Chapter 4: 4-21RQ (page 216)
What are reversing entries? Are they required by GAAP?
Reversing entry is recorded to record the reverse effect of previous entry made in the books of accounts. They are not required as per GAAP.
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Why are financial statements prepared in a specific order? What is that order?
Grant Film Productions wishes to expand and has borrowed \(100,000. As a condition for making this loan, the bank requires that the business maintain a current ratio of at least 1.50. Business has been good but not great. Expansion costs have brought the current ratio down to 1.40 on December 15. Rita Grant, owner of the business, is considering what might happen if she reports a current ratio of 1.40 to the bank. One course of action for Grant is to record in December \)10,000 of revenue that the business will earn in January of next year. The contract for this job has been signed. Requirements 1. Journalize the revenue transaction, and indicate how recording this revenue in December would affect the current ratio. 2. Discuss whether it is ethical to record the revenue transaction in December. Identify the accounting principle relevant to this situation, and give the reasons underlying your conclusion.
The following balances appear on the books of Sarah Simmons Enterprises: Retained Earnings, \(29,600; Dividends, \)10,500; Income Summary, \(0; Service Revenue, \)24,500; Salaries Expense, \(6,200; Rent Expense, \)3,500; and Advertising Expense, $2,000. All accounts have normal balances. Requirements 1. Open a T-account for each account, and insert its adjusted balance as given (denote as Adj. Bal.) at December 31. 2. Post the closing entries to the accounts, denoting posted amounts as Clos. 3. Compute the ending balance of Retained Earnings.
Refer to the data in Short Exercise S4-1. Prepare Dalton’s unclassified balance sheet at December 31, 2018. Use the account form.
Refer to the Practice Set data provided in Chapters 2 and 3 for Crystal Clear Cleaning.
Requirements
1. Prepare a worksheet (optional) at November 30, 2018. Use the unadjusted trial balance from Chapter 2 and the adjusting entries from Chapter 3.
2. Prepare an income statement and statement of retained earnings for the month ended November 30, 2018. Also prepare a classified balance sheet at November 30, 2018, using the report format. Assume the Notes Payable is long-term. Use the worksheet prepared in Requirement 1 or the adjusted trial balance from Chapter 3.
3. Prepare closing entries at November 30, 2018, and post to the accounts. Open T-accounts for Income Summary and Retained earnings. Determine the ending balance in each account. Denote each closing amount as Clos. and each account balance as Balance.
4. Prepare a post-closing trial balance at November 30, 2018.
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