Chapter 3: Q3-6DQ (page 139)
What contra account is used when recording and reporting the effects of depreciation? Why is it used?
An accumulated depreciation account is used as a contra account because it helps in better disclosure.
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Question: Following are two income statements for Alexis Co. for the year ended December 31. The left number
column is prepared before any adjusting entries are recorded, and the right column includes the effects of
adjusting entries. The middle column shows a blank space for each income statement effect of the eight
adjusting entriesathrough g(the balance sheet part of the entries is not shown here). Analyze the statements
and prepare the eight adjusting entries athrough gthat likely were recorded. Note:Answer for ahas
two entries (i) of the \(7,000 adjustment for Fees Earned, 30% (or \)2,100) has been earned but not billed,
and (ii) the other 70% (or \(4,900) has been earned by performing services that were paid for in advance.
ALEXISUnadjusted Adjustments Adjusted
Revenues
Fees earned . \)18,000 a. \(25,000
Commissions earned . 36,500 36,500
Total revenues 54,500 61,500
Expenses
Depreciation expense—Computers 0 b. 1,600
Depreciation expense—Office furniture . 0 c.1,850
Salaries expense 13,500 d. 15,750
Insurance expense . 0 e.1,400
Rent expense 3,800 3,800
Office supplies expense 0 f. 580
Advertising expense 2,500 2,500
Utilities expense . 1,245 g. 1,335
Total expenses . 21,045 28,815
Net income \)33,455 $32,685
Question: Why is the accrual basis of accounting generally preferred over the cash basis?
Question: What type of business is most likely to select a fiscal year that corresponds to its natural business year instead of the calendar year?
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
14. Common stock
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 .
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