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/ 42
(Chapter 3: ‘The Accounting Informstion System 39
REVIEW QUESTIONS AND EXERCISES:
‘TRUE-FALSE
Indicate whether each of the following is true (T) or false (F) in the space provided.
“+L. (L.0.1) Real (permanent) accounts are revenue and expense accounts ancl are periodically closed.
2, (L.O. 2) In general, debits refer to increases in account balances, and credits refer to decreases.
rr a args
3, (L.0. 2) An example of an intemal event would be a flood that destroyed # portion of an entity's
inventory.
4. (LO. 2) Doubleentry accounting is the provess that leads to the basic equality in accounting
expressed by the formula: assets = liabilities + owners" equity.
5. (E.0.4) A general journal may be used by any entity in recording its transactions, whereas special
joumals may be used only by entities whose trensactions meet certain requirements.
6. (L.0. 4) If'an entity fails to post one of its journal entries to its general ledger, the trial balance will
not show an equal amount of debit and eredit balance accounts.
7. (£:0.4) One purpose of a tial balance i to prove that debits and credits of an equal amount are in the
general ledger.
8 (.0.5) Adjusting entries are an optional step in the accounting process.
a 9. (L.0.5) Adjusting entries are used to correet errors that oceur during the posting process,
10, (L.0.5) Adjusting entries result from compliance with the accrual system of accounting,
11. (L.0.3) Anadjustment for wages expense, earned but unpaid at year end, is an example of an accrued
liability.
DVDPDMWsPMswsvw
12, (L.0, 5) Proper matching of revenues and expenses requires that bad debts be recorded as an expense
of the period in which the sale was made.
13, (LO. 7) The Income Summary account used during the closing process is shown in the owners"
equity section of the statement of financial position.
14. (L.0. 7) Sis not necessary to post the closing entries to the ledger accounts because new revenue and
expense accounts will be opened in the subsequent accounting period.
15. (L.0.7) ‘The account “interest expense” is etedited during the closing process.
16. (LO.7) The post-clesing trial balance consists of asset, liability, owners’ equity, revenue and expense
accounts.
__*17, CoO. 9) Because each accrued item involves either a later receipt of cash for income or a Ister
disbursement of cash for expense, a reversing entry may be made to offset part ofthe credit to ineome
or part of the debit to expense,
___*18, (L.0. 9) Reversing entries are made at the end of the accounting cycle to correct errors in the original
recording of tensactions.
419, (L,0. 9) In generat, all adjusting entries for prepsid items for which the original amount was entered
in a revenue or expense account and for all acerued items should be reversed, 4.0 Stodent Study Guide for Kies Tame accovting IFRS Balto, Volume}
SEO. oy A worhest completed trounh the ATER a Daa Caron provides Se nfamaiOn
( eeded for preparation of the financial ough es without reference to the Ledger ore recone,
i (
aah, (40.10) The wse of a worksheet at the en4 of each month or quarter pests the preparation of
ea nancial statements eventhough the books are closed only at the end of each year.
a2, (1.0. 10) An adjusted wil balance thet shows equal debit and oredit columnar totals Proves the
accuracy of the adjusting entries.
MULTIPLE CHOICE
Select the best answer for exch ofthe following tems ‘and enter the corresponsing leter in the space provided.
1, G.0.2) The aecounting equation (AL + OB) mush remain in balance:
“A. throughout each stp in the accounting 16
BL only when joural entries are recorded
Be Shy athe time the ral balance is prepare,
D. | only when formal financial stalements are prepared.
2, (40.2) The diflerence between the accounting PS? and the eecounting oye i:
‘A. the accounting process results in the PrEPaRkSE of financial statements, whereas the
or untng oye is concerned with reoording Pesne ransactions.
the accounting cycle represents the steps taken 19 ‘aocorapish the accounting Process.
the accounting process represents the steps ken fo ecomplish the accounting eyele.
Ine ly seman, because bath concept refer the sare ‘hing.
poe
45, (1.0.2) A tal balance prepared at Year ond snowed Puceineli Co's debit total exceeding the credit
(Gat by $6:300. This dicrepancy coalé have been ‘caused by:
‘A. the balance of $47,000 in accounts receivable being entered in the trial balance a
$40,700.
an ervor in adding the Sates Journal.
aa nce of $700 in the Office Equipment account Pein entered as 2 debit of $7,000.
‘anet Joss of $6,300.
gor
‘4, (1.0.4) Which of the following is not 2 principal parpose ofan unadjusted il balance?
“a. proves that debits and credits of equal amour Ar the ledger.
Biche the basis for any adjustments vo the account balances.
© tesupplies a listing of epenacsounts end ‘heir balances.
S_epeoves that debits and eredis were properly centered in the ledger accounts.
5. .0,5) Which ofthe following journal enres is appropriate when a company reesives payment 12
‘advance for goods or services?
‘Debit cash ond credit an expense account.
‘Credit cash and debit a revenue aecount,
cre ah and credit ity acount ofa revert aec0UN%
eeetic cash nd debit aTabiity or revenue account.
pOpP ‘Chapter 3: The Accounting Tnfermation Systm 3A
EGLO Ditog the Tost your of Wionewald Cos oparstionn ll purchases wore recorded a8 ats,
Store supplies in the amount of $6,540 were purchased, Actual year-end store supplies inventory
‘amounted to $2,150. The adjusting entry for store supplies will:
A. increase net income $4,390.
B. increase expenses by $4,390.
C. decrease store supplies by $6,540.
D. _ debit accounts payable for $2,150.
7. (L00. 5) Anadjusting entry should never include:
‘a debit to expense and a credit to a liability.
aadcbit to expense and a credit to revenue.
debit to a lability and a credit to revenue,
‘debit to revenue and a credit to a liability.
pom>
2
8 (L.0.5) Which of the following is an exemple of an accrued liability?
‘A. Office supplies purchased at the boginning of the year and debited to an expense account,
Bl Property taxes incurred ducing the year, to be paid inthe first quarter of the subsequent
year
©. Depreciation expense.
D. Rent earned during the period, t be received atthe end ofthe year
9. (L.0. 5) A prepaid expense can best be described as an ammount:
Paid and currently reported with earnings.
Paid and not currently reported with eamings.
[Not paid and not currently reported with earnings.
‘Not paid and currently reported willy caraings.
popP
10. (L.0.5) Rent collected in advance by a landlord is a (an):
A. Accrued liability
B, Deferred asset.
C. Accrued revenue.
D, —_Uneamed revenue.
11, (L.0.3) An acerued expense can best be described as an amount:
‘A. Paid and not eucrently reported with earings.
B. —_Notpaid end curently reporced with earings.
C.—_Not paid and not curently reported with earnings.
D. Paid and currently reported with earings.
12. (L.0.5) The Murphy Company sublet a portion of its warehouse for five years at an annual rental of
$24,000, beginning on May 1, 2012. The tenant, Sheri Charter, paid one year's rent in advance, which
‘Murphy recorded as a credit co unearned rental income. Murphy reports on a calendar-year basis. The
adjustment on December 31, 2012 for Murphy should be:
Dr. cr
No entry
Unearned rental income 8,000
‘Rental income 8,000
Rental income 8,000
‘Uncerned rental income 8,000
Uneamed rental ineome 16,000
Rental income 16,000 3-12 ‘Stagent Study Col or Kieso latermediate Accounting IFRS Edition, Votome L
TH. EOF) Which ofthe Following statements aaa TRIE TRE a
‘A. To facilitate posting: ‘and preparing a tial balance. ri
1 B. To iat ee un of ence oat Toss fr be DEA
i €. __Toreduce the balances "sf revennie and expense accounts 9 2670 ‘so that they may be used
. Fo ede ee reves and expenses oe ent PNG
D. To complete the record wes and enPgeetons that wee sated ina pT Bio
bya debit
14. (L.0.7) expenses ate renter than FevenNeSs she Tncomne Summary account wil be closed
0:
Income Summary and a credit to Cash
tneome summary anda credit to Retained Eartinss
‘Cash and a credit to Income Suminsty.
Rotamed Earnings and a credit to Income Sumnary-
yOpP
ofthe following statements is not meas Stpertams 0 the accounting process!
.j other events as they occur is
1s, Which
ystem for recording tansactions 9m
i A. The established 6)
' qeferred to as double entry accounting,
i fp Bvents are of to types: (1) external and {@) intemal, Accountants record events tat
fect the financial position of the entespriso,
co. Aejustments are necessary # achieve @ PURE recording of revenues and expenses tO
rye eurvent period and to achieve an aorsrate statement of the
Geter equities existing atthe end oF he peck
1p. Postings the nial recording ofl trapsacions ‘m chronological order.
BAW AW Aw Bet
#16, (40.9) A reversing etry sould never be nde OFS adjusting entry that
‘A. acorues unrecorded revente
B, adjusts expired aoe cfr an asset account to an expense scout
G,__acerues unrecorded expenses:
Cues unexpired costs rom an expense aecount (22 asset account
of a three-year insurance policy it
#17, (L.0.9) Ifthe following journal eons Wer made forthe purchase
etmuary ofthe frst year, woukd an adjusting Sot 1 ce reversing entry be appropriate at he end
of the first year?
“Unexpired Insurance 3,000
Cash 3,000
Adinsting Reversing
iaty. am
A Yes No
B No ‘Yes
© Yes Yes
DB. No No
“The worksheet for Shatko Co. shows net income ‘of $14,400 in the Income Siateme!
#18, (L.0. 10)
-The company will also enter the net income
‘columns.
vA. inthe Statement of Financial Position 4° ccohumn.
AL inthe Statement of Financial Postion credit column.
C,_ jnche Income Statement credit cola,
$n bet the Income Statement ered column acd the Statement of Financial Position de
‘column. .
x
5
x
° (Chapter 3s The AceauntingTnformston Systems 313
° REVIEW EXERCISES
e a 1 (L.0.4) The accounts listed below have been taken from Davies Co.'s general ledger as of
? December 31.2012. ‘The accounts all have normual balances. This isthe end of Davies Co.'s first year of
5 operations
Cash... S$ 34,000
| Buildings (net) 210,000
‘Note Payable. 72,000
Salary Expense 19,000
36,000,
60,000,
185,000
48,000,
22,000
75,000
15,000
125,000
165,000
20,000
‘Tax Payable. 31,000
Determine sales for the year and prepare the following items for Davies Co. as of the year
ended December 31, 2012:
a, trial balance, -
. income statement, and
c. statement of financial position. sent Study Gale for ise nleredine Aseotig FES ition, Volume |
a S
2 CChapter3: The Accounting Information Syrtem 3-15
2
x
2. (L.0.4) The following changes occurred in the account balances of Cihla’s Corporation
dating 2012,
Accounts Increasing Amount
Cash $50,000
Inventory 30,000
Building 25,000
Share Capital ~ Ordinary 30,000
Share Premium ~ Ordinary 10,000
Accounts Decreasing Amount
‘Accounts Receivable . $10,000
Accounts Payable 20,000
‘The accounts shown above represent all the statement of financial position accounts for
Cia’s Corporation with the exception of Retained Eamings. No dividends were declared
during 2012.
Instructions
From the changes above, determine the amount of net income or net loss for 2012. SB WLW NILA Reel DB det
£9208)...
3
n€
3426 Student Stay Guide for Kieso Inert
3.
1,008).
Instructions
Propare the nevessary adjusting joumal
(L.0.5) The following data relate to the 2¢
are Accounting: !FRS Aion, Volume
counts of Scaceo Company (ell amounts in
‘Athyee-yeat insurance policy was purchased on Maret 1,2022. The $360 insurance
ally pad on tha dave anda debt fo Prepaid Insurance ‘was recorded.
Tinpaid salaries at yearend amount to S650,
carats Revere was credited for S816 on Mey 2012, ‘The amount represents &
sne-year advance payment for services 1 be performed by Seaeco Company throveb
‘Apsil 30, 2013.
‘The Office Supplies 1,250 on December 31, 2012. A
physical count ofthe supplies on hand a is Gate reveals a total of $480 available,
Boyer Company holds bonds of another corporation that pay interest at @ sate Of
$500 per year. These bonds were purchased oF “august 1, 2012, and the first interest
payment willbe received on Augnst 1, 2013+
entries indicated by each item for the year ended
December 31, 2012.
General Journal
i
‘Account Title ‘Debit Credit
Date FONT
(Chapter: The Accounting Information Systema 317
To TLOL SS, 67 and 11) The post closing tia! balance of the Pat Callahan Company at
Decemiber 31, 2011 is shown below.
Account
No. Account bit Credit
101 © Cash $46,000
102 Investment in Bonds 50,000,
103 Accounts Receivable 28,000
104 Allowance for Doubtful Accounts 900
105 Interest Receivable
106 Inventory (perpetual) *24,000
407 Building (15-year life) 45,000
108 — Accumulated Depreciation-Building 12,000
109 Delivery Truck (5-year life, $3,000 satvage) 18,000
110 Accumulated Depreciation-Trucks 6,000
200 Accounts Payable 18,000
201 Notes Payable 29,000
202 «Wages Payable
203 Income Taxes Payable 5,000
300 Share Capital — ordinary, par value $1.00 85,000
301 Retained Earnings 55,100,
400 Sales
401 Interest Revenue
500 Operating Expenses
501 Wages Expense
502 Depreciation Expense-Building
503 Depreciation Expense-Trucks =
504 Bad Debt Expense
503 Cost of Goods Sold
506 Income Tax Expense
$211,000 $21,000
Ending Inventory (12/31/12) $26,000.
‘The following transactions took place during 2012,
Collected: Accounts Receivable, $25,000; Interest on Bonds $5,000;
Cash Sales, $80,000 (Cost of Goods Sold $14,000),
Paid: Accounts Payable, $15,000; Notes Payable, $21,000;
Income Faxes Payable, $5,000; Operating Expenses, $37,000.
Purchased inventory, $32,000, of which $16,000 was purchased on account,
(Assume perpetual inventory.)
‘Made sales on account, $85,000 (Cost of Goods Sold $16,000).
On June 30, 2012, purchased a second delivery truck for $15,000, paying cash.
‘The truck has useful life of 10 years and a salvage value of $3,000, teterediate Asroutng: IFRS Eason, Vol= |
318 Student stady Guide fr Kiso
at Callahan Company. Some §
count for eacl
h ‘Instructions
Tournalize cach: of the transactions above of the Pr
Jems requice more than ane journal entry:
vp. Post the enties to appropriate accounts, (Zu should set up a Tae
account noted on ‘the trial balance.)
Prepare a tal balance after posting the jouraal entries and enter the amouals 09 8
10-colump. ‘worksheet like the one shown in the text. ‘ater all the accounts shown
onthe original trial balance.
a ing adjustanents on te worksheet (3) “Accrued wages at year end
Bate $700; (6) Bad debt expense i estimate =f 1% of eredit sales; (c) Record
straight-line depreciation oD. ‘the building and tracks; (4) ‘Accrued interest on the
jnvestments in bonds is $1,500; (@) Income tax ‘expense for 2012 is $21,065. ‘The
tax is not due until 2013.
‘Complete the income statement and statement of ‘financial position columns of the
worksheet.
Prepare closing joumal entries.
a
ce
APs PLDI BSF,
e
eh,
!¥e:
| “
\ General Journal
a
Grate
Deak,
‘Recount Tie
Dae chapter 3: The Assounting aformoation System. 319
c tS
b.
Investment ‘Accounts
Cash in Bonds Receivable
Allowance for Interest
Doubtful Accounts Receivable Inventory
Accumulation
Dopreciation—Bidg Delivery Truck
Accounts Payable
o
0
D
DI
5
5]
5 25 ton, Volume}
x) ‘3-20 staten Stat Gul for io ntti Aaa
Ka Income Taxes
‘Wages Payable Payable, share Capital — Ordins
5
».
% b.
: Retained Earnings. Sales Interest Revenue
a
et
i
a Depresiation
Bi Operating Expenses Wages Expense Expense—Bldg
ji
Depreciation Bad Debts
Expense—Trucks, Expense Cost of Goods Sold.
Income
Tax Bxy joi aca
i
y
7
‘y
7 asuadeg wm 000m
jos sp009 30 890,
asuadyg 280 Pe
nnguod 2 souwKoKLy Or
osy snowy 01
spoog ui yaunsaaoy ZT
Ws) 10
Ty oN al
vty
“4 ‘indent Study Guide for KietoInvermediate Accounting: IFRS Edition, Volume T
©
322
HOoHOHH HHOaC
NMNHONDHHOHHHDHOHOHONHOHOHHHHOOHOEH ‘Chapter 4: Income Statement and Related Information 47
oe
0.8) Retained Earnings Statement
(L.0.9) Comprehensive Income
EYL LI) IS BEB INE EI IIIS
REVIEW QUESTIONS AND EXERCISES
‘TRUE-FALSE
Indicate whether each of the following is true (T) or false (F) in the space provided.
1, (L.0.1) One of the limitations ofthe income statement i that items thar esnnot be measured reliably
are not reported in the income statement,
2, (LO. 1) Eamings management refers to the planned timing of income and expenses fo smooth out
‘bumps in earnings. -
3, (L.0. 1) The transaction approach focuses on income-related activities that have cecurred during the
period.
4, (1.0.2) IFRS requires that companies disclose gross margin on their income statements,
5. (1.0.2) One component of the income statement is an allocation of net income tothe non-centrolling
interest.
6. (0. 5) A manufacturer of computer hardware who sells all computer manufzeturing facies
Jocated in foreign countries can record the transaction as 2 disposal of a segment.
7, LO.) Phasing out of « product line or class of service is a disposal of assets that qualifies as &
disposal of a segment of a business.
ns of a segment that has been ot will be disposed of need not be
& (L.O. 5). The results of operation
Separted ftom the results of continuing operations as long es the exin or loss from the disposal is
shown separately.
9, (L0.5) Eamings per share is computed as (net income ~ preference dividenés)weighted average of
preference shares outstanding,
10, (L.0. 5) Companies must disclose earnings per share on the face of the income statement
11, (.0.4) ‘The function-ofexpense mathod of classifying expenses is viewed as less arbitrary and less
relevant than the nature-of-expense method.
12, 6.0.4) When expenses are classificd using the funetion-of expense method, functions include cost
‘of goods sold, selling expenses, and administrative expenses, 48 sun ny xe for Ks nem Acreng TRS aon YOURE
FEO Tapas that grow ont oF he “ae oF etatas a REDOING RE BOT TCG o> weer
period adjustments.
Ld (LO. 7) The eect on net income of B29RE 8 sew accounting principle should be disclosed as &
Serrat tem following extzeordnary tems in he MESS statereat
15, 0.7) A change in accounting principle sonsiered appropriate only when tis demonsated that
coe ry edopted principle is preferable to the old ons:
16 (L027) A correction of an eror should not be nade to prior year statements even if shown for
tomparative purposes since the error Was ‘discovered and corrected in the ‘current period.
11. (L.0. 6)_Intraperid tex allocation canses & redvetion in total income tax expense for fhe period in
‘which it is used,
18, (L.0. 5) Earnings per shere measures the number of dollars eaemed by each ordinary stare:
19, (LO. 5) The presentation of earings PH ue is affesed by the existence of por period
adjustments
‘20. 0.8) The statement ofretsned earings provides a reconciliation of the retained earnings account
Cotte begining ofthe yar to the end of the year
21, (LO. 8) The sitement of retained earings shows the total change in stooknokders’ equity for &
specified period.
422, (0.7) Aptos petiod adjustment resus or the comvetion ofan errr in the financial statements of
{Tpror period discovered subsequent to their isumnes:
‘33, (1.0.7) Prior period adjustments should 5c narged or edited to the opening balance of rained
Geena thus, excluded from the determination fof net income for the current period.
2, (L.0. 9). According to the IASB, displaying comprehensive income 2s a part of the statement of
CiStnolders equity is one ofthe acceptable ways) if presenting comprehensive income items
MULTIPLE CHOICE
‘select the best answer for each of the following items and enter the corresponding letter in the spac
provided.
1, (1.0.1), Which of the flfowing would cepresent he least likely wse of an income statement prepart
fora business enterprise?
‘A. Use by customers to determine & company’s ability to provide needed goods =
services,
a. Use by bor unions to examin earnings eases basis for salary discussions.
Bree by government agencies to formulate Se ‘and economic policy.
D. — Useby investors io in the financial position of the entity
2, (L00. 1) The primary reason the incor, sfaternent is So important to investors and eredifor t@
(split to provide information helpftl in
‘A. determining the honesty of those invelvee in ‘managing the enterprise.
feeessing the financial pasiion ofthe ntiy 06 point in time.
Breit the amount, timing, and uncertain of future cash flows.
S —Bgrining, the amount of fore income INE entity may generate from ot
operations.
€ ‘Chapter 4 Income Statement and Reloted Information 49
3. (L.0.1) The income statement reveals:
resourves and equities of firm at a point in time,
resources and equities ofa fir for a period of time.
‘et earnings (aot income) ofa firm at a point in time.
net earings (net income) ofa firm fora period of time.
®
camp
4. (LO. 3) During the year 2012, Siska Comporation had the following information available related to
its income statement:
Disbursements for purchases 630,000
Increase in trade accounts peyable 80,000
Decrease in merchandise inventory 25,000
Cost of goods sold for 2012 amounted to
A. $735,000
B. $685,000
c. $575,000
D. $525,000
5. (L.0. 3) The occurrence that most likely would have no effect on 2012 net income is the:
sale in 2012 of an office building contributed by a stockholder in 1984,
collection in 2012 of a dividend from an investment,
‘correction of an error in the financial statements of a prior period discovered subsequent
{0 their issuance,
stock purchased in 2002 deemed wortaless in 2012,
BP OR>
6. (LO. 2) Which of the following is not among.the items required to be presented on the income
statement?
A. Gross margin,
B. Tax eapense,
©. Netincome,
D. Finance costs or interest expense...
7. (L.0.1) The element of financial statements known as income includes
Gains Losses
A ‘Yes ‘Yes,
B. No No
c. Yes No
D, No Yes
8. (L.0. 5) Which of the following asset disposals would qualify as a discontinued operation?
‘A. Phasing out ofa product tine or class of service.
B. Changes eczasioned by a technological improvement.
C. Sale by an auto parts manufacturer of one of is five parts-manufacturing subsidiaries,
D, Sale by a transportation company ofits bus operations but not its aitine operations,
“S. L.O, 5) Materia gains or losses resulting from the disposition of segrnent of the business should be
reported separately asa component of income
A. aernet income but before comprehensive income.
B. after results from continuing operations ad before net income.
C. before results from continuing operations and as part of administrative expenses.
D. before results from continuing operations and after cost of goods sold 410
Scudent Sad Gulde for Kies Intel
Aesorng IFRS Eo, Vol
— i 6.4 Te
‘ust be material in nature and
42, (0, 3) Shannon,
13. (4.0.6) The net profit or loss
gpouP
UL, (LO. 8) Sh
‘oe classified on an income statement
Mnwsaat
Yes
No
Yes
No
wennon, Inc. decided to
coment 000,000. Shannon, ie.’ tax rae 8 40%
‘atement, what amount will Shannon,
A
B.
c
Dd.
ccurrent year
for the current year was
‘year. What amount of BP
‘year?
poEP
$31,600,000 lo38.
'$960,000 Joss.
'§240,000 gain.
$2,240,000 loss.
rate is 40%.
‘$2,000,000 and the company
$4.00
30.48
$2.40
$0.80
discontinue its plastics
the plastics division lost $600,000, Shannov ‘sold the division at
Inc, decided to discontinue its plastics
“naa vain Yost $600,000. Shannon sid ‘the division
foss of $1,000,000. Skennon, Inc's tx
'S vill Shannon, Inc. report On|
section of the income statement between
rae extraordinary veer, the Transacciau @'¢F=""
Qecur Jnfeeauently
‘Yes
Yes
No
No
