income statement, gains or losses on sale of equipment

LO4 would be shown
a. before gross profit on sales.
b. after gross profit on sales but before income from continuing operations.
c. after income from continuing operations but before income from
extraordinary items.
d. after income before extraordinary items but before net income.

5.The normal ordering of items in the income statement would be best

LO4 illustrated by which of the following?
a. Extraordinary items, cumulative effects, income from continuing
operations, discontinued operations, net income
b. Income from continuing operations, discontinued operations,
extraordinary items, cumulative effects, net income
c. Income from continuing operations, extraordinary items, cumulative
effects, discontinued operations, net income
d. Discontinued operations, income from continuing operations,
extraordinary items, cumulative effects, net income

6.A single-step income statement is a format that

LO4 a. compares the current year’s income with last year’s income.
b. recognizes subtotals at intermediate stages such as gross margin.
c. combines revenues and gains and subtracts from them expenses and
losses, resulting in income from operations.
d. reports sales revenue, cost of goods sold, gross margin, and all other
expenses.

Problems
Problem 1
White Lightning Inc. reported income from continuing operations before income
taxes of $626,000 for the year ended December 31, 2001. During October of 2001,
White Lightning elected to phase out a segment of its business. That segment
reported a net loss prior to the measurement date of $74,000. White Lightning
expects to incur additional losses of $35,000 during the phase-out period.
Management estimates a loss on the sale of the assets associated with the
segment of $85,000. The income tax rate for White Lightning is 30 percent.

Prepare the portion of the income statement beginning with “Income from
continuing operations before income tax” for the year ended December 31, 2001.

Solution 1
LO4

White Lightning Inc.

Income Statement (partial)
For the Year Ended December 31, 2001

Income from continuing operations before income tax.......................... $ 626,000

Income tax expense............................................................................... 187,800
Income from continuing operations........................................................ $ 438,200
Discontinued operations:
Loss from operations of discontinued business
segment (net of income tax savings of $22,200)...................................... (51,800)
Loss on disposal of business segment (net of income taxes of
$36,000).......................................................................................... (84,000)
Net Income............................................................................................. $ 302,400

Problem 2
The following totals are taken from the December 31, 2001, balance sheet of
Streamer Company:

Current assets.............................................................................. $ 350,000

Long-term assets.......................................................................... 800,000
Current liabilities........................................................................... 240,000
Long-term liabilities...................................................................... 270,000

Additional information:

(a) Cash of $38,000 has been placed in a fund for the retirement of long-term
debt. The cash and long-term debt have been offset and are not reflected in
the financial statements.

(b) Long-term assets include $50,000 in treasury stock.

(c) Cash of $14,000 has been set aside to pay taxes due. The cash and taxes
payable have been offset and do not appear in the financial statements.

(d) Advances on salespersons’ commissions in the amount of $21,000 have

been made. Also, sales commissions payable total $24,000. The net
liability of $3,000 is included in Current Liabilities.

After making any necessary changes, what are the totals for Streamer’s current
assets and current liabilities?
Solution 2
LO1

Current Assets Current Liabilities

Beginning ................................................ $ 350,000 $ 240,000
(a) No adjustment
(b) No adjustment
(c) Offsetting cash and taxes payable. . 14,000 14,000
(d) Netting commission advances and
commissions payable................. 21,000 21,000
Totals...............................................$ 385,000 $ 275,000

Problem 3
The following totals are taken from the December 31, 2001, balance sheet of
Bartholomew Company:

Current assets.............................................................................. $ 350,000

Long-term assets.......................................................................... 800,000
Current liabilities........................................................................... 240,000
Long-term liabilities...................................................................... 270,000

Additional information:

(a) A building costing $100,000 was purchased by taking out a $100,000

mortgage. Since the building serves as collateral on the mortgage loan,
both have been excluded from the financial statements.

(b) Cash in the amount of $45,000 is in a restricted fund for the purchase of
equipment. This cash has been included in Current Assets.

(c) Long-term liabilities include a bank loan of $80,000. Of this loan, $15,000
must be repaid within the coming year.

(d) Investment securities totaling $27,000 are included in Current Assets.

These securities represent stock purchases made as a long-term equity
investment in a major supplier.

After making any necessary changes, what are the totals for Bartholomew’s long-
term assets and long-term liabilities?
 Solution 3
LO1
Long-Term Assets Long-Term Liabilities
Beginning.....................................................$ 800,000 $ 270,000
(a) Offsetting building and mortgage.... 100,000 100,000
(b) Restricted fund................................ 45,000
(c) Current portion of long-term debt.... (15,000)
(d) Long-term investment...................... 27,000
Totals...............................................$ 972,000 $ 355,000

Problem 4
Presented below is the December 31 trial balance of Cassini Studios.

Cassini Studios
Trial Balance
December 31, 2001

Debit Credit
Cash................................................................................. $ 14,800
Accounts Receivable........................................................ 33,600
Allowances for Doubtful Accounts................................... $ 2,160
Inventory, January 1......................................................... 62,400
Furniture and Equipment................................................. 67,200
Accumulated Depreciation--Furniture and Equipment..... 26,880
Prepaid Insurance............................................................ 4,080
Notes Payable.................................................................. 22,400
Cassini, Capital................................................................ 72,000
Sales................................................................................ 480,000
Purchases........................................................................ 320,000
Sales Salaries Expense................................................... 40,000
Advertising Expense........................................................ 5,360
Administrative Salaries Expense..................................... 52,000
Office Expense................................................................. 4,000
$603,440 $603,440

(1) Prepare adjusting journal entries for the following items:

(a) Adjust the Allowance for Doubtful Accounts to 8 percent of the accounts
receivable.
(b) Furniture and equipment is depreciated at 20 percent per year.
(c) Insurance expired during the year, $2,040.
(d) Interest accrued on notes payable, $2,688.
(e) Sales salaries earned but not paid, $1,920.
(f) Advertising paid in advance, $560.
 (g) Office supplies on hand, $1,200, charged to Office Expense when
purchased.

(2) Prepare closing entries for Cassini after the above adjusting entries have been
made. Additional information shows the inventory on December 31 was
$64,000.
Solution 4
LO3
(1) (a) Bad Debts Expense............................................ 528
Allowance for Doubtful Accounts............... 528
(b) Depreciation Expense--Furniture and
Equipment....................................................... 13,440
Accumulated Depreciation--Furniture
and Equipment........................................ 13,440
(c) Insurance Expense............................................. 2,040
Prepaid Insurance...................................... 2,040
(d) Interest Expense................................................. 2,688
Interest Payable......................................... 2,688
(e) Sales Salaries Expense..................................... 1,920
Salaries Payable........................................ 1,920
(f) Prepaid Advertising............................................ 560
Advertising Expense................................... 560
(g) Office Supplies on Hand..................................... 1,200
Office Expense........................................... 1,200

(2) Dec. 31 Cost of Goods Sold.................................... 318,400

Inventory..................................................... 1,600
Purchases.......................................... 320,000

Dec. 31 Sales........................................................... 480,000

Retained Earnings.............................. 480,000

Dec. 31 Retained Earnings...................................... 438,616

Cost of Goods Sold............................ 318,400
Advertising Expense.......................... 4,800
Administrative Salaries Expense....... 52,000
Sales Salaries Expense..................... 41,920
Office Expense................................... 2,800
Insurance Expense............................ 2,040
Bad Debts Expense........................... 528
Depreciation Expense--Furniture
and Equipment............................... 13,440
Interest Expense................................ 2,688
 Mexute amocana testbankshi ara ris magram single-step
income statement-i unda shegedgina. Dz advili iyo 

Questions
1. What difference between a) real and nominal accounts; b) a general journal and special
journals; c) a general ledger and subsidiary ledger.

a. Real accounts are balance sheet accounts not closed to a zero balance in the closing
process. Nominal accounts are income statement or temporary owners’ equity accounts
closed out in the process of arriving at the net increase or decrease in owners’ equity for
a period.
b. A general journal is the most flexible book of original entry. It may be used to record all
business transactions or simply those that cannot be recorded in one of the special
journals. Special journals are designed to facilitate the recording of some particular type
of frequently occurring transaction, such as sales, purchases, cash receipts, and cash
disbursements.
c. The general ledger carries summaries of all accounts appearing on the financial
statements. Subsidiary ledgers
afford additional detail in support of certain general ledger balances. Thus, accounts
payable appear in total in the general ledger, but individual accounts with each creditor
are provided in the accounts payable subsidiary ledger.

2. Why we do a) adjusting entries; b) closing entries.

a. Adjusting entries are made at the end of an accounting period to update balance sheet
accounts and to record accrued expenses and accrued revenues.
Frequently, adjusting entries are first made on a work sheet and then are recorded in the
general journal from which they are posted to the ledger accounts.

b. Closing entries are made after the adjusting entries have been posted. They transfer all
nominal account balances to Retained Earnings.

3. Why accounting standards? Why FASB is setting standards for the United states? ( sityva-
sityvit ar maxsovs shinaarsi e saris  )

4. What advantages a person has when he works as accountant ( in accounting) and why ethical
personality is important for this position. ( sityva-sityvit ar maxsovs shinaarsi e saris  )
Tito amocana iyo 50 quliani (total 250); erti maltipali (total 50); ert Mtlianad
midtermi aris 300 quliani.

Yvelas carmatebebi! 
Es me davawere exla