Chapter 3 solution

Topics: Generally Accepted Accounting Principles, Revenue, Balance sheet Pages: 81 (12395 words) Published: October 31, 2014
ANSWERS TO QUESTIONS
1. Examples are:
(a) Payment of an accounts payable.
(b) Collection of an accounts receivable from a customer.
(c) Transfer of an accounts payable to a note payable.
2. Transactions (a), (b), (d) are considered business transactions and are recorded in the accounting records because a change in assets, liabilities, or owners’/stockholders’ equity has been effected as a result of a transfer of values from one party to another. Transactions (c) and (e) are not business transactions because a transfer of values has not resulted, nor can the event be considered financial in nature and capable of being expressed in terms of money. 3. Transaction (a):

Transaction (b):
Transaction (c):
Transaction (d):

Accounts Receivable (debit), Service Revenue (credit).
Cash (debit), Accounts Receivable (credit).
Supplies (debit), Accounts Payable (credit).
Delivery Expense (debit), Cash (credit).

4. Revenue and expense accounts are referred to as temporary or nominal accounts because each period they are closed out to Income Summary in the closing process. Their balances are reduced to zero at the end of the accounting period; therefore, the term temporary or nominal is given to these accounts.

5. Andrea is not correct. The double-entry system means that for every debit amount there must be a credit amount and vice-versa. At least two accounts are affected and debits must equal credits. It does not mean that each transaction must be recorded twice.

6. Although it is not absolutely necessary that a trial balance be taken periodically, it is customary and desirable. The trial balance accomplishes two principal purposes: (1) It tests the accuracy of the entries in that it proves that debits and credits of an equal amount are in the ledger.

(2) It provides a list of ledger accounts and their balances which may be used in preparing the financial statements and in supplying financial data about the concern. 7. (a) Real account; balance sheet.

(b) Real account; balance sheet.
(c) Inventory is generally considered a real account appearing on the balance sheet. (Note: Inventory has the elements of a nominal account when the periodic inventory system is used. It may appear on the income statement when the multiple-step format is used under a periodic inventory system.)

(d) Real account; balance sheet.
(e) Real account; balance sheet.
(f) Nominal account; income statement.
(g) Nominal account; income statement.
(h) Real account; balance sheet.
8. At December 31, the three days’ wages due to the employees represent a current liability. The related expense must be recorded in this period to properly reflect the expense incurred. 9. (a) In a service company, revenues are service revenues and expenses are operating expenses. In a merchandising company, revenues are sales revenues and expenses consist of cost of goods sold plus operating expenses.

(b) The measurement process in a merchandising company consists of comparing the sales price of the merchandise inventory to the cost of goods sold and operating expenses.

Copyright © 2013 John Wiley & Sons, Inc.

Kieso, Intermediate Accounting, 15/e, Solutions Manual

(For Instructor Use Only)

3-1

Questions Chapter 3 (Continued)
10. (a)
(b)
(c)
(d)

No change.
Before closing, balances exist in these accounts; after closing, no balances exist. Before closing, balances exist in these accounts; after closing, no balances exist. Before closing, a balance exists in this account exclusive of any dividends or the net income or net loss for the period; after closing, the balance is increased or decreased by the amount of net income or net loss, and decreased by dividends declared.

(e) No change.

11. Adjusting entries are prepared prior to the preparation of financial statements in order to bring the accounts up to date and are necessary (1) to achieve a proper recognition of revenues and expenses in measuring income and (2) to achieve an accurate...
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