1. Listed as follows are eight technical accounting terms introduced in this chapter:

Realization principle

Credit

Time period principle

Accounting period

Matching principle

Expenses

Net income

Accounting cycle

Each of the following statements may (or may not) describe one of these technical terms. For each statement, indicate the term described, or answer "None" if the statement does not correctly describe any of the terms.

a. The span of time covered by an income statement.

b. The sequence of accounting procedures used to record, classify, and summarize accounting information.

c. The traditional accounting practice of resolving uncertainty by choosing the solution that leads to the lowest amount of income being recognized.

d. An increase in owners' equity resulting from profitable operations.

e. The underlying accounting principle that determines when revenue should be recorded in the accounting records.

f. The type of entry used to decrease an asset or increase a liability or owners' equity account.

g. The underlying accounting principle of offsetting revenue earned during an accounting period with the expenses incurred in generating that revenue.

h. The costs of the goods and services used up in the process of generating revenue.

2. The following information came from a recent balance sheet of The Coca Cola, Co.

End of Year Beginning of Year

Assets............................................................................$87.9 billion $87.3 billion

Liabilities........................................................................ $68.9 billion ?

Owners' Equity................................................................ ? $23.2 billion

a. Determine the amount of total liabilities reported in Coca Cola's balance sheet at the beginning of the year.

b. Determine the amount of total owners' equity reported in Coca Cola's balance sheet at the end of the year.

c. Retained earnings was reported in Coca Cola's year-end balance sheet at $60.4 billion. If retained earnings was $65.5 billion at the beginning of the year, determine net income for the year if a $6.3 billion dividend was declared during the year.

3. A number of transactions of Claypool Construction are described below in terms of accounts debited and credited:

1. Debit Wages Expense; credit Wages Payable.

2. Debit Accounts Receivable; credit Construction Revenue.

3. Debit Dividends; credit Cash.

4. Debit Office Supplies; credit Accounts Payable.

5. Debit Repairs Expense; credit Cash.

6. Debit Cash; credit Accounts Receivable.

7. Debit Tools and Equipment; credit Cash and Notes Payable.

8. Debit Accounts Payable; credit Cash.

a. Indicate the effects of each transaction upon the elements of the income statement and the balance sheet. Use the code letters I for increase, D for decrease, and NE for no effect. Organize your answer in tabular form using the column headings shown below. The answer for transaction 1 is provided as an example.

Income Statement Balance Sheet

Transaction Revenue - Expenses = Net Income Assets = Liabilities + Owners' Equity

1 NE I D NE I D

b. Write one-sentence description of each transaction.

4. Shown below are selected transactions of the architectural firm of Baxter, Claxter, and Stone, Inc.

April 5 Prepared building plans for Spangler Construction Company Sent Spangler an invoice for $900 requesting payment within 30 days. (The appropriate revenue account is entitled Drafting Fees Earned.)

May 17 Declared a cash dividend of $5,000. The dividend will not be paid until June 25.

May 29 Received a $2,000 bill from Bob Needham, CPA, for accounting services performed during May. Payment is due by June 10. (The appropriate expense account is entitled Professional Expenses.)

June 4 Received full payment from Spangler Construction Company for the invoice sent on April 5.

June 10 Paid Bob Needham, CPA, for the bill received on May 29.

June 25 Paid the cash dividend declared on May 17.

a. Create a journal entry to record the transactions in the firm's accounting records.

b. Identify any of the above transactions that will not result in a change in the company's net income.

5. Listed below are eight transactions the Foster Corporation made during November:

a. Issued stock in exchange for cash.

b. Purchased land. Made partial payment with cash and issued a note payable for the remaining balance.

c. Recorded utilities expense for November. Payment is due in mid-December.

d. Purchased office supplies with cash.

e. Paid outstanding salaries payable owed to employees for wages earned in October.

f. Declared a cash dividend that will not be paid until late December.

g. Sold land for cash at an amount equal to the land's historical cost.

h. Collected cash on account from customers for services provided in September and October.

Question: Indicate the effects of the above transactions on each of the financial statement elements shown in the column headings below. Use the following symbols: I Increase, D Decrease, and NE = no effect.

Transaction Net Income Assets Liabilities Equity

a.

b.

c.

d.

e.

f.

g.

h.

6. Janet Enterprises incorporated on May 3, current year. The company engaged in the following transactions during its first month of operations:

May 3 Issued capital stock in exchange for $950,000 cash.

May 4 Paid May office rent expense of $1,800.

May 5 Purchased office supplies for $600 cash. The supplies will last for several months.

May 15 Purchased office equipment for $12,400 on account. The entire amount is due June 15.

May 18 Purchased a company car for $45,000. Paid $15,000 cash and issued a note payable for the remaining amount owed.

May 20 Billed clients $120,000 on account.

May 26 Declared a $8,000 dividend. The entire amount will be distributed to shareholders on June 26.

May 29 Paid May utilities of $500.

May 30 Received $90,000 from clients billed on May 20.

May 31 Recorded and paid salary expense of $32,000.

A partial list of the account titles used by the company includes:

Cash Dividends Payable

Accounts Receivable Dividends

Office Supplies Capital Stock

Office Equipment Client Revenue

Vehicles Office Rent Expense

Notes Payable Salary Expense

Accounts Payable Utilities Expense

1. Prepare journal entries, including explanations, for the above transactions.
2. Post each entry to the appropriate ledger accounts (use the T account format illustrated in Exhibit 3-8).
3. Prepare a trial balance dated May 31, current year. Assume accounts with zero balances are not included in the trial balance.

7. Listed below are descriptions of six transactions, followed by a table listing six unique combinations of financial statement effects (I is for increase, D is for decrease, and NE is for no effect). In the blank space to the left of each transaction description, place the appropriate letter from the table that indicates the effects of that transaction on the various elements of the financial statements.

1. Purchased machinery for $5,000, paying $1,000 cash and issuing a $4,000 note payable for the balance.

2. Billed clients $16,000 on account.

3. Recorded a $500 maintenance expense of which $100 was paid in cash and the remaining amount was due in 30 days.

4. Paid an outstanding account payable of $400.

5. Recorded monthly utilities costs of $300. The entire amount is due in 20 days.

6. Declared a $40,000 dividend to be distributed in 60 days.

Transaction Revenue Expenses Assets Liabilities Owners' Equity

a. NE NE D D NE

b. NE I D I D

c. NE NE NE I D

d. NE I NE I D

e. NE NE I I N

f. I NE I NE I