Chapter 3: 15DQ (page 139)
What two purposes are accomplished by recording closing entries?
Answer:
The gtwo purposes of closing entries are to calculate net income and reset account balances.
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Question: Choose from the following list of terms/phrases to best complete the statements below.
a. Fiscal year d. Accounting period g. Natural business year
b. Timeliness e. Annual financial statements h. Time period assumption
c. Calendar year f. Interim financial statements i. Quarterly statements
1. presumes that an organization’s activities can be divided into specific time periods.
2. Financial reports covering a one-year period are known as .
3. A(n)consists of any 12 consecutive months.
4. A(n)consists of 12 consecutive months ending on December 31.
5. The value of information is often linked to its .
Question: The following three separate situations require adjusting journal entries to prepare financial statements as
of April 30. For each situation, present both:
∙ The April 30 adjusting entry.
∙ The subsequent entry during May to record payment of the accrued expenses.
Entries can draw from the following partial chart of accounts: Cash; Accounts Receivable; Prepaid
Interest; Salaries Payable; Interest Payable; Legal Services Payable; Unearned Revenue; Revenue; Salaries
Expense; Interest Expense; Legal Services Expense; Depreciation Expense.
a. On April 1, the company retained an attorney for a flat monthly fee of \(3,500. Payment for April legal
services was made by the company on May 12.
b. A \)900,000 note payable requires 12% annual interest, or \(9,000, to be paid at the 20th day of each
month. The interest was last paid on April 20, and the next payment is due on May 20. As of April 30,
\)3,000 of interest expense has accrued.
c. Total weekly salaries expense for all employees is $10,000. This amount is paid at the end of the day
on Friday of each five-day workweek. April 30 falls on a Tuesday, which means that the employees
had worked two days since the last payday. The next payday is May 3.
In the blank space beside each numbered balance sheet item, enter the letter of its balance sheet classification. If the item should not appear on the balance sheet, enter a Z in the blank.
A. Current assets E. Current liabilities
B. Long-term investments F. Long-term liabilities
C. Plant assets G. Equity
D. Intangible assets
5. Machinery
In the blank space beside each numbered balance sheet item, enter the letter of its balance sheet classification. If the item should not appear on the balance sheet, enter a Z in the blank.
A. Current assets
B. Long-term investments
C. Plant assets
D. Intangible assets
E. Current liabilities
F. Long-term liabilities
G. Equity
6. Automobiles
Compute Chavez Company’s current ratio using the following information.
Accounts receivable \(18,000 Long-term notes payable \)21,000
Accounts payable 11,000 Office supplies. 2,800
Buildings 45,000 Prepaid insurance 3,560
Cash. 7,000 Unearned services revenue 3,000
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