Financial Accounting - Weygandt - Kimmel - Kieso - Solution Manual Completing the Accounting Cycle PDF

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Completing the Accounting Cycle...

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CHAPTER 4 Completing the Accounting Cycle ASSIGNMENT CLASSIFICATION TABLE Exercises

A Problems

B Problems

1, 2, 3

1, 2, 3, 5, 6, 17

1A, 2A, 3A, 4A, 5A

1B, 2B, 3B, 4B, 5B

6, 7, 11, 12

4, 5, 6

4, 7, 8, 11, 19

1A, 2A, 3A, 4A, 5A

1B, 2B, 3B, 4B, 5B

*3. Describe the content and purpose of a post-closing trial balance.

8, 9

7

4, 7, 8

1A, 2A, 3A, 4A, 5A

1B, 2B, 3B, 4B, 5B

*4. State the required steps in the accounting cycle.

10, 11, 12

8

10, 19

5A

5B

*5. Explain the approaches to preparing correcting entries.

13

9

12, 13

6A

*6. Identify the sections of a classified balance sheet.

14, 15, 16, 17, 18

10, 11

3, 9, 14 15, 16, 17

1A, 2A, 3A, 4A, 5A

*7. Prepare reversing entries.

10, 19, 20

12

18, 19

Study Objectives

Questions

*1. Prepare a worksheet.

1, 2, 3, 4, 5

*2. Explain the process of closing the books.

Brief Exercises

1B, 2B, 3B, 4B, 5B

*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix *to the chapter.

4-1

ASSIGNMENT CHARACTERISTICS TABLE Problem Number

Description

Difficulty Level

Time Allotted (min.)

Simple

40–50

1A

Prepare worksheet, financial statements, and adjusting and closing entries.

2A

Complete worksheet; prepare financial statements, closing entries, and post-closing trial balance.

Moderate

50–60

3A

Prepare financial statements, closing entries, and postclosing trial balance.

Moderate

40–50

4A

Complete worksheet; prepare classified balance sheet, entries, and post-closing trial balance.

Moderate

50–60

5A

Complete all steps in accounting cycle.

Complex

70–90

6A

Analyze errors and prepare correcting entries and trial balance.

Moderate

40–50

1B

Prepare worksheet, financial statements, and adjusting and closing entries.

Simple

40–50

2B

Complete worksheet; prepare financial statements, closing entries, and post-closing trial balance.

Moderate

50–60

3B

Prepare financial statements, closing entries, and postclosing trial balance.

Moderate

40–50

4B

Complete worksheet; prepare classified balance sheet, entries, and post-closing trial balance.

Moderate

50–60

5B

Complete all steps in accounting cycle.

Complex

70–90

Comprehensive Problem: Chapters 2 to 4

4-2

Study Objective

Knowledge

Comprehension

Application

Analysis

*1. Prepare a worksheet.

BE4-1

Q4-1 Q4-2 Q4-3 Q4-4 Q4-5 BE4-3

E4-1 E4-2 E4-3 E4-17 P4-2A P4-3A

P4-2B BE4-2 P4-3B E4-5 E4-6 P4-1A P4-4A P4-5A

P4-1B P4-4B P4-5B

*2. Explain the process of closing the books.

Q4-6 Q4-11 Q4-12

Q4-7

BE4-4 BE4-5 BE4-6 E4-4 E4-7 E4-8

E4-11 E4-19 P4-2A P4-1A P4-3A P4-4A P4-2B P4-5A P4-3B P4-1B

P4-4B P4-5B

Q4-8 Q4-9 BE4-7

E4-4 E4-7 E4-8 P4-2A

P4-3A P4-1A P4-2B P4-4A P4-3B P4-5A

P4-1B P4-4B P4-5B

*3. Describe the content and purpose of a post-closing trial balance.

4-3

*4. State the required steps in the accounting cycle.

Q4-11 Q4-12 BE4-8

*5. Explain the approaches to preparing correcting entries.

*6. Identify the sections of a classified balance sheet.

Q4-14 Q4-15 Q4-16

Q4-10 E4-10

E4-19 P4-5A P4-5B

Q4-13

BE4-9 E4-12 E4-13 P4-6A

Q4-17 Q4-18 BE4-11 E4-15

BE4-10 E4-3 E4-9 E4-14 E4-16

E4-17 P4-1A P4-2A P4-4A P4-3A P4-5A P4-2B P4-1B P4-3B

Synthesis

Evaluation

P4-4B P4-5B

*7. Prepare reversing entries.

Q4-10 Q4-19

Q4-20 BE4-12

E4-18 E4-19

Broadening Your Perspective

Communication Exploring the Web

Financial Reporting Decision Making Across the Organization Comparative Analysis

All About You Ethics Case Exploring the Web

BLOOM’S TAXONOMY TABLE

Correlation Chart between Bloom’s Taxonomy, Study Objectives and End-of-Chapter Exercises and Problems

ANSWERS TO QUESTIONS 1.

No. A worksheet is not a permanent accounting record. The use of a worksheet is an optional step in the accounting cycle.

2.

The worksheet is merely a device used to make it easier to prepare adjusting entries and the financial statements.

3.

The amount shown in the adjusted trial balance column for an account equals the account balance in the ledger after adjusting entries have been journalized and posted.

4.

The net income of $12,000 will appear in the income statement debit column and the balance sheet credit column. A net loss will appear in the income statement credit column and the balance sheet debit column.

5.

Formal financial statements are needed because the columnar data are not properly arranged and classified for statement purposes. For example, a drawing account is listed with assets.

6.

(1) (2) (3) (4)

7.

Income Summary is a temporary account that is used in the closing process. The account is debited for expenses and credited for revenues. The difference, either net income or loss, is then closed to the owner’s capital account.

8.

The post-closing trial balance contains only balance sheet accounts. Its purpose is to prove the equality of the permanent account balances that are carried forward into the next accounting period.

9.

The accounts that will not appear in the post-closing trial balance are Depreciation Expense; Jennifer Shaeffer, Drawing; and Service Revenue.

10.

A reversing entry is the exact opposite, both in amount and in account titles, of an adjusting entry and is made at the beginning of the new accounting period. Reversing entries are an optional step in the accounting cycle.

11.

The steps that involve journalizing are: (1) journalize the transactions, (2) journalize the adjusting entries, and (3) journalize the closing entries.

12.

The three trial balances are the: (1) trial balance, (2) adjusted trial balance, and (3) post-closing trial balance.

13.

Correcting entries differ from adjusting entries because they: (1) are not a required part of the accounting cycle, (2) may be made at any time, and (3) may affect any combination of accounts.

(Dr) Individual revenue accounts and (Cr) Income Summary. (Dr) Income Summary and (Cr) Individual expense accounts. (Dr) Income Summary and (Cr) Owner’s Capital (for net income). (Dr) Owner’s Capital and (Cr) Owner’s Drawing.

4-4

Questions Chapter 4 (Continued)

*14. The standard classifications in a balance sheet are: Assets Current Assets Long-term Investments Property, Plant, and Equipment Intangible Assets

Liabilities and Owner’s Equity Current Liabilities Long-term Liabilities Owner’s Equity

*15. A company’s operating cycle is the average time required to go from cash to cash in producing revenues. The operating cycle of a company is the average time that it takes to purchase inventory, sell it on account, and then collect cash from customers. *16. Current assets are assets that a company expects to convert to cash or use up in one year. Some companies use a period longer than one year to classify assets and liabilities as current because they have an operating cycle longer than one year. Companies usually list current assets in the order in which they expect to convert them into cash. *17. Long-term investments are generally investments in stocks and bonds of other companies that are normally held for many years. Property, plant, and equipment are assets with relatively long useful lives that a company is currently using in operating the business. *18. (a) The owner’s equity section for a corporation is called stockholders’ equity. (b) The two accounts and the purpose of each are: (1) Capital stock is used to record investments of assets in the business by the owners (stockholders). (2) Retained earnings is used to record net income retained in the business. * *19. After reversing entries have been made, the balances will be Interest Payable, zero balance; Interest Expense, a credit balance. *20. (a) Jan. 10

Salaries Expense .................................................................................... Cash ................................................................................................

8,000 8,000

Because of the January 1 reversing entry that credited Salaries Expense for $3,500, Salaries Expense will have a debit balance of $4,500 which equals the expense for the current period. (b)

Jan. 10

Salaries Payable ..................................................................................... Salaries Expense .................................................................................... Cash ................................................................................................

Note that Salaries Expense will again have a debit balance of $4,500.

4-5

3,500 4,500 8,000

SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 4-1 The steps in using a worksheet are performed in the following sequence: (1) prepare a trial balance on the worksheet, (2) enter adjustment data, (3) enter adjusted balances, (4) extend adjusted balances to appropriate statement columns and (5) total the statement columns, compute net income (loss), and complete the worksheet. Filling in the blanks, the answers are 1, 3, 4, 5, 2. The solution to BRIEF EXERCISE 4-2 is on page 4-7. BRIEF EXERCISE 4-3 Account Accumulated Depreciation Depreciation Expense N. Batan, Capital N. Batan, Drawing Service Revenue Supplies Accounts Payable

Income Statement Dr. Cr.

Balance Sheet Dr. Cr. X

X X X X X X

BRIEF EXERCISE 4-4 Dec. 31 31

31 31

Service Revenue ...................................................... Income Summary............................................

50,000

Income Summary..................................................... Salaries Expense ............................................ Supplies Expense...........................................

31,000

Income Summary..................................................... D. Swann, Capital............................................

19,000

D. Swann, Capital .................................................... D. Swann, Drawing.........................................

2,000

4-6

50,000 27,000 4,000 19,000 2,000

BRIEF EXERCISE 4-2

LEY COMPANY Worksheet Trial Balance 4-7

Account Titles Prepaid Insurance Service Revenue Salaries Expense Accounts Receivable Salaries Payable Insurance Expense

Dr.

Cr.

Dr.

3,000 58,000 25,000

Adjusted Trial Balance

Adjustments Cr.

Dr.

(a) 1,200 (b) 1,100

1,800

(c) 800 (b) 1,100

Dr.

800

Dr.

Cr.

59,100 25,800 1,100

800 1,200

Cr.

Balance Sheet 1,800

59,100 25,800 1,100

(c) (a) 1,200

Cr.

Income Statement

800 1,200

BRIEF EXERCISE 4-5 Salaries Expense 27,000 (2) 27,000

Income Summary (2) 31,000 (1) 50,000 (3) 19,000 50,000 50,000

Service Revenue (1) 50,000 50,000

Supplies Expense 4,000 (2) 4,000

D. Swann, Capital (4) 2,000 30,000 (3) 19,000 Bal. 47,000

D. Swann, Drawing 2,000 (4) 2,000

BRIEF EXERCISE 4-6 July 31 31

Green Fee Revenue ................................................. Income Summary.............................................

13,600

Income Summary ..................................................... Salaries Expense............................................. Maintenance Expense....................................

10,700

13,600 8,200 2,500

Green Fee Revenue Date 7/31 7/31

Date 7/31 7/31

Explanation Balance Closing entry

Explanation

Ref.

Debit

Credit 13,600

Balance 13,600 0

Credit

Balance

8,200

8,200 0

13,600 Salaries Expense Ref. Debit

Balance Closing entry

8,200

4-8

BRIEF EXERCISE 4-6 (Continued)

Date 7/31 7/31

Explanation

Maintenance Expense Ref. Debit

Balance Closing entry

Credit

Balance

2,500

2,500 0

2,500

BRIEF EXERCISE 4-7 The accounts that will appear in the post-closing trial balance are: Accumulated Depreciation N. Batan, Capital Supplies Accounts Payable

BRIEF EXERCISE 4-8 The proper sequencing of the required steps in the accounting cycle is as follows: 1. 2. 3. 4. 5. 6. 7. 8. 9.

Analyze business transactions. Journalize the transactions. Post to ledger accounts. Prepare a trial balance. Journalize and post adjusting entries. Prepare an adjusted trial balance. Prepare financial statements. Journalize and post closing entries. Prepare a post-closing trial balance.

Filling in the blanks, the answers are 4, 2, 8, 7, 5, 3, 9, 6, 1.

4-9

BRIEF EXERCISE 4-9 1. 2.

Service Revenue............................................................................. Accounts Receivable ...........................................................

780

Accounts Payable ($1,750 – $1,570) ........................................ Store Supplies........................................................................

180

780 180

BRIEF EXERCISE 4-10 DIAZ COMPANY Partial Balance Sheet Current assets Cash......................................................................................................... Short-term investments .................................................................... Accounts receivable........................................................................... Supplies.................................................................................................. Prepaid insurance............................................................................... Total current assets...................................................................

$15,400 6,700 12,500 5,200 3,600 $43,400

BRIEF EXERCISE 4-11 CL CA PPE PPE CA IA

Accounts payable Accounts receivable Accumulated depreciation Building Cash Copyrights

CL Income tax payable LTI Investment in long-term bonds PPE Land CA Merchandise inventory IA Patent CA Supplies

*BRIEF EXERCISE 4-12 Nov. 1

Salaries Payable ................................................................... Salaries Expense.........................................................

1,400 1,400

The balances after posting the reversing entry are Salaries Expense (Cr.) $1,400 and Salaries Payable $0. 4-10

SOLUTIONS TO EXERCISES EXERCISE 4-1 BRISCOE COMPANY Worksheet For the Month Ended June 30, 2008 Account Titles

Trial Balance Dr.

Cash

Cr.

Adjustments Dr.

Adj. Trial Balance

Cr.

Dr.

Cr.

Income Statement Dr.

Cr.

Balance Sheet Dr.

2,320

2,320

2,320

2,440

2,440

2,440

Cr.

Accounts Receivable Supplies

1,880

Accounts Payable

1,580

300

1,120

300 1,120

1,120

100

100

Unearned Revenue

240

140

Lenny Briscoe, Capital

3,600

Service Revenue Salaries Expense

3,600

2,400 560

140

3,600

2,540

280

2,540

840

840

160

160

Miscellaneous Expense Totals Supplies Expense

160 7,360

7,360 1,580

Salaries Payable Totals

1,580 280

2,000

2,000

1,580 280

7,640

7,640

280 2,580

2,540 40

40

2,580

2,580

5,100

Net Loss Totals

4-11

5,060

5,100 5,100

EXERCISE 4-2 GOODE COMPANY (Partial) Worksheet For the Month Ended April 30, 2008 Adjusted Trial Balance Account Titles Cash Accounts Receivable Prepaid Rent Equipment Accum. Depreciation Notes Payable Accounts Payable T. Goode, Capital T. Goode, Drawing Service Revenue Salaries Expense Rent Expense Depreciation Expense Interest Expense Interest Payable Totals Net Income Totals

Dr. 13,752 7,840 2,280 23,050

Cr.

Income Statement Dr.

Cr.

Balance Sheet Dr. 13,752 7,840 2,280 23,050

4,921 5,700 5,672 30,960

4,921 5,700 5,672 30,960

3,650

3,650 15,590

10,840 760 671 57 62,900

Cr.

15,590 10,840 760 671 57

57 62,900

4-12

12,328 3,262 15,590

15,590

50,572

15,590

50,572

57 47,310 3,262 50,572

EXERCISE 4-3 GOODE COMPANY Income Statement For the Month Ended April 30, 2008 Revenues Service revenue.................................................................. Expenses Salaries expense ................................................................ Rent expense ...................................................................... Depreciation expense....................................................... Interest expense................................................................. Total expenses........................................................... Net income....................................................................................

$15,590 $10,840 760 671 57 12,328 $ 3,262

GOODE COMPANY Owner’s Equity Statement For the Month Ended April 30, 2008 T. Goode, Capital, ...