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How can information based on past transactions be used to predict future cash flows?
What kinds of questions about future cash flows do investors and creditors attempt to answer with information in the income statement?
Instructions
\r\nGo to the book’s companion website and use information found there to answer the following questions related to The Coca-Cola Company and PepsiCo, Inc.
\r\n(a) Which company had the greater percentage increase in total assets from 2010 to 2011?
\r\n(b) Using the Selected Financial Data section of these two companies, determine their 5-year average growth rates related to net sales and income from continuing operations.
\r\n(c) Which company had more depreciation and amortization expense for 2011? Provide a rationale as to why there is a difference in these amounts between the two companies.
The financial statements of Marks and Spencer plc (M&S) are available at the book’s companion website or can be accessed at http://annualreport.marksandspencer.com/_assets/downloads/Marksand- Spencer-Annual-report-and-financial-statements-2012.pdf.
\r\nInstructions
\r\nRefer to M&S’s financial statements and the accompanying notes to answer the following questions.
\r\n(a) What were M&S’s total assets at 31 March 2012? At 2 April 2011?
\r\n(b) How much cash (and cash equivalents) did M&S have on 31 March 2012?
\r\n(c) What were M&S’s selling and marketing expenses in 2012? In 2011?
\r\n(d) What were M&S’s revenues in 2012? In 2011?
\r\n(e) Using M&S’s financial statements and related notes, identify items that may result in adjusting
\r\nentries for prepayments and accruals.
\r\n(f) What were the amounts of M&S’s depreciation and amortization expense in 2011 and 2012?
Recording transactions in the accounting system requires knowledge of the important characteristics of the elements of financial statements, such as assets and liabilities. In addition, accountants must understand the inherent uncertainty in accounting measures and distinctions between related accounting concepts that are important in evaluating the effects of transactions on the financial statements.
\r\nInstructions
\r\nAccess the IASB Framework at the IASB website (http://eifrs.iasb.org/). (Click on the IFRS tab and then register for free eIFRS access if necessary.) When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following items. (Provide paragraph citations.)
\r\n(a) Provide the definition of an asset and discuss how the economic benefits embodied in an asset might flow to a company.
\r\n(b) Provide the definition of a liability and discuss how a company might satisfy a liability.
\r\n(c) What is “accrual basis”? How do adjusting entries illustrate application of the accrual basis?
Becker Ltd. is planning to adopt IFRS and prepare its first IFRS financial statements at December
\r\n31, 2015. What is the date of Becker’s opening balance sheet, assuming one year of comparative information? What periods will be covered in Becker’s first IFRS financial statements?
What are the steps to be completed in preparing the opening IFRS statement of financial position?
What are the characteristics of high-quality information in a company’s first IFRS financial statements?
How is the date of transition and the date of reporting determined in first-time adoption of IFRS?
Recording transactions in the accounting system requires knowledge of the important characteristics of the elements of financial statements, such as assets and liabilities. In addition, accountants must understand the inherent uncertainty in accounting measures and distinctions between related accounting concepts that are important in evaluating the effects of transactions on the financial statements.
\r\nInstructions
\r\nGo to http://aaahq.org/asclogin.cfm to log in and provide explanations for the following items. (Provide paragraph citations.) When you have accessed the documents, you can use the search tool in your Internet browser.
\r\n(a) The three essential characteristics of assets.
\r\n(b) The three essential characteristics of liabilities.
\r\n(c) Uncertainty and its effect on financial statements.
\r\n(d) The difference between realization and recognition.
Cooke Company has a fiscal year ending on September 30. Selected data from the September 30 worksheet are presented below.
\r\n\r\n
Instructions
\r\n(a) Prepare a complete worksheet.
\r\n(b) Prepare a classified balance sheet. (Note: $10,000 of the mortgage payable is due for payment in the next fiscal year.)
\r\n(c) Journalize the adjusting entries using the worksheet as a basis.
\r\n(d) Journalize the closing entries using the worksheet as a basis.
\r\n(e) Prepare a post-closing trial balance.
On January 1, 2014, Norma Smith and Grant Wood formed a computersales and service company in Soapsville, Arkansas, by investing $90,000 cash. The new company,Arkansas
\r\nSales and Service, has the following transactions during January.
\r\n1. Pays $6,000 in advance for 3 months’ rent of office, showroom, and repair space.
\r\n2. Purchases 40 personal computers at a cost of $1,500 each, 6 graphics computers at a cost of $2,500 each, and 25 printers at a cost of $300 each, paying cash upon delivery.
\r\n3. Sales, repair, and office employees earn $12,600 in salaries and wages during January, of which $3,000 was still payable at the end of January.
\r\n4. Sells 30 personal computers at $2,550 each, 4 graphics computers for $3,600 each, and 15 printers for $500 each; $75,000 is received in cash in January, and $23,400 is sold on a deferred payment basis.
\r\n5. Other operating expenses of $8,400 are incurred and paid for during January; $2,000 of incurred expenses are payable at January 31.
\r\nInstructions
\r\n(a) Using the transaction data above, prepare (1) a cash-basis income statement and (2) an accrual-basis income statement for the month of January.
\r\n(b) Using the transaction data above, prepare (1) a cash-basis balance sheet and (2) an accrual-basis balance sheet as of January 31, 2014.
\r\n(c) Identify the items in the cash-basis financial statements that make cash-basis accounting inconsistent with the theory underlying the elements of financial statements.
Presented below is the December 31 trial balance of New York Boutique.
\r\n\r\n
Instructions
\r\n(a) Construct T-accounts and enter the balances shown.
\r\n(b) Prepare adjusting journal entries for the following and post to the T-accounts. (Omit explanations.)
\r\nOpen additional T-accounts as necessary. (The books are closed yearly on December 31.)
\r\n(1) Bad debt expense is estimated to be $1,400.
\r\n(2) Equipment is depreciated based on a 7-year life (no salvage value).
\r\n(3) Insurance expired during the year $2,550.
\r\n(4) Interest accrued on notes payable $3,360.
\r\n(5) Sales salaries and wages earned but not paid $2,400.
\r\n(6) Advertising paid in advance $700.
\r\n(7) Office supplies on hand $1,500, charged to Supplies Expense when purchased.
\r\n(c) Prepare closing entries and post to the accounts.
Presented below is the trial balance of the Crestwood Golf Club, Inc. as of
\r\nDecember 31. The books are closed annually on December 31.
\r\n\r\n
Instructions
\r\n(a) Enter the balances in ledger accounts. Allow five lines for each account.
\r\n(b) From the trial balance and the information given below, prepare annual adjusting entries and post to the ledger accounts. (Omit explanations.)
\r\n(1) The buildings have an estimated life of 30 years with no salvage value (straight-line method).
\r\n(2) The equipment is depreciated at 10% per year.
\r\n(3) Insurance expired during the year $3,500.
\r\n(4) The rent revenue represents the amount received for 11 months for dining facilities. The December rent has not yet been received.
\r\n(5) It is estimated that 12% of the accounts receivable will be uncollectible.
\r\n(6) Salaries and wages earned but not paid by December 31, $3,600.
\r\n(7) Dues received in advance from members $8,900.
\r\n(c) Prepare an adjusted trial balance.
\r\n(d) Prepare closing entries and post.
Vedula Advertising Agency was founded by Murali Vedula in January 2009. Presented on the next page are both the adjusted and unadjusted trial balances as of December 31, 2014.
\r\n\r\n
Instructions
\r\n(a) Journalize the annual adjusting entries that were made.
\r\n(b) Prepare an income statement and a retained earnings statement for the year ended December 31, and a classified balance sheet at December 31.
\r\n(c) Identify which accounts should be closed on December 31.
\r\n(d) If the note has been outstanding 10 months, what is the annual interest rate on that note?
\r\n(e) If the company paid $10,500 in salaries and wages in 2014, what was the balance in Salaries and
\r\nWages Payable on December 31, 2013?
Rolling Hills Golf Inc. was organized on July 1, 2014. Quarterly financial statements are prepared. The unadjusted trial balance and adjusted trial balance on September 30 are shown here.
\r\n\r\n
Instructions
\r\n(a) Journalize the adjusting entries that were made.
\r\n(b) Prepare an income statement and a retained earnings statement for the 3 months ending September 30 and a classified balance sheet at September 30.
\r\n(c) Identify which accounts should be closed on September 30.
\r\n(d) If the note bears interest at 12%, how many months has it been outstanding?
The following are the trial balance and the other information related to Yorkis Perez, a consulting engineer.
\r\n\r\n
1. Fees received in advance from clients $6,000.
\r\n2. Services performed for clients that were not recorded by December 31, $4,900.
\r\n3. Bad debt expense for the year is $1,430.
\r\n4. Insurance expired during the year $480.
\r\n5. Equipment is being depreciated at 10% per year.
\r\n6. Yorkis Perez gave the bank a 90-day, 10% note for $7,200 on December 1, 2014.
\r\n7. Rent of the building is $750 per month. The rent for 2014 has been paid, as has that for January 2015.
\r\n8. Office salaries and wages earned but unpaid December 31, 2014, $2,510.
\r\nInstructions
\r\n(a) From the trial balance and other information given, prepare annual adjusting entries as of December 31, 2014. (Omit explanations.)
\r\n(b) Prepare an income statement for 2014, a statement of owner’s equity, and a classified balance sheet.
\r\nYorkis Perez withdrew $17,000 cash for personal use during the year.
The accounts listed below appeared in the December 31 trial balance of the Savard Theater.
\r\n\r\n
Instructions
\r\n(a) From the account balances listed above and the information given below, prepare the annual adjusting entries necessary on December 31. (Omit explanations.)
\r\n(1) The equipment has an estimated life of 16 years and a salvage value of $24,000 at the end of that time. (Use straight-line method.)
\r\n(2) The note payable is a 90-day note given to the bank October 20 and bearing interest at 8%. (Use
\r\n360 days for denominator.)
\r\n(3) In December, 2,000 coupon admission books were sold at $30 each. They could be used for admission any time after January 1.
\r\n(4) Advertising expense paid in advance and included in Advertising Expense $1,100.
\r\n(5) Salaries and wages accrued but unpaid $4,700.
\r\n(b) What amounts should be shown for each of the following on the income statement for the year?
\r\n(1) Interest expense. (3) Advertising expense.
\r\n(2) Admissions revenue. (4) Salaries and wages expense.
The trial balance of Bellemy Fashion Center contained the following accounts at November 30, the end of the company’s fiscal year.
\r\n\r\n
Adjustment data:
\r\n1. Supplies on hand totaled $1,500.
\r\n2. Depreciation is $15,000 on the equipment.
\r\n3. Interest of $11,000 is accrued on notes payable at November 30.
\r\nOther data:
\r\n1. Salaries expense is 70% selling and 30% administrative.
\r\n2. Rent expense and utilities expenses are 80% selling and 20% administrative.
\r\n3. $30,000 of notes payable are due for payment next year.
\r\n4. Maintenance and repairs expense is 100% administrative.
\r\nInstructions
\r\n(a) Journalize the adjusting entries.
\r\n(b) Prepare an adjusted trial balance.
\r\n(c) Prepare a multiple-step income statement and retained earnings statement for the year and a classified
\r\nbalance sheet as of November 30, 2014.
\r\n(d) Journalize the closing entries.
\r\n(e) Prepare a post-closing trial balance.
A review of the ledger of Baylor Company at December 31, 2014, produces the following data pertaining to the preparation of annual adjusting entries.
\r\n1. Salaries and Wages Payable $0. There are eight employees. Salaries and wages are paid every Friday for the current week. Five employees receive $700 each per week, and three employees earn $600 each per week. December 31 is a Tuesday. Employees do not work weekends. All employees worked the last 2 days of December.
\r\n2. Unearned Rent Revenue $429,000. The company began subleasing office space in its new building on
\r\nNovember 1. Each tenant is required to make a $5,000 security deposit that is not refundable until occupancy is terminated. At December 31, the company had the following rental contracts that are paid in full for the entire term of the lease.
\r\nDate Term (in months) Monthly Rent Number of Leases
\r\nNov. 1 6 $6,000 5
\r\nDec. 1 6 $8,500 4
\r\n3. Prepaid Advertising $13,200. This balance consists of payments on two advertising contracts. The contracts provide for monthly advertising in two trade magazines. The terms of the contracts are asshown below.
\r\nContract Date Amount Number of Magazine Issues
\r\nA650 May 1 $6,000 12
\r\nB974 Oct. 1 7,200 24
\r\nThe first advertisement runs in the month in which the contract is signed.
\r\n4. Notes Payable $60,000. This balance consists of a note for one year at an annual interest rate of
\r\n12%, dated June 1.
\r\nInstructions
\r\nPrepare the adjusting entries at December 31, 2014. (Show all computations).
Mason Advertising Agency was founded in January
\r\n2010. Presented below are adjusted and unadjusted trial balances as of December 31, 2014.
\r\n\r\n
Instructions
\r\n(a) Journalize the annual adjusting entries that were made. (Omit explanations.)
\r\n(b) Prepare an income statement and a statement of retained earnings for the year ending December 31, 2014, and an unclassified balance sheet at December 31.
\r\n(c) Answer the following questions.
\r\n(1) If the note has been outstanding 3 months, what is the annual interest rate on that note?
\r\n(2) If the company paid $12,500 in salaries and wages in 2014, what was the balance in Salaries and
\r\nWages Payable on December 31, 2013?
Listed below are the transactions of
\r\nYasunari Kawabata, D.D.S., for the month of September.
\r\nSept. 1 Kawabata begins practice as a dentist and invests $20,000 cash.
\r\n2 Purchases dental equipment on account from Green Jacket Co. for $17,280.
\r\n4 Pays rent for office space, $680 for the month.
\r\n4 Employs a receptionist, Michael Bradley.
\r\n5 Purchases dental supplies for cash, $942.
\r\n8 Receives cash of $1,690 from patients for services performed.
\r\n10 Pays miscellaneous office expenses, $430.
\r\n14 Bills patients $5,820 for services performed.
\r\n18 Pays Green Jacket Co. on account, $3,600. 19 Withdraws $3,000 cash from the business for personal use. 20 Receives $980 from patients on account.
\r\n25 Bills patients $2,110 for services performed.
\r\n30 Pays the following expenses in cash: Salaries and wages $1,800; miscellaneous office expenses $85.
\r\n30 Dental supplies used during September, $330.
\r\nInstructions
\r\n(a) Enter the transactions shown above in appropriate general ledger accounts (use T-accounts). Use the following ledger accounts: Cash, Accounts Receivable, Supplies, Equipment, Accumulated
\r\nDepreciation—Equipment, Accounts Payable, Owner’s Capital, Service Revenue, Rent Expense,
\r\nOffice Expense, Salaries and Wages Expense, Supplies Expense, Depreciation Expense, and Income Summary. Allow 10 lines for the Cash and Income Summary accounts, and 5 lines for each of the other accounts needed. Record depreciation using a 5-year life on the equipment, the straight-line method, and no salvage value. Do not use a drawing account.
\r\n(b) Prepare a trial balance.
\r\n(c) Prepare an income statement, a statement of owner’s equity, and an unclassified balance sheet.
\r\n(d) Close the ledger.
\r\n(e) Prepare a post-closing trial balance.
\r\n
Jurassic Park Co. prepares monthly financial statements from a worksheet. Selected portions of the January worksheet showed the following data.
\r\n\r\n
During February, no events occurred that affected these accounts. But at the end of February, the following information was available.
\r\n(a) Supplies on hand $715
\r\n(b) Monthly depreciation $257
\r\n(c) Accrued interest $ 50
\r\n\r\n
The adjusted trial balance for Ed Bradley Co. is presented in the following worksheet for the month ended April 30, 2014.
\r\n\r\n
Instructions
\r\nComplete the worksheet and prepare a classified balance sheet.
Presented below are selected accounts for Alvarez Company as reported in the worksheet
\r\nat the end of May 2014.
\r\n\r\n
Instructions
\r\nComplete the worksheet by extending amounts reported in the adjusted trial balance to the appropriate
\r\ncolumns in the worksheet. Do not total individual columns.
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