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college accounting a practical approach

Questions and Answers of College Accounting A Practical Approach

Handling adjustments for interest expense and interest income, (p. 556)LO.1
Calculate the interest for the following:a. $10,000 12% 1 yearb. 9,000 13% 7 monthsc. 7,000 10% 80 days LO.1
Find the maturity date of an 80-day note dated March 3 by (a) days in each month and (b) using a days-in-a-year chart.LO.1
Find the maturity date of a note dated March 31, due in five months.LO.1
Which loan would you take if you were in Fred’s place? Why?LO.1
Assume Fred wanted the loan on October LO.1
What is the maturity date for the 90-day loan? The 120-day loan?LO.1
Always cautious, Fred expects slow coffee-by- the-pound sales for October and November, but brisk sales by December. How might his sales expectations affect his decision to take a longer loan?LO.1
No bank deducts interest in advance.LO.1
Discount on Notes Payable is a contra-liability account.LO.1
When Discount on Notes Payable is reduced, Interest Expense results.LO.1
Effective rate of interest is lower than the stated rate.LO.1
Reversing entries are never used to adjust interest at the end of a period of time.LO.1
Notes Payable is a current liability on the balance sheet.LO.1
Notes do not need subsidiary ledgers.LO.1
Interest Income for the payee is Interest Expense for the maker.LO.1
A note that is not paid at maturity is said to be dishonored.LO.1
Notes may be renewed as well as issued to buy assets.LO.1
Maturity value = principal + interest.LO.1
Discount period = number of days from date of discounting until maturity date.LO.1
Bank discount = what the bank charges for holding a note until the matu¬ rity date, as shown in the formula:LO.1 Bank Discount = Maturity Value x Bank Discount Rate No. of Days Bank Holds Note
Proceeds = what one receives from bank in the discounting process (the maturity value minus the bank discount).LO.1
If a discounted note is dishonored, the original holder of the note may be liable for payment unless the note was endorsed without recourse. This lia¬ bility is called contingent liability.LO.1
In discounting one’s own note, the interest is usually deducted in advance.LO.1
The interest that is deducted in advance is recorded in a contra-liability account called Discount on Notes Payable.LO.1
The effective interest rate is higher than the stated rate.LO.1
At the end of the period, adjustments are made for Interest Income and Interest Expense that have accrued or built up. These entries can be reversed on the first day starting the next period to
The interest in the Discount on Notes Payable account is adjusted by reducing the Discount on Notes Payable and recording it as Interest Expense.LO.1
List three reasons why a company may use Notes Payable instead of Accounts Payable.LO.1
Explain the parts of a promissory note.LO.1
What is the difference between finding a maturity date by (a) days or (b) months?LO.1
Notes Receivable is a current liability on the balance sheet. Accept or reject. Why?LO.1
Why is a subsidiary ledger not needed for notes?LO.1
Only matured notes are listed in the Notes Receivable account. Please discuss.LO.1
Explain what will happen if a maker defaults on a note. (Assume the note has not been discounted.)LO.1
List the four steps to arrive at proceeds in the process of discounting a note.LO.1
What is meant by a contingent liability?LO.1
When could interest be deducted in advance by a lender?LO.1
What is the normal balance of the Discount on Notes Payable account?LO.1
How is the effective interest rate calculated?LO.1
How could Discount on Notes Payable be adjusted?LO.1
Calculate the interest for the following:LO.1 a. $17,000 b. $20,000 c. $ 9,000 7% 1 year 10% 7 months 12% 80 days
Determine the maturity date for each of the following without the use of tables:LO.1 Note Issued a. January 17, 20X4 b. July 14, 20X4 c. May 31, 20X4 d. June 25, 20X4 Length of Time 30 days 90 days 4
Use the table in the text (p. 544) to prove your answers for Exercise 15-2.LO.1
On May 15, 20X4, Ralph Co. gave Blue Co. a 180-day, $9,000, 8 percent note. On July 21 Blue Co. discounted the note at 9 percent.a. Journalize the entry for Blue to record the proceeds.b. Record the
Jamie Slater negotiated a bank loan for $30,000 for 120 days at a bank rate of 10 percent. Assuming the interest is deducted in advance, prepare the entry for Jamie to record the bank loan.LO.1
The formal income statement can be prepared from the income statement columns of the worksheet.LO.1
There are no debit or credit columns on the formal income statement.LO.1
The cost of goods sold section has a figure for beginning inventory and a separate figure for ending inventory.LO.1
Operating expenses could be broken down into selling and administrative expenses.LO.1
The ending figure for capital is not found on the worksheet. It comes from the statement of owner’s equity.LO.1
A classified balance sheet breaks assets into current and plant and equip¬ ment. Liabilities are broken down into current and long-term.LO.1
The information for journalizing, adjusting, and closing entries can be obtained from the worksheet.LO.1
In the closing process all temporary accounts will be zero and the capital account is brought up to its new balance.LO.1
Inventory is not a temporary account. The ending inventory, along with other permanent accounts, will be listed in the postclosing trial balance.LO.1
Reversing entries are optional. They could aid in reducing potential errors and can simplify the recordkeeping process.LO.1
The reversing entry “flips” the adjustment on the first day of a new fiscal period. Thus the bookkeeper need not look back at what happened in the old year when recording the current year’s
Reversing entries are only used if (a) assets are increasing and have no previous balance or (b) liabilities are increasing and have no previous balance.LO.1
Which columns of the worksheet aid in the preparation of the income statement?LO.1
Explain the components of cost of goods sold.LO.1
Explain how operating expenses can be broken down into different cate¬ gories.LO.1
What is the difference between current assets and plant and equipment?LO.1
What is an operating cycle?LO.1
Why journalize adjusting entries after the formal reports have been pre¬ pared?LO.1
Explain the steps of closing for a merchandise company.LO.1
Temporary accounts could appear on a postclosing trial balance. Agree or disagree.LO.1
What is the purpose of using reversing entries? Are they mandatory? When should they be used?LO.1
From the following accounts, prepare a cost of goods sold section in proper form: Merchandise Inventory, 12/31 /XI, $6,000; Purchases Discount, $900; Merchandise Inventory, 12/1/XI, $4,000;
Give the category, the classification, and the report(s) on which each of the following appears (for example: Cash—asset, current asset, balance sheet):a. Salaries Payable.e. SIT Payable.b.
From the partial worksheet on page 497, journalize the closing entries of December 31 for A. Slow Co.LO.1
From the worksheet in Exercise 13-3, prepare the assets section of a classi¬ fied balance sheet.LO.1
On December 31, 20X1, $300 of salaries has been accrued. (Salaries before accrued amount totaled $26,000.) The next payroll to be paid will be on February 3, 20X2, for $6,000. Please do the
Set up a general ledger, accounts receivable subsidiary ledger and accounts payable subsidiary ledger, auxiliary petty cash record and payroll register. (Be sure to update ledger accounts based on
Journalize the transactions and prepare the payroll register.LO.1
Update the accounts payable and accounts receivable subsidiary ledgers.LO.1
Post to the general ledger.LO.1
Prepare a trial balance on a worksheet and complete the worksheet.LO.1
Prepare an income statement, statement of owner’s equity, and classified balance sheet.LO.1
Journalize the adjusting and closing entries.LO.1
Post the adjusting and closing entries to the ledger.LO.1
Prepare a postclosing trial balance. LO.1
Complete Form 941 and sign it as of the last day in April.LO.1
Print the following reports:a. General Ledger Trial Balanceb. Aged Receivablesc. Aged Payablesd. Payroll Registere. 941 (FedForm 941 1999/2000) Print this report on plain paper unless you have the
Open the General Journal; then record adjusting journal entries based on the following adjustment data:a. During March, rent expired, $600.b. Truck depreciated, $150.c. Rental income earned, $200
After you have posted the adjusting journal entries, close the General Journal; then print the following reports:a. General Journalb. General Ledger Trial Balancec. General Ledger Reportd. Balance
Compare the Inventory Valuation Report with the one created at the start of this practice set. Note that the first two items, the ones whose cost price changed when we last purchased them, have
Peachtree contains dozens of reports that you could examine at this time. Feel free to experiment with looking at the various report options available to you in the Reports menu.LO.1
A periodic inventory system records the cost of ending inventory at the end of each accounting period.LO.1
A perpetual inventory system keeps a continual update of inventory.LO.1
Sales Returns and Allowances and Sales Discount are contra-revenue accounts.LO.1
Net Sales = Gross Sales - Sales Returns and Allowances - Sales Discounts.LO.1
Discounts are not taken on sales tax, freight, or goods returned. The dis¬ count period is shorter than the credit period LO.1
A general journal is still used with special journals.LO.1
A sales journal records sales on account.LO.1
The accounts receivable subsidiary ledger, organized in alphabetical order, is not in the same book as Accounts Receivable, the controlling account in the general ledger.LO.1
At the end of the month the total of all customers’ ending balances in the accounts receivable subsidiary ledger should be equal to the ending bal¬ ance in Accounts Receivable, the controlling
The / in the PR column of the sales journal means a customer’s account in the accounts receivable ledger (or the accounts receivable subsidiary ledger) (on the debit side) has been updated (or
At the end of the month the totals of the sales journal are posted to general ledger accounts.LO.1
Sales Tax Payable is a liability found in the general ledger.LO.1
When a credit memorandum is issued, the result is that Sales Returns and Allowances is increasing and Accounts Receivable is decreasing. When we record this entry into a general journal, we assume

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